Four years ago today was February 23, 2009.
Although overlooked and never mentioned, that was the day the US government took unprecedented and historic action to effectively stop the cascading financial and economic crisis that continued to get worse by the day. Many people think the financial crisis peaked when Lehman Brothers filed for bankruptcy on September 15, 2008 or when the massive $700 billion TARP bailout was signed by President George W. Bush on October 4, 2008.
But, that is wrong.
Those actions plus many more bailouts, programs and interventions—representing trillions of government and taxpayer dollars—were not sufficient to stop the multiple crises from spiraling out of control, as almost every financial indicator continued to deteriorate and to do so at an accelerating pace into 2009. Indeed, as late as February 2009
, more than five months after the Lehman bankruptcy, the financial systems and economies of the U.S. and the global community were still declining rapidly, with no bottom in sight. Policymakers were facing a very dark and dangerous abyss and the possibility of a second Great Depression was a very real and increasingly likely prospect
In response, the U.S. government took additional unprecedented and historic action: four years ago today, on February 23, 2009, it announced that the full faith and credit of the United States and our national treasury would stand behind the financial system generally and Wall Street’s too big to fail firms and activities in particular (referred to as “”systemically important financial institutions”), as set forth in this dramatic policy statement:
“A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.”
See Joint Statement by the Treasury, FDIC, OCC, OTS, and the Federal Reserve (full statement available here
). (For more on the actions taken by the government, see our Report
on the cost of the crisis.)
Amazingly, that historic step was still necessary even after trillions of government and taxpayer dollars were already spent, lent, pledged, guaranteed, or otherwise used in an all-out effort to stop the collapse and prevent a second Great Depression.
We now know that those actions somehow worked, that the financial system did not entirely collapse, and that a second Great Depression was avoided. Having lost 54 percent of its value since its October 9, 2007 high, we also now know— with the benefit of hindsight — that the stock market hit its lowest point
just days after this historic announcement on March 9, 2009 and that the precipitous and uncontrolled decline of the financial markets and the economy stopped.
It is no coincidence that after battling the ceaselessly spreading financial and economic crises for more than five months, the decline was effectively arrested shortly after what can only be referred to as an indirect nationalization of the entire financial system by the US government four years ago today, on February 23, 2009. Unfortunately, this indirect nationalization greatly benefited Wall Street, made its too big to fail firms and activities even bigger and much more dangerous, and caused devastating economic wreckage to spread and linger across the country. Those are topics for another day, as are the many other implications of this historic action on this unnoticed anniversary.