Five years ago this week, a financial crisis unlike any in generations rocked Wall Street, turning a recession that was already hammering Main Street into the worst economic crisis since the Great Depression. In the months before President Obama took office, the economy was shrinking at a rate of over 8%, businesses were shedding 800,000 jobs a month, lending to families and small businesses dried up, and the American auto industry was on the brink of collapse.
Upon taking office, Obama acted with unprecedented speed to respond to the crisis and its impact on American families – taking actions to stabilize the financial system, rescue the auto industry, and boost the economy by providing tax relief to working families and keeping teachers and first responders on the job. Within six months, he had signed the Recovery Act into law, announced a framework for a new financial stability plan and implemented its key elements, and taken action to support GM and Chrysler while requiring the companies to retool. Now, on the five-year anniversary of the crisis, the Administration has prepared a report that describes 15 key elements of the response to the financial crisis and where we find ourselves today.
For example, it shows that:
- Contrary to Initial Expectations, the Response to the Financial Crisis Is Expected to Yield A Return to the Taxpayer: While initial estimates by the Congressional Budget Office projected the TARP program would cost over $350 billion, Treasury has already received nearly $422 billion in total cash payments back from the government’s investments in TARP and support for AIG. That is more than the $421 billion disbursed through TARP – with further repayments expected. Broader measures of the Federal government’s response to the crisis also project that the government will receive an overall profit.
- Treasury Has More Than Recovered Its Investments in Banks and AIG: Contrary to initial estimates that efforts to stabilize the banks and the American International Group (AIG) would cost tens of billions of dollars, the Federal government is making a significant return on both programs. Treasury has recovered $28 billion more than was disbursed on its bank investments so far, while achieving the original policy goals of stabilizing the banks and preserving lending. And investments in AIG from TARP and the Federal Reserve have yielded a total positive return to taxpayers of $22.7 billion.
- The Stress Tests – A Signature Element of the Response – Has Built Confidence in the Banking System Without Putting New Taxpayer Funds at Risk: In February 2009, the Administration and the Federal bank regulators announced comprehensive stress tests of the nation’s largest banks to reduce uncertainty regarding their solvency. Within months of the release of the results, the largest banks in the country raised over $80 billion of equity capital from private sources, with no major banks requiring additional government support outside General Motors Acceptance Corporation’s (GMAC) participation in the auto program. Today, capital has about doubled at the largest banks, while stress tests modeled after the crisis-era efforts have been adopted as part of the regular supervisory framework in the United States, and stress tests have been adopted as a norm in the global regulatory community.
- The Auto Industry Is Recovering: When President Obama took office, the auto industry was on the brink of collapse – with the Bush Administration estimating 1 million jobs could be at risk. Following actions to stabilize the auto industry and require GM and Chrysler to retool their operations, the Big Three are profitable and gaining market share for the first time in 20 years, auto sales were higher in August than in any month in over six years, and the auto industry is creating jobs at the fastest pace in 15 years. In addition, the government has recouped significantly more from its investments in the auto industry than initially anticipated – with 90 percent of the total invested in Chrysler returned as well as a substantial portion of investments in GM.
- The Housing Market Is Coming Back: To stabilize the housing market and help families avoid foreclosure, the President took bold action through an array of programs. Among other programs, the President launched the Home Affordable Modification Program (HAMP), which has led to 7 million households getting government and private sector relief, and Home Affordable Refinancing Program (HARP), a refinancing program that nearly tripled in volume after further changes to the program, rising from 400,000 homeowners in 2011 to 1.1 million in 2012, helping over 2.7 million in total. While significantly more needs to be done to recover from the impact of the housing crisis, home prices have been rising at the fastest pace in seven years – increasing 12 percent over the past year – resulting in 5 million homeowners coming out from underwater in the last six quarters.
Because of the difficult choices made, our economy is stronger – with 7.5 million private-sector jobs created in the past three and a half years, and manufacturers creating jobs for the first time since the mid-1990s. That’s why, as the President will make clear this week, it is so important that we do not put our economy at risk of another crisis through a decision by a minority of Republicans in Congress to refuse to pay our bills or shut down the government. It also points to the work that still needs to be done to create a stronger financial system with improved consumer protections, while strengthening the cornerstones of middle-class life – including a good job, a quality education, a home of your own, affordable health care, and a secure retirement. As we look back at the last five years, it shows how far we have come – and how we still have much more to do.
Amy Brundage is Deputy Press Secretary.