012007: Housing Crisis
As many as 10 million homeowners lost their homes during the subprime mortgage crisis. Housing prices fell in 2006. At the same time, the Federal Reserve raised interest rates. Many homeowners had adjustable-rate mortgages that followed the fed funds rate and reset after the first few years. Homeowners were surprised by suddenly higher payments. They couldn't sell their houses because prices fell below the mortgage value. So, the banks foreclosed, forcing them to leave their homes. Government programs to save the homeowners failed.
022008: Global Banking System Stopped Working
On Monday, September 15, 2008, Lehman Brothers announced bankruptcy. This was the day after Treasury Secretary Paulson said no more bailouts. He refused government protection for Lehman's $60 billion in uncertain mortgage assets in a weekend negotiation with potential buyers Barclay's and Bank of America. At the time, he thought the amount was too much, and he was being pressured to keep the government off the hook. Now, it seems like small potatoes. Lehman's Brothers bankruptcy panicked global bankers, leading to the Great Recession.
On Wednesday September 17, banks withdrew $160 billion from ultra-safe money market accounts. Banks were hoarding cash for write-downs on bad mortgages and withdrawals in bank runs. By the end of the week, banks held $190 billion in cash, as opposed to a normal $2 billion reserve. Hoarding led to an increase in Libor, which affected $360 trillion in loans and credit card assets. The credit freeze led to a cash shortage for most businesses. In response, the Federal Reserve lowered interest rates to zero, reducing Libor. Still, banks continue to hoard cash today to write down foreclosures.
032008: Stock Market Crash
On September 29, 2008, the Dow Jones Industrial Average fell 777 points, the largest point drop in any single day. Between October 9, 2007 and March 6, 2009, the Dow dropped 50 percent. This was the worst decline since the Great Depression, when the Dow fell 80 percent. It occurred in only 17 months, while the Great Depression drop took three years.
042008: Billions in Bailouts
On September 18, 2008, Treasury Secretary Hank Paulson and Federal Reserve Chair Ben Bernanke asked Congress for the largest bailout package since the Great Depression. By October 3, the Senate passed the $700 billion bailout bill, now known as the Troubled Assets Relief Program. The program was initially designed to purchase toxic mortgages from banks, freeing up cash for more loans. But, it was taking too long to implement. On October 14, the Treasury used $350 billion for the Capital Repurchase Program, which purchased preferred stock in major banks.
On Tuesday, September 16, the American International Group, the world's largest insurance company, announced it was going bankrupt. Federal Reserve Chairman Ben Bernanke said that AIG's bailout made him angrier than anything else in the recession. Like a hedge fund, AIG took risks with unregulated products, such as credit default swaps. It wrongly used cash from people's insurance policies. The Fed stepped in to avoid the collapse of the $3.6 trillion money-market fund industry, which invested in AIG debt and securities. Most mutual funds also owned AIG stock.
President Barack Obama's $787 billion economic stimulus package sought to prevent the re-emergence of the panic that gripped investors in 2008. It was to be spent over three years. It has been criticized for not fixing the economy fast enough. By July 2009, over $179 billion was allocated to Federal agencies. It was only supposed to spend $185 billion in 2009. It was designed to increase gross domestic product growth by 1.4 percent to 3.8 percent by the end of 2009 and prevent 2.3 million job losses. In the third quarter of 2009, the economy would have only grown 0.7 percent, not 2.8 percent, without the economic stimulus program.
052011: Japan's Tsunami and Nuclear Disaster
On March 11, 2011, a 9.0 magnitude earthquake and 100-foot high tsunami pummeled Japan's northeastern shoreline. At least 28,000 people died or went missing. Over 465,000 were displaced. To make things worse, the waves damaged the Fukushima nuclear power plant, creating radioactive leaks.The "Triple Disaster" devastated Japan's economy. It devastated the country's nuclear industry and convinced Europe to cut back its reliance on nuclear power. When Japan's suppliers shut down, it slowed a global economy still recovering from the 2008 financial crisis.
062014: Obamacare Adds Coverage for 20 Million
The Affordable Care Act expanded health coverage to 20 million people. They could receive low-cost preventive care for chronic illnesses. That kept them out of expensive emergency rooms. As a result, the rise in health care costs slowed. That may have helped the United States receive a better score from the World Health Organization. As of 2016, the U.S. cost of health care was highest in the developed world, with the worst infant mortality rate. All of the other 32 developed countries had universal health care.
072015: China Emerges as the World's Largest Economy
In 2015, China became the world's largest economy. That shifted the economic balance of power, putting the European Union second and the United States third. China is also the largest holder of U.S. debt. It owns $1.2 billion of U.S. Treasuries. This gives it leverage. For example, in August 2007, China threatened to sell part its holdings if Congressional pressure to raise the value of the yuan continued.
082015: Greek Debt Crisis
The Greek debt crisis warned of the danger facing other heavily indebted countries. In 2015, Greece almost defaulted on its debt and exited the eurozone. It triggered the Eurozone debt crisis, creating fears of a global financial crisis. Although Greece's sovereign debt crisis was resolved, it threw into question the viability of the European Union itself.
092017: Hurricane Harvey Cost $180 Billion
Hurricane Harvey was a Category 4 storm that hit Texas on August 25, 2017. It caused $180 billion in damage. That’s more than any other natural disaster in U.S history, except the largest estimates of Hurricane Katrina damage. Texas Governor Greg Abbott will need more than $125 billion in federal relief. It affected 13 million people from Texas through Louisiana, Mississippi, Tennessee, and Kentucky.
102018: Cost of War on Terror Escalates U.S. Debt
The 9/11 attack led to increased defense spending, first in Afghanistan and second in Iraq. By 2006, the War on Terror had increased the defense budget to $600 - $700 per year, creating an annual budget deficit of $500 billion per year. By 2007, the debt had almost doubled to $9.2 trillion. By 2018, it added $2 trillion to the debt.
What Were the Top 10 Events of the Decade?
The Most Important Financial News Stories
The events surrounding the Great Recession eclipsed most of the other financial news stories in the past decade. Take a walk back in time. Who would have thought in 2007 that so much would change in just 10 years?