A Timeline of The Great Recession

1
A Timeline ofThe Great Recession

• Dont panic, its only 8 slides!

2
Some Major Historical Events

• 1913 Federal income tax created, mortgage
  interest deduction, increases value of homes,
  decreases tax burden.
• 1913 The Federal Reserve is created with the
  power to control the money supply
• 1929 The Stock Market Crashes, marks the
  beginning of the Great Depression
• 1934 The Federal Housing Administration (FHA)
  is created to increase home ownership. FHA
  insures mortgages to encourage banks to loan more
  money for housing.

3
Money for Everybody!!!

• 1965 The Department of Housing and Urban
  Development (HUD) is created. HUD insures
  low-income borrowers.
• 1968 Fannie Mae, a government sponsored
  enterprise is formed, removing it from government
  balance sheets to avoid budget deficits (Johnson)
• 1970 Freddie Mac formed. Both companies
  purchase mortgages from banks (with the backing
  of the government) and then package them into
  securities, insure them, and sell them to
  investors.
• Freddie and Fannie ultimately crowd out their
  competition and hold over 50 of the 7 trillion
  mortgage market by 2003

4
Kind of a Big Deal

• 1975 SEC formalizes ratings agencies. These
  agencies are paid by securities issuers like
  Fannie Mae to provide ratings on their
  securities. (Conflict of interest, much?)
• 1977 Community Reinvestment Act passed (CRA)
  requires banks to loan to the area where the
  banks are located.

5
Clintons Contribution (and Newt a little too
95-99)

• 1992 Clinton elected, government weakens bank
  lending standards, Congress weakens Fannie and
  Freddie standards, Countrywide and Wachovia begin
  loaning to clients with no or bad credit.
• 1997 Bear Stearns issues first CRA-loan
  mortgage-backed security.
• 1999- Clinton expands reach of CRA through
  Gramm-Leach-Bliley Act
• 2000 Home ownership rates in the US hit a
  historical peak of 67.7

6
What about Bushs Time?

• 2001 Fed starts lowering interest rates to
  counter a post 9/11 recession
• 2003 Fed lowers rates to 1, lowest since the
  60s. Freddie and Fannie start making sub-market
  interest loans to members of Congress through the
  Friends of Angelo program named after the CEO
  of Countrywide, Angelo Mozilo. (Secretary of HUD,
  Clinton OMB Budget Chief, Obama campaign advisor,
  members of the Senate Banking committee)
• 2004 Wall Street expands derivative market. SEC
  allows 5 dealers (Lehman Brothers, Bear Sterns,
  Merrill Lynch, Goldman Sachs, and Morgan Stanley)
  to more than triple their leverage. (only 2
  survived the crisisboth required bailout money
  and regulatory interventions to survive)
• 2006 Housing market peaks and starts to
  decline, foreclosure rates increase by 43 in
  third quarter.

7
The Year of Denial

• 2007 Countrywide originates 23 of Freddie and
  Fannie loans. Freddie and Fannie leverage exceeds
  130 to 1 (normal banks operate at 10 or 12 to 1
  leverage ratio)
• May US Unemployment 4.4
• December Recession starts (but gov doesnt
  announce for 1 year)

8
The Poo Hits the Fan

• 2008
• March Bear Sterns bailed out, 29B in a merger
  with JP Morgan
• May Paulson The worst is behind us
• June Countrywide Friends of Angleo program
  exposed
• September Federal Gov takes over Freddie and
  Fannie, now regulated by FHA,
• Reform is not a contingency, could cost up to
  1T, they are actually expanding lending these
  days
• Then Lehman Brothers declares bankruptcy, crashes
  financial markets
• Also, AIG bailed out for 85B, gov owns 79.9,
  then 2nd loan of 37.8B finally total of 150B in
  Nov
• October Emergency Economic Stabilization Act of
  08 with Troubled Asset Relief Program to use
  700B to bail out the largest commercial banks.
• December NBER announces US recession started
  December 2007

9
Recovery

• 2009 Obama signs American Recovery and
  Reinvestment Act (Stimulus plan)
• June Recession Ends
• October Unemployment peaks at 10
• 2010 FDIC announces 702 banks with over 402B
  in assets have been closed since the crisis
• July Obama signs Dodd-Frank Wall Street Reform
  and Consumer Protection Act (Republicans vow to
  repeal if elected)
• September 2010 NBER announces recession ended
  Jun 2009