ECONOMIC POLICY| 447(TARP) and increased the amount of savings insured by the federal government
from $100,000 to $250,000 per account to help restore confi dence in regular sav-
ings accounts.^ President Bush signed the Emergency Economic Stabilization Act
into law on October 3, 2008.
Despite this signifi cant rescue plan, the crisis spiraled out of control in the
following weeks. Stock markets plunged worldwide, with the U.S. stock market
shedding 35 percent of its value in the two months after the crisis began. Credit
markets remained frozen, and it became clear that an alternative approach was
needed. The government’s purchase of “toxic debt” posed many technical obsta-
cles, and fi nancial markets had no confi dence that the plan would work. The
Treasury decided to abandon its plan to buy toxic debt and use all the funds to
directly invest in banks. By mid-November, the economic panic had eased, but the
situation remained fragile.
When President Obama took offi ce in 2009, things were still very grim. Stocks
fi nally bottomed in March 2009 (down 56 percent from their October 2007 high),
shortly after Treasury Secretary Timothy Geithner announced the
administration’s Financial Stability Plan. The plan focused on four
problems: frozen credit markets, weakened bank capital, a backlog of
troubled mortgage assets on bank balance sheets, and falling home
prices. Working with the Fed to stabilize the fi nancial markets, the
Treasury had largely resolved three of those four problems one
year later. Credit markets were operating, and banks were in much
better shape, having raised more than $140 billion in capital and
$60 billion in unsecured debt. Banks used these funds to repay
the Treasury, which as of October 2012 had recovered 89 percent
of its investments in banks. The Treasury expects to eventu-
ally recover all of the TARP expenditures. The housing market,
though not fully recovered, has also stabilized, with sales up
and prices steady in most markets. Troubled mortgage assets
remained on the balance sheets of many banks, but with their
stronger base of capital and the strengthened housing market,
they were in much better shape.^26
FULL EMPLOYMENT IS A MAJOR
goal of economic policy. During
the recession that began in
2008, millions of Americans
who lost their jobs looked to
the government to address the
problem. Here, long lines of job
seekers wait to enter a job fair in
Georgia.PROTESTERS AT A RALLY AGAINST
government bailouts for Wall
Street called for the resignation
of the chief executive of Goldman
Sachs and cancellation of bonuses
for all Goldman employees.
Huge profi ts and bonuses on
Wall Street in 2009–10 were
very controversial, as the
unemployment rate remained at
nearly 10 percent.