19.2 trillion dollars lost of household wealth in this recession in 2011 dollars---us dept. of...

8/2/2019 19.2 Trillion Dollars lost of Household Wealth in this recession in 2011 dollars---US Dept. of Treasurry April 13 2012--FinancialCrisisResponse in Charts

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The Financial Crisis ResponseIn ChartsApril 2012


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3/24

This recession was the worst since the Great Depression

U.S. DEPARTMENT OF THE TREASURYSource: Bureau o Economic Analysis, Bureau o Labor Statistics, Federal Reserve Flow o Funds.

Real GDP, percent all rom pre-recession peak

-6%

-5%

-4%

-3%

-2%

-1%

0%

Pre-recession

peak

1 2

Years since pre-recession GDP peak

2007 - 09 recession

2001 recession

1990 - 91 recession1981 - 82 recession

1980 recession

1974 recession

= trough

1Metrics o the 07 - 09 fnancial crisis, peak-to-trough:

8.8 million jobs lost

$19.2 trillionlost household wealth(2011 dollars)

ChallengesRe ormCostResponse


4/24

2007 2008 2009 2010 2011

+0.5%

+3.6%

+3.0%

+1.7%

-1.8%

+1.3%

-3.7%

-8.9%

-6.7%

-0.7%

+1.7%

+3.8% +3.9% +3.8%

+2.5%+2.3%

+0.4%+1.3%

+1.8%

+3.0%

ChallengesRe orm

The crisis response helped restart economic growth

U.S. DEPARTMENT OF THE TREASURYSource: Bureau o Economic Analysis.

2Real GDP growth, quarterly

Jan. 20, 2009 President Obama

takes o fce

Feb. 2009 Financial Stability Plan announced

Recovery Act signedHousing programs announced

Mar. 3, 2009 TALF program launched to help

revive credit markets Mar. 23, 2009 PPIP program announced to helprevive mortgage fnance market

May 7, 2009 Large bank stress test results released

Apr. 2, 2009 G-20 fnance ministers announcecoordinated response to globalfnancial crisis

Jun. 2009 First large banks repay TARP undsGM restructuring

Oct. 3, 2008 TARP fnancial stabilizationpackage enacted

CostResponse

Mar. 2008 Bear Stearns collapses

Sept. 2008 Fannie Mae and Freddie Mac conservatorship

Lehman Brothers bankruptcyAIG stabilization e ort

Jul. 7, 2008 FDIC intervenes

in IndyMac Bank

Dec. 12, 2007 Fed establishes frst liquidity

acility and currency swap lineswith other central banks


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2007 2008 2009 2010 2011

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

-

200

400

600

800

1,000

1,200

1,400

1,600

3 The crisis response paved the way or retirement savings to recover

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve Flow o Funds.

S&P 500 index

Retirement fund assets(billions o 2011 dollars)


takes o fce

Feb. 2009

Financial Stability Plan announcedRecovery Act signedHousing programs announced

Mar. 3, 2009 TALF program launched to help revive credit markets

Mar. 23, 2009 PPIP program announced to help revive

mortgage fnance markets


Apr. 2, 2009 G-20 fnance ministers announcecoordinated response to globalfnancial crisis

Oct. 3, 2008 TARP fnancial stabilization package passed

Jun. 2009 First large banks repay TARP undsGM restructuring

Mar. 2008 Bear Stearns

collapses Sept. 2008

Fannie Mae/Freddie Mac conservatorshipLehman Brothers bankruptcy

AIG stabilization e ort


Ch llRCR


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2006 2007 2008 2009 2010 2011

MoreMorebanksbanks

tighteningtightening

The crisis response helped unclog the credit pipes o the fnancial system

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve Senior Loan O fcer Opinion Survey, Treasury calculations.

The crisis response helpedrestart the markets thatprovide fnancing or auto,credit card, mortgage, andbusiness loans.

For borrowers, it: Improved credit access Lowered borrowing

costs.

4

Net percentage o banks easing lending standards, by loan type

MoreMorebanksbankseasingeasing

-100

-80

-60

-40

-20

0

20

40

Commercial and industrial lending

Residential mortgages

Consumer credit cards


takes o fce

Feb. 2009 Financial Stability Plan announced

Recovery Act passedHousing programs announced

Mar. 3, 2009 TALF program launched

Mar. 23, 2009 PPIP program announced to helprevive mortgage fnance markets


Oct. 3, 2008 TARP enacted

Jun. 2009 First large banks repay TARP unds


99%

99%

100%

Credit cards

Auto loans

Agency

mortgages

How much has the price of creditrecovered since the crisis?As measured by the return of yields of asset- backed securities to their pre-crisis levels

ChallengesRe ormC tR


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Financialmarkets

Smallbusinesses

Autos HousingRetirementConsumers

Helped supportcompanies thatneed credit to hireand grow.

Helped support acrucialmanufacturingindustry and saveAmerican jobs.

Helped restartcredit markets andstabilize firms thathold deposits andprovide credit.

Helped supportfamilies that needauto, credit card,and student loans.

Helped protectsavers with 401(k)plans, moneymarket funds, andother investments.

Helped supportAmericans seekingto obtain orrefinance amortgage, or

avoid foreclosure.

Small business

AutosFinancial marketsConsumersRetirementHousing

What did it support?

The crisis response helped support amilies and businesses

U.S. DEPARTMENT OF THE TREASURYSource: Treasury, O fce o Management and Budget.

5ChallengesRe ormCostResponse

The Treasury Department, the Federal Reserve, and other ederal agencies attacked the crisis on multiple ronts so that amiliestheir fnancial needs and businesses could obtain the credit they need to hire and grow.

This chart is intended to illustrate the breadth o the crisis response, but is not meant to be a complete depiction o all the actions taken by the government or th



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The crisis response helped stabilize the housing market

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve, HOPE NOW, Department o Housing and Urban Development.

6Conventional 30-year mortgage ratesThe governments

e orts helped keepmortgage rates low sothat Americans couldcontinue to buy homesand refnance in the wakeo the crisis.

Since April 2009, loanmodifcation programshave helped millions oborrowers stay in their

homes, more than thenumber who have losttheir homes to oreclosure.

Cumulative oreclosures and permanent modifcations started*


* Cumulative HAMP permanent modifcations, FHA loss mitigation (such as modifcations, partial claims, and orbearance plans), and early delinquency interventions, plus proprietary modifcations completed as reportedNOW Alliance. Some homeowners may be counted in more than one category. Foreclosure completions are properties entering Real Estate Owned (REO) as reported by Realty Trac. This does not include other loss mitigunder Treasury housing programs or by the GSEs, such as orbearance plans, short sales, and second lien modifcations, which would increase the totals.

0

1

2

3

4

5

6

Apr '09 Jul '09 Oct '09 Jan '10 Apr '10 Jul '10 Oct '10 Jan '11 Apr '11 Jul '11 Oct '11 Jan '12

Privatemodifications

Since April 2009, there have been5 million permanent loan modifications

Foreclosurecompletions

2.6m

HAMP modifications

FHA loss mitigation

6 million

0

1

2

3

4

5

6

7

Jan '08 Jul '08 Jan '09 Jul '09 Jan '10 Jul '10 Jan '11 Jul '11 Jan '12

7 percent



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2.2

2.3

2.4

2.5

Jan2009

'10 '11 '12

2.6m auto industry workers

+231,000auto jobs since

June 2009

The crisis response saved the auto industry and one million American jobs

U.S. DEPARTMENT OF THE TREASURYSource: Bureau o Labor Statistics, Autodata.

According toindependent estimates,the rescue o the autoindustry saved more thanone million American jobs.

Since the rescue, theauto industry has addedmore than 230,000 jobs.

The auto industryrescue is currentlyestimated to cost about$22 billion, but the costo a disorderly liquidationto amilies and businessesacross the country thatrely on the auto industrywould have been arhigher.

7Auto-industry employment

After June 2009 Post-restructuring o GM and Chrysler

Mar. 2009 President Obama rejects restructuring plans romGM and Chrysler, challenging them to developmore aggressive plans to return to viability.

Sales of motor vehicles in the U.S.

13m

10m12m

13m14.5m

2008 2009 2010 2011 2012(annualizedaverage to

date)




10/24

The crisis response curbed the damage and helped restart the economy

U.S. DEPARTMENT OF THE TREASURYSource: Treasury analysis based on OECD and U.S. Census data.

8 Total civilian employment, percentage change rom pre-crisis peak Jobs are returning.

Despite the size o thefnancial shock, thespeed and orce o theresponse helped restore job growth more quicklythan in most otherrecent crises.

There is still morework ahead, butbusinesses have...

Added workers overthe last 25 straightmonths.

Created 4.1 million

jobs.

U.S.Great Depression

-30%

-20%

-10%

0%

+10%

+20%

Pre-crisispeak

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years since pre-crisis employment peak

U.S.2008-09

financial crisis

Average of 5 most recentadvanced economy financial crises

Spain 1974Norway 1986Finland 1989Sweden 1989Japan 1991

Jobs growth resumed much asterthan average o other recent fnancialcrises in advanced economies




11/24

IMF March 2009 estimate of the cost

of U.S. response to 08-09 crisis

12.7% of GDP($1.9 trillion in 2011$)

Estimated total potential exposurefrom financial rescue

$24 trillionSpecial Inspector General for TARP, July 2009

U.S. pledges top

$7.7 trillionto ease frozen credit

Bloomberg November 24, 2008

How much were the fnancial stability programs expected to cost?

U.S. DEPARTMENT OF THE TREASURYSource: See Notes.

9Projections o potential cost o fnancial stability programs

Bank bailout could cost

$4 trillionCNNMoney.com

January 27, 2009

Fannie, Freddie bailoutcould cost taxpayers

$1 trillionThe Christian Science Monitor

June 18, 2010

Estimated cost of TARP

$356 billionCongressional Budget Office, March 2009

Estimated cost of TARP

$341 billionOffice of Management and Budget, August 2009

gp


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13/24

The projected cost o TARP has allen signifcantly

U.S. DEPARTMENT OF THE TREASURYSource: Treasury, O fce o Management and Budget.

The projected cost oTARP has allen signifcantlyover the last three years.

TARPs investment

programs, together withTreasurys additional stake inAIG, are currently expectedto realize a positive return

or taxpayers.

The remainingprojected cost is primarilyattributable to support orstruggling homeowners;these unds were notintended to be recovered.

TARP programs havereceived three straight cleanaudits.**

11Projections o TARP programs and additional Treasury AIG holdings, gain (cost)

-$341b

-$60b

-$291b

+$2b

-400

-350

-300

-250

-200

-150

-100

-50

0

50

Aug. 2009Mid-session Review

Feb. 2010President's Budget



Apr. 2012estimate

+$50 billion

-$400 billion loss

TARPoverall

Investment programs only(excludes housing)*

83%decrease in projected

TARP costs sinceAug. '09

POSITIVE RETURN

LOSS

* This represents the TARP investment programs and includes Treasurys additional AIG common stock holdings valued as o February29, 2012. It excludes oreclosure prevention unds, which were not intended to be recovered ($46B).** GAO annually reviews Treasury TARP cost estimates.



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The bank investment program helped stabilize the fnancial system

Source: Treasury.

TARPs bankinvestment programshelped stabilize thefnancial system by

providing capital to morethan 700 banksthroughout the country.

More than 450 weresmall, community banks.

Treasury is continuingto wind down those

investments, which havealready realized asignifcant return ortaxpayers.

12Returns as o April 12, 2012

Federal Reserve regulatory minimum on stress tests

-

50

100

150

200

250

300

Oct'08

Apr'09

Oct'09

Apr'10

Oct'10

Apr'11

Oct'11

Apr'12

$300 billion

$245b

Repayments$230b

Realizedincome$34b

Disbursed Recovered

$264b

Outstanding bank program investments, principal

+$19bpositivereturn

Note: About $2b o the unds invested in banks refnanced into the SBLF program. This re ects less than 1% o the total TARP unds invested in banks.

A total o 348 banks remain in TARPs Capital Purchase Program and 82 banks remain in TARPs Community Development Capital Initiative

U.S. DEPARTMENT OF THE TREASURY



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Max. commitmentMarch 2009

Remaining Investment Outstanding Value of Remaining Stake

76%of maximum committment

returned or cancelled to date

$44b

$182b

Current Value of RemainingGovernment Stake$49b

Interest/ Fees/GainsRealized to Date$12b

$61b

Based on current marketprices, the government is

expected to realize a gain onits AIG investment

Remaining investment outstandingAs of March 2012

Value of remaining stakeAs of March 2012

The crisis response helped prevent the collapse o the fnancial system and stabilized AI

U.S. DEPARTMENT OF THE TREASURYSource: Treasury, Federal Reserve.

13Total commitment (Treasury and Federal Reserve), outstanding investment, and value o ownership stake in AIG,

billions o dollars



16/24

The fnancial industry is less vulnerable to shocks than be ore the crisis

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve orm Y-9C, Treasury calculations.

Banks have addednearly $400 billion in

resh capital as acushion against

unexpected losses andfnancial shocks.

Banks are also lessreliant on short-termunding, which can

disappear in a crisis and

leave them morevulnerable to panics.

14

Federal Reserve regulatory minimum on stress tests

Short-term wholesale unding as a percento assets, 4 largest U.S. banks

0

5

10

15

20

25

30

35

40

2002Q1

'03 '04 '05 '06 '07 '08 '09 '10 '11

40 percent

0

2

4

6

8

10

12

14

2002Q1

'03 '04 '05 '06 '07 '08 '09 '10 '11

Other Tier 1

Tier 1 Common

14 percent

Capital in bank holding companies as a percentage o risk-weighted assets



17/24

The U.S. banking system is proportionally smaller than that o other advanced economi

U.S. DEPARTMENT OF THE TREASURYSource: BankScope, IMF, Federal Reserve Flow o Funds.

15Total assets o commercial banks, percent o GDP

Total assets o 4 largest commercial banks, percent o GDP

Even with the

consolidation o some othe weakest players duringthe crisis, the UnitedStates has... the least concentrated

banking system o anymajor economy.

the smallest banking

system relative to thesize o its economy.

The new legal toolsestablished by the Dodd-Frank Act mean thatregulators will be betterable to dismantle andresolve large fnancial

institutions i necessary.

Belgium

Canada

France

GermanyItaly

Japan

Netherlands

Sweden

Switzerland

United Kingdom

United States

0%

100%

200%

300%

400%

500%

600%

0% 100% 200% 300% 400% 500% 600%



18/24

The economy still has ar to go to ully recover rom the fnancial crisis

U.S. DEPARTMENT OF THE TREASURYSource: Bureau o Labor Statistics, Congressional Budget O fce.

Unemployment rate, percent o the labor orce

Real output gap

Unemploymenthas allen, but it stillremains high.

Economic outputremains well below

its potential.

16

Long-term

unemploymentrate(27+ weeks)

0

24

6

8

10

12

Jan2006

'07 '08 '09 '10 '11 '12

12 percent

Unemploymentrate

Recessions

10

11

12

13

14

15

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

5.5%output gapin 2011Q4

$15 trillion

Real GDP(2005 dollars)

Real potential GDP(2005 dollars)

Recessions



19/24

The longstanding fnancial di fculties acing households persist

U.S. DEPARTMENT OF THE TREASURYSource: Federal Reserve Flow o Funds, U.S. Census.

Household debt, percent o disposable income

Household debt isdown relative to income,but a large overhang odebt remains.

Median householdincome has declinedover the last decade.

17

Real median household income

0

20

40

60

80

100

120

140

160

1980Q1

'85 '90 '95 '00 '05 '10

160 percent

Recessions

40,000

45,000

50,000

55,000

60,000

1967 '72 '77 '82 '87 '92 '97 '02 '07

1999: $53,252

$ 60,000

2010: $49,445

Recessions



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The housing market remains a challenge

U.S. DEPARTMENT OF THE TREASURYSource: U.S. Census.

Inventory o vacant homes or sale only

New single- amily home sales

Inventories ounsold homes aredeclining, but slowly.The overhang rom thecrisis continues toweigh on prices.

New home salesare stabilizing, but the

housing marketremains weak.

18

0

0.4

0.8

1.2

1.6

Jan2003

'04 '05 '06 '07 '08 '09 '10 '11 '12

1.4 million Jul. 2005

313,000 Feb. 2012

1.6 million

Recessions

0

0.5

1.0

1.5

2.0

2.5

2004Q1

'05 '06 '07 '08 '09 '10 '11

2.5 millionRecessions



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Tax Cuts-$3,000b

Other annualappropriations

-$1,700b

Iraq andAfghanistan-$1,400b

Other-$600b

MedicarePart D benefit

-$300b

December 2010tax deal-$250b

Recovery Act-$800b

Other-$410b

The ederal budget defcit must be reduced to begin paying down debt

U.S. DEPARTMENT OF THE TREASURYSource: Treasury analysis o Congressional Budget O fce data. See Notes or more details.

19

-8

-6

-4

-2

0

2

4

6

8

2001 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

$8 trillion

COSTS NOT DUETO LEGISLATION

(technical &economic)

Cost ofJanuary 2001 -January 2009

policies

Cost of post-January 2009policies

29%

59%

12%

In January 2001, CBO projectedcumulative surpluses wouldtotal $5.9 trillion through 2011.

CUMULATIVESURPLUS

CUMULATIVEDEFICIT

Instead,cumulative deficitshave totaled$6.0 trillion.

Post-January 2009Policies

-$1.4 trillionthrough 2011

Jan. 2001 - Jan. 2009Policies

-$7 trillionthrough 2011

Causes o the di erence between projected and actual cumulative budget surpluses/defcits, fscal years 2001 - 2011


22/24


23/24

N



24/24

Notes

U.S. DEPARTMENT OF THE TREASURY

Nfnancial-stability/briefng-room/reports/105/Documents105/March%2012%20Report%20to%

20Congress.pd

Chart 13See the latest 105(a) report or urther details on TARPcost estimates: http://www.treasury.gov/initiatives/fnancial-stability/briefng-room/reports/105/Documents105/March%2012%20Report%20to%20Congress.pd

Chart 15Four largest U.S. banks by assets are JPMorgan Chase,Bank o America, Citigroup, and Wells Fargo.

Chart 19Based on data rom three annual Congressional

Budget O fce publications: theBudget and Economic Outlook, the update to the Outlook , and CBOsestimate o the Presidents Budget. Technical andeconomic actors include all changes in defcitprojections not due to the cost o new legislation,including updates to economic and demographicprojections. Post-January 2009 policies only re ectsthe e ect o policies, including temporary policies,through 2011. Does not re ect the defcit reductionproposed in the Presidents FY2013 Budget going

orward. Numbers may not sum due to rounding.