Obama as President 871$14.5trillion—twenty times more than in 1974.
Nearly 10 percent of all American mortgages were
delinquent or in foreclosure. Goldman Sachs quietly
placed bets that the mortgage bundles it had mass-
marketed would lose their value!
Investors suddenly caught on and dumped their
mortgage bundles. Panic selling hit financial markets
worldwide. Almost overnight, Bear Stearns collapsed
and Lehman Brothers went bankrupt. The Dow
Jones Industrial Average plunged from over 14,000
to under 9,000; stocks lost $8 trillion. Pension funds,
corporate reserves, and personal accounts for retire-
ment and college education lost one-third of their
value. AIG, swamped with claims, neared bankruptcy.
Its failure would take down many of the world’s
major banks and investment firms.
Nearly all banks and investment houses ran low
on capital; many struggled to stave off bankruptcy.
Few could make new loans. But most businesses,
hospitals, schools, state and municipal governments
relied on short-term loans, which were repaid as rev-
enues came in. In the absence of these customary
loans, few employers could pay bills or cover payrolls.
A global calamity loomed.
In the final months of 2008, Bush and his chief
financial advisers raced to avert catastrophe. Ben
Bernanke, head of the Federal Reserve and a scholar
of the Great Depression, pleaded with Congress to
authorize over $700 billion to buy up the “toxic”
mortgage bundles, an indirect way of preserving the
banks and global investment firms that had issued
them. He also proposed to pump hundreds of billions
directly into Goldman Sachs, AIG, and scores of
other investment banks. Such companies, he warned,
were “too big to fail.” Congress seethed at using tax-
payers’ money to bail out avaricious corporate execu-
tives; but political leaders could not risk a second
Great Depression. Congress passed the emergency
bail-out bills with few modifications.
“Yes We Can”: Obama Elected President
The economic crisis caught nearly everyone by sur-
prise. Much of the blame fell on Republicans, whose
support for deregulation of financial markets dated
from the Reagan era. McCain was especially hurt by
the economic meltdown. On September 15, 2008,
the day after Lehman Brothers declared bankruptcy,
McCain downplayed the crisis, claiming “The funda-
mentals of our economy are strong.” Within a few
hours, the stock market fell 500 points. He appeared
to be out of touch.
Obama’s oft-repeated (albeit vague) insistence
on change now acquired new meaning. When con-
fronted with “impossible odds,” he insisted,
“Americans have responded with a simple creed:
Yes we can.” The nation was ready for change. On
election day, Obama won by over 8 million votes;
his victory in the Electoral College was by a 365 to
173 margin.
McCain generously acknowledged the historic
character of the election. “I recognize the special
significance it has for African Americans and the
special pride that must be theirs tonight,” he noted.
Obama’s victory stunned foreigners. Chinese lead-
ers and intellectuals took it for granted that
“America could not accept a black president,”
reported Wang Jisi of Peking University. Nelson
Mandela, the black leader of the movement that
toppled white rule in South Africa, claimed that
Obama’s election inspired everyone who wanted
“to change the world for a better place.” Gordon
Brown, prime minister of Great Britain, called
Obama’s election “a moment that will live in his-
tory as long as history books are written.”Obama as President
Only a few weeks after Obama, his wife Michelle, and
their two daughters had moved into the White House,
he was awarded the Nobel Prize “for his extraordinary
efforts to strengthen international diplomacy and
cooperation between peoples.” Abashed at receiving
an award in the expectation that he would earn it,
Obama gave the $1.4 million prize to charity.
Nevertheless, Obama’s intentions of changing the
course of American foreign policy were evident. He
closed CIA-run secret prisons and banned torture and
other means of coercion during interrogation of sus-
pected terrorists. He named Hillary Clinton secretary
of state and promised to work more closely with the
international community.
In Iraq, Obama proceeded cautiously. He asked
Robert Gates, secretary of defense under Bush, to
remain in that capacity in his administration. He also
announced a plan to withdraw most American troops
from Iraq by the fall of 2010.
During his first months as president, however,
Obama was mostly absorbed in the financial crisis.
Despite repeated promises of change, he retained
many of Bush’s chief financial advisers; nearly all were
Wall Street insiders. Critics grumbled that it made lit-
tle sense to ask those who had broken the economy to
put it back together. But Obama had little choice. No
one else understood the complicated mathematical