Recession, Depression, Insolvency, Bankruptcy, and Federal Bailouts (Softcover and ebook)

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2009, 316 pages Softcover, $19.95 ISBN: 1587331594   ISBN 13: 978-1-58733-159-6 Buy softcover from Amazon   Buy softcover from Barnes & Noble     Ebook: $7.99 (free preview below) EISBN 13: 9781587332210   Available from your bookseller or online

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Synopsis	Table of Contents	Related Resources

There is no simple rule-of-thumb to determine when recessions begin or end. Recessions are officially declared by the National Bureau of Economic Research (NBER), a non-profit research organization. The NBER defines a recession as a "significant decline in economic activity spread across the economy, lasting more than a few months" based on a number of economic indicators, with an emphasis on trends in employment and income.

According to the NBER, the U.S. economy entered a recession in December 2007, making it the longest recession of the post-World War II era. One unique characteristic of this recession was the severe disruption to financial markets. Financial conditions began to deteriorate in August 2007, but became more severe in September 2008. While financial downturns commonly accompany economic downturns, financial markets functioned smoothly in previous recessions.
 

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Table of Contents

1.  "U.S. Economy in Recession: Similarities To and Differences From the Past," CRS Report for Congress R40198, February 5, 2009  . . . . . . . . . . . . . . . 1

- Introduction
- The Length and Depth of Recessions
- Unemployment in Recessions
- Consumption and Investment in Recessions
- Recessions and Oil Prices
- Recessions and the World Economy
- Recessions and the Financial Sector
- Comparisons Between the Current Recession and the Great Depression
- Figure 1. Cumulative Change in the Unemployment Rate Following Onset of Post-War Recessions
- Table 1. Economic Indicators During Post-War Recessions

2.  "Containing Financial Crisis," CRS Report for Congress RL34412, November 24, 2008. . . . . . 13

- Introduction
- The Underlying Financial Problems
- Complex Finance: The House of Cards
- SIVs
- Metro's Credit Enhancement
- What Makes a Financial Crisis?
- Government Interventions
- Open Market Operations and Monetary Policy
- The Discount Window
- Term Auction Facility (TAF)
- Treasury's "Super-SIV" Proposal
- Provision of New Capital to Financial Institutions
- Bear Stearns
- Fannie Mae and Freddie Mac
- AIG
- The $700 Billion Troubled Assets Relief Program (P.L. 110-343)
- Increases in Government Guarantees and Insurance
- Commercial Paper
- Citigroup
- Policy Issues: Are Regulators' Tools Adequate?
- Information
- Speculation
- Figure 1. Bank Stock Indices and the S&P 500, Jan 2007-October 2008
- Figure 2. Developed Country Bank Stock Indices, Jan. 2007-Oct. 2008
- Figure 3. Bank and Financial Stock Indices, Selected Countries, Jan. 2007-Oct. 2008
- Figure 4. Structured Investment Vehicle Cash Flows
- Figure 5. The Leverage Cycle
-Table 1. Debt Growth by Sector, 2007-2008

3.  "Insolvency of Systemically Significant Companies: Bankruptcy vs. Conservatorship/Receivership," CRS Report for Congress R40530, April 20, 2009 . . . . . . 39

- Introduction
- Comparison of Depository Institutions and Systemically Significant Financial Institutions
- Differences Between the FDIC's Conservatorship/Receivership Powers and the Bankruptcy Code
- Overall Objectives of Each Regime
- Insolvency Initiation Authority and Timing
- Oversight Structure and Appeal
- Management, Shareholder, and Creditor Rights
- FDIC "Superpowers," Including Contract Repudiation, Versus Bankruptcy's Automatic Stay
- Speed of Resolution

4.  "Financial Market Turmoil and U.S. Macroeconomic Performance," CRS Report for Congress R40007, December 3, 2008 . . . . . . 55

- Introduction
- Evidence of Tighter Credit Conditions
- The Effect of Tighter Credit Conditions on Macroeconomic Activity
- Impact of Tight Credit on Residential Investment
- Impact of Tight Credit on Business Investment
- Impact of Tight Credit on Consumer Spending
- The Effect on Consumer Spending of Falling Asset Values Reducing Household Wealth
- The Double- Edged Influence of the International Sector on GDP
- International Flows of Goods
- International Flows of Capital (Assets)
- An Estimate of the Potential Drag on Real GDP Growth from a Diminished Flow of Credit
- A Simulation of the Effect of a Diminished Credit Flow on Real GDP
- Economic Policy Responses to the Credit Crisis
- Conventional Macroeconomic Policy
- Monetary Policy
- Fiscal Policy
- The Fed as "Lender of Last Resort"
- Extraordinary Measures (Large Scale Intervention)
- How Will TARP Work?
- Will TARP Solve the Problem?
- Forecasting the U.S. Economy's Path Through the Financial Crisis

5.  "Financial Turmoil: Comparing the TARP to the Federal Reserve's Response," CRS Report for Congress RS22966, October 8, 2008 . . . . . . 79

6.  "The Cost of Government Financial Interventions, Past and Present," CRS Report for Congress RS22956, January 30, 2009 . . . . . . . 85

- Introduction
- Where Has the Money Come From?
- The Cost of Financial Interventions
- Recent Financial Interventions
- Troubled Assets Relief Program (TARP)
- TARP Capital Purchase Program
- Bank of America
- U.S. Automakers
- Citigroup
- American International Group (AIG)
- Fannie Mae and Freddie Mac
- Bear Stearns
- Table 1. Summary of Current and Historical Financial Interventions by the Federal Government

7.  "Financial Market Intervention," CRS Report for Congress RS22963, January 29, 2009 . . . . . . 97

- Current Concerns
- What, if anything, is wrong with the financial system?
- When did trouble in the financial markets start?
- What caused financial market turmoil?
- If 97% of mortgage borrowers are not in foreclosure, why is the financial turmoil so large?
- Where are the problem loans located?
- Who is affected by the financial turmoil?
- How have policymakers responded to financial turmoil?
- Why have the Federal Reserve's traditional tools not restored order in financial markets?
- What is contained in EESA, P.L. 110- 343?
- What has Treasury done under the EESA?
- What legislation is being considered in the 111th Congress?
- What is a Bad Bank?

8.  "Troubled Asset Relief Program: Legislation and Treasury Implementation," CRS Report for Congress RL34730, March 24, 2009 . . . . . . . 107

- Introduction
- The Troubled Assets Relief Program
- Executive and Congressional Proposals
- Provisions of TARP as Enacted
- Asset Purchase Program
- Asset Insurance Program
- Size of the Programs
- Private Equity and Debt Considerations
- Oversight Provisions
- Assistance to Homeowners
- Executive Compensation
- Mark- to- Market Accounting
- Increase in Deposit Insurance
- Assistance to Financial Institutions Holding Fannie Mae/Freddie Mac Preferred Stock
- Duration of Program
- Treasury Implementation of TARP
- Asset Purchase Mechanism
- Asset Insurance
- Capital Purchase Program
- Systemically Significant Failing Institutions Program (AIG)
- Targeted Investment Program (Citigroup and Bank of America)
- Consumer Lending Facility
- U.S. Automobile Manufacturers
- Homeowners' Assistance
- Public Private Partnership Investment Program (PPPIP)
- 111th Congress
- TARP Reform and Accountability Act of 2009 (H.R. 384)
- Participating Institutions Reporting Use of Funds
- Mergers and Acquisitions
- Voluntary Withdrawal from TARP
- Executive Compensation
- New Lending
- Warrants and other Taxpayer Protections
- Smaller Institutions
- Oversight
- TARP Foreclosure Mitigation Plan
- Auto Industry Provisions
- Clarification of Troubled Assets (Consumer Loans, Municipal Securities, Commercial Real Estate)
- Changes to Hope for Homeowners Program
- Home Buyer Stimulus and GSE Securities Program
- FDIC Provisions
- Additional Amendments to H.R. 384
- Potential Causes of Financial Instability
- Confidence and the Credit Cycle
- Information Asymmetries
- Moral Hazard
- Network Externalities
- Collective Action
- Sources of Recent Market Turmoil
- Expectations, Mortgage Defaults, and Asset Prices
- Liquidity and Uncertainty
- Capital Adequacy and Leverage
- Too Complex to Fail?
- Evidence of the Real Effects of Financial Market Turmoil
- Wealth Effect?
- Bank Balance Sheets and Tightening Credit Markets
- Reinforcing Delinquencies and Foreclosures in Housing Markets
- Difficulties of Using Debt Financing to Fund Purchases
- Conclusion
- Figure 1. Index of ARM Foreclosure Rates, 2001=100 Prime ARMs Have Unexpectedly High Foreclosure Rates
- Figure 2. Index of FRM Foreclosure Rates, 2001=100 Fixed-Rate Subprime Loans Have Unexpectedly Low Foreclosure Rates
- Figure 3. Spread Between Commercial Paper and One-Month Treasuries
- Appendix. Glossary of Terms Related to Disruption of Financial Markets

9.  "U.S. Motor Vehicle Industry: Federal Financial Assistance and Restructuring," CRS Report for Congress R40003, May 29, 2009 . . . . . . 145

- Introduction
- The Detroit 3 in Crisis
- Organization of This Report
- Auto Industry Loan Developments: Late 2008-Early 2009
- Auto Industry Restructuring Plans in December 2008
- Congressional Action in December 2008
- Federal Action to Aid the Auto Industry
- Impact on the National Economy
- National Impact of Detroit 3 Failure
- Impact Focused on "Auto Alley"
- The Domestic Motor Vehicle Market
- Loss of Detroit 3 Market Share
- Falling Demand Affects All Automakers in the United States and Abroad
- Labor Negotiations in 2007 to Address Competitive Issues
- The Energy Independence and Security Act of 2007 (EISA)
- Legislative Efforts to Assist Automakers in November 2008
- Assistance to Auto Industry in the 2009 Stimulus Package
- Employment in the Automotive Sector
- Financial Issues in the Auto Industry
- Credit Conditions
- Bush Administration's Financial Plan to Assist Automakers
- Financial Solutions: Bridge Loans and Restructuring
- Federal Bridge Loans
- Bankruptcy Procedures in Case Restructuring Fails
- Pension and Health Care Issues
- Pensions and Pension Insurance
- Health Care Issues
- Stipulations and Conditions on TARP Loans to the Auto Industry
- Executive Privileges and Compensation
- Other Restructuring Plan Conditions
- Key CRS Policy Staff and Areas of Expertise
- Figure 1. U.S. Motor Vehicle Sales
- Table 1. Summary of Direct Federal Assistance For General Motors and Chrysler
- Table 2. Reorganization of "New" Chrysler
- Table 3. Market Shares of U.S. Car and Truck Sales
- Table 4. U.S. Automotive Employment
- Table 5. Funded Status of General Motors and Ford Pension Plans for U.S. Employees, Year-end 2007
- Table 6. Contact Information for Key CRS Policy Staff

10.  "Chrysler Corporation Loan Guarantee Act of 1979: Background, Provisions, and Cost" . . . . . . 229

- Background
- Arguments For and Against the Guarantee
- Major Provisions of the Loan Guarantee Act
- Results of Loan Guarantee
- "Voluntary" Export Restraints
- Budgetary Cost of Guarantee
- Current Budgetary Cost of Federal Credit
- Conclusions
- Author Contact Information

11.  "Federal Financial Assistance: Preliminary Observations on Assistance Provided to AIG," GAO Testimony Before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, House Committee on Financial Services, Statement of Orice M. Williams . . . . . . 241

- Why GAO Did This Study
- What GAO Found
- Summary
- Table 1: Amounts of AIG Federal Assistance Used and Authorized as of March 2, 2009
- Background
- AIG's Financial Problems Mounted Quickly
- Overview of Federal Assistance Provided
- Table 2: Use of Federal Funds and Borrowings Outstanding from the Federal Reserve Bank of New York Revolving Credit Facility as of February 18, 2009
- Federal Efforts Have Focused on Maintaining and Monitoring AIG's Solvency, but AIG Faces Challenges in Repaying Federal Assistance
- Federal and State Monitoring Efforts Are Focused on AIG Solvency
- AIG Faces a Number of Challenges to Its Ability to Repay Its Federal Funds
- Some of AIG's Competitors Claim that AIG's Commercial Insurance Pricing Is Out of Line With Its Risks but Other Insurance Industry Participants and Observers Disagree
- Contact and Acknowledgements
- Appendix I: Timeline of AIG Financial Difficulties Leading Up to Federal Assistance

12.  "Auto Industry: Summary of Government Efforts and Automakers' Restructuring to Date," GAO Report to Congress . . . . . 265

- Letter
- Scope and Methodology
- Background
- Treasury Has Established Programs to Help Stabilize the Auto Industry
- In Providing Assistance to the Auto Industry, Treasury Identified Goals and Objectives for the Assistance and Took Steps to Protect the Government's Interest
- Automakers Have Addressed Some of the Factors Important for Achieving Viability, and Many Challenges Remain
- Agency Comments and Our Evaluation
- Appendix I Members of GAO's Auto Industry Panel
- Appendix II GAO Contacts and Staff Acknowledgements
- Table 1: GAO's Principles for Government Assistance as Applied to the Auto Industry Financing Program
- Table 2: Components and Funding Levels under the Automotive Industry Financing Program
- Table 3: Loan Terms and Conditions Designed to Manage Risk and Protect the Government's Interest
- Table 4: Individuals with Auto Industry Expertise Identified by NAS Who Were Interviewed
- Figure 1: Key Financial Relationships in the Auto Industry
- Figure 2: Monthly Light Vehicle Sales, 1976 to 2009 (Seasonally Adjusted Annual Rate)

13.  Other Resources. . . .  313

- Internet Resources
- Books
- Movies

14.  Other Resources From TheCapitol.Net . . . . 317

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