Video Transcript: Lesson 34

Okay, let's get going on Unit 12. This is Lesson One. We're going to discuss the  financial crisis in the United States. Let's look back at 2007 and stretch into  2008. The United States and other countries were experiencing a financial crisis  that resembled the Great Depression through the summer of 2011,  unemployment remained high. GDP was low in the U.S. Some countries in  Western Europe, such as Greece, were defaulting on their government debt  obligations. One indicator of seriousness of these events is the dramatic action  that policymakers took in response. For example, on October 3, 2008, President George W. Bush signed into law the Emergency Economic Stabilization Act  2008, which authorized the U.S. Treasury to spend up to 700 billion for  emergency economic stabilization. So the purposes of this act were to  immediately provide authority and facilities that the Secretary of the Treasury  can use to restore liquidity, which is you know the amount of cash available in  the market, and stability to the financial system of the United States. Also, to  ensure that such authority and such facilities are used in a manner that A  protected home values, college funds, retirement accounts, and life savings. B  preserves home ownership and promotes jobs and economic growth. C  maximizes overall returns to the taxpayers of the United States, and D provides  public accountability for the exercise of such authority. This was an extraordinary amount of funding, equivalent to more than $2,000 for every man, woman, and  child of the United States. Perhaps even more strikingly, the funding was to  allow the Treasury to do something it had never done before: purchase shares,  that is, become part owners of financial institutions such as banks and insurance companies. So they were buying these stocks and bonds, commercial paper  from these private entities that they'd never done before. They were able to take an ownership claim, like they did in GM or Fannie Mae and Freddie Mac or AIG.  They bought all of these stocks because you know stocks were getting  hammered. They needed to be stabilized. There was a lot of U.S. investment,  government investment into these entities, and you know they were chosen to  be so-called bailed out. The United States, unlike some other countries, has  never had many cases of firms being owned by the government. Moreover, in  previous decades, the trend around the world has been for less government  ownership of business, not more. It would have been almost unthinkable even a  few months previously for a Republican president to have put in place  mechanisms to permit to permit the extent of government involvement in the  private economy, right? So let's look back. News accounts at the first time that  this was made many different claims about the financial crisis, including the  following: banks and other financial institutions were failing. Housing prices had  plummeted. So-called subprime mortgage loans had been made to borrowers in the early part of the decade, and the default rate on mortgages was rising  because borrowers were no longer able to repay the loans. Low interest rates  fueled asset bubbles that eventually burst. The financial crisis started in the 

United States, but then spread to other countries. Stock markets around the  world fell substantially. The great, the next great depression might be around the corner. This was the mindset during this time.