A Not So Happy Anniversary
Nobody's breaking out the champagne for this anniversary.
On this day two years ago, the collapse of Lehman Brothers turned an already bad-looking recession into an all-out financial panic. The collapse sent the stock market on a wild ride for the next month and rapidly accelerated the pace of job losses, turning 6 percent unemployment into 9.5 percent unemployment in just six months.
The Bush Administration allowed Lehman Brothers to fail then, but the shockwaves it sent through the economy forced them to make an about-face pretty quickly. Less than a month later, Congress passed the $700 billion Troubled Asset Relief Program (TARP) , which was originally created just to buy toxic assets in financial institutions (known as the Capital Purchase Program). Under the Obama Administration, it has been expanded to include a variety of initiatives. The latest CBO estimate of the program puts the net cost of the program at about $70 billion.
At the same time, the Federal Reserve sprang into action and in the fall of 2008, cut interest rates from 2 percent down to near zero. It also took several unconventional actions, drastically expanding its balance sheet by lending directly to institutions, opening a variety of new lending facilities, and purchasing mortgage-backed securities.
Also, with the financial crisis came a wave of failed banks, which racked up costs for the FDIC. In fact, in the two weeks around the collapse, September 12th to September 26th 2008, the FDIC incurred $9 billion in costs, more than they had incurred in the previous 8 1/2 months of the year. Since September 2008, roughly 280 banks have failed at a total cost to the FDIC of about $70 billion, many times more than they cost the FDIC from 2000-2007.
Obviously, the failure of Lehman Brothers and its effects have cost the Federal government greatly, even when all of the fiscal policy moves are excluded.
You can track all of the moves--financial, fiscal, or otherwise--the government has made since the start of the recession at Stimulus.org. And with the small business aid bill coming closer to final passage, it looks like we'll have more to add to Stimulus.org in the near future...