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As discussed in the opening vignette of Chapter
1, in The Challenge of Democracy, the collapse of
the subprime mortgage market in 2007 signaled the severe
economic problems confronting the United States and
indeed the world. Because most many commercial and
investment banks had huge holdings in mortgages that were
dropping in value, a crisis loomed in financial circles
in early 2008.
The Bush administration took unprecedented action to
shore up the nation's financial system. So did the Obama
administration that inherited the financial mess. This
accounting of key actions and dates is based on the table
accompanying the news account by Bob Davis, Deborah
Solomon, and Jon Hilsenrath, "After the Bailouts,
Washington's the Boss," Wall Street Journal,
December 28, 2009, pp. A1 and A14.
Actions taken during the Bush
Administration
- March 14, 2008
- The Federal Reserve System spends $30 billion to
subsidize J.P. Morgan's purchase of troubled financial
firm, Bear Stearns.
- September 7
- U.S. places Fannie Mae and Freddy Mac (which make
mortgage loans) in "conservatorship"--meaning government
control.
- September 15
- The Fed and Treasury agrees to let Lehman Brothers,
the financial firm, go bankrupt. More financial troubles
follow.
- September 16
- The Fed approves an $85 billion loan to the insurance
giant, A.I.G, fires its CEO, and takes an 80% stake in
the company.
- September 19
- The Treasury Department guarantees deposits in
money-market funds, and offers to buy assets from the
funds.
- October 3
- Congress approves the $700 Troubled Asset Relief
Program (TARP)
- October 14
- Treasury uses $125 billion of TARP money to buy
preferred shares in nine big banks. Federal Deposit
Insurance Corporation (FDIC) guarantees new bank debt
through new Temporary Liquidity Guarantee Program
- November 23
- Treasury, FDIC, and Fed rescue Citigroup by taking
preferred shares in exchange for protecting Citi against
securities losses. Treasury also injects another $20
billion in TARP funds.
- November 25
- Fed creates Term Asset-Backed Lending Facility (TALF)
to revive securitization market. Fed begins to purchase
mortgage-backed securities issued by Fannie Mae and
Freddi Mac to bolster the mortgage market.
- December 19
- Treasury approves loans of $13.4 billion for GM and
$4.0 billion for Chrysler from TARP.
- January 16
- Treasury, Fed, FDIC rescue Bank of America by taking
preferred shares in exchange for protection against
security losses. Treasury invests another $20 billion
TARP funds.
Actions taken during the Obama
Administration
- March 18
- The Fed decides to begin purchasing treasury
securities, as much as $300 billion over the next six
months.
- April 30
- Chrysler files for bankruptcy reorganization, sells
the company to the Italian company, Fiat.
- May 7
- The Fed announces the results of stress tests to
determine the condition of 19 largest bank holding
companies.
- June 1
- The U.S. takes 60% stake in GM, which files for
bankruptcy reorganization.
- June 17
- J.P. Morgan Chase, Morgan Stanley, Goldman Sachs, and
seven other banks repay their federal aid.
- September 18
- The Treasury ends its money-market guarantee
program.
- October 22
- TARP paymaster decides compensation packages for the
top 25 executives at seven large recipients of TARP
funds.
- December 9
- Bank of America repays its government aid.
- December 14
- Citigroup and Wells Fargo agree to pay back
government aid.
- December 24
- Treasury decides to cover unlimited losses at Fannie
Mae and Freddie Mac through 2012.
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