Six years ago today, Wall Street was rocked by a financial crisis that culminated in the bankruptcy filing of Lehman Brothers, the largest in U.S. history. The financial crisis resulted in the longest and deepest recession the American economy had experienced in 60 years. While more work remains to continue digging out of the deep hole that was left by the crisis, this week offers a chance to reflect on the significant progress that has been made since then in strengthening the economy and reforming the financial sector.
To understand how far we have come, it is important to remember the dark days that marked the beginning of the financial crisis. In the span of a few weeks in 2008, many of our nation's largest financial institutions failed or were acquired to avoid insolvency. Capital markets froze, and the availability of credit for mortgages, student, auto, and small business loans was drastically reduced. The recession ultimately eliminated nearly 9 million jobs, threatened the American auto industry, and shrank the economy by hundreds of billions of dollars. The crisis was the result of many factors, including an overvalued housing market, predatory lending practices, thinly capitalized financial institutions that took big risks, and a regulatory system that was outdated and unequipped to meet modern challenges.
When President Obama came into office in January 2009, the Administration worked quickly to put our economy on the path to recovery. Facing a potential collapse, the federal government launched a coordinated effort to tackle the financial crisis on several fronts. Early efforts included broad-based guarantees of bank accounts and money market funds to prevent runs that would have exacerbated an already deteriorating situation, and unprecedented liquidity from the Federal Reserve. Through the Troubled Asset Relief Program (TARP), the government took decisive action to mitigate threats to the financial system that would have further impacted the economy. Today, it is clear that the TARP program was a success. Without the government’s forceful response, the damage would have been far worse, and the costs to repair the damage would have been far higher.
Under the President’s leadership, the federal government helped rescue the American auto industry from collapse and saved more than a million jobs. At the peak of the financial crisis, GM and Chrysler were on the verge of collapse, which would have impacted businesses up and down the supply chain, including many small businesses. Moreover, since Chrysler and GM emerged from bankruptcy in mid-2009, the auto industry has added more than 481,000 jobs, the industry’s strongest job growth since the 1990s.
The Administration also launched several initiatives to help millions of struggling homeowners avoid foreclosure, keep mortgage rates low, and facilitate refinancing. Additional assistance was provided to the hardest hit areas of the country, allowing those states to implement programs that were locally tailored to their needs.
Since the financial crisis, we have made significant progress toward a safer and sounder financial system. President Obama proposed the most sweeping reforms of the financial system since the Great Depression, leading to the enactment of the Dodd-Frank Wall Street Reform and the Consumer Protection Act. As a result, financial markets are more resilient, consumers are better protected, and the financial system is better prepared to withstand shocks. With the enactment of the Dodd-Frank Act, the Administration and independent regulators have worked hard to implement reforms that provide better protections for taxpayers and our economy, and set sensible rules of the road to foster well-functioning financial markets that fuel growth, help the private sector create jobs, and better serve the American people. Moreover, we now have greater transparency and oversight over the financial system as well as tools to end “too big to fail” that did not exist during the financial crisis. Additionally, the finalization of the Volcker Rule will change banks’ behavior and limit excessive risk-taking.
At the same time, the Administration has moved aggressively to protect consumers and ensure that financial products meet the needs of working families. With the creation of the Consumer Financial Protection Bureau (CFPB), consumers now have a dedicated watchdog within the federal government focused on financial products and services.
As a result of CFPB’s efforts, Americans shopping for a mortgage can now rest assured that mortgage lenders will make a good faith and reasonable effort to ensure their products are affordable. And no longer do they have to wade through many pages of confusing and overlapping federal disclosures to understand the terms and cost. CFPB ensures that lenders comply with these important protections through investigations and enforcement actions.
Today, our economy is experiencing a comeback thanks to the resilience and determination of American workers and businesses. Over the past 54 months, businesses have added 10 million new jobs, the longest stretch of private-sector job growth in our nation’s history. Home prices are showing consistent upward growth, bringing 4 million households out of negative equity in 2013 alone, and the number of seriously delinquent mortgages is at the lowest level since 2008. Real GDP grew by a robust 4.2 percent annual rate in the second quarter of this year. Auto sales are at their highest level since 2006, and the major measures of consumer sentiment are at or near their post-recession highs.
We know we have made progress, but there is still more to be done to continue to grow our economy and support our middle class families. That is why the President’s economic agenda includes closing tax loopholes, expanding educational opportunities, and raising the minimum wage. These and other steps will not only strengthen the recovery in the near-term, but also lay the foundation for stronger, more sustainable growth in the years to come.