A Timeline ofThe Great Recession

Don’t panic, it’s only 8 slides!

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.

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

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.

Clinton’s 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%

What about Bush’s 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 crisis…both required bailout money and regulatory interventions to survive)

2006 – Housing market peaks and starts to decline, foreclosure rates increase by 43% in third quarter.

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 doesn’t announce for 1 year)

The Poo Hits the Fan2008 – March – Bear Sterns bailed out, 29B in a merger with JP MorganMay – Paulson “The worst is behind us”June – Countrywide “Friends of Angleo” program exposedSeptember – 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 daysThen Lehman Brothers declares bankruptcy, crashes financial marketsAlso, AIG bailed out for $85B, gov owns 79.9%, then 2nd loan of $37.8B

finally total of $150B in NovOctober – 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

“Recovery”2009 – Obama signs American Recovery and Reinvestment Act

(Stimulus plan)June – Recession EndsOctober – 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