Notes
Preface
“We’re still dancing”: Nakamoto and Wighton, “Citigroup chief stays bullish on buy-outs,” Financial Times.
Chapter 1: What’s a Nice Economy Like You Doing in a Place Like This?
for at least a decade or two: See, for example, Kahn, “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy,” Labour Economics; Jacobson, LaLonde, and Sullivan, “Earnings Losses of Displaced Workers,” American Economic Review.
worst performance since the 1930s: The 1937–1938 recession was apparently much worse, though there are no official quarterly data for that period. Gordon and Krenn estimate that real GDP declined by 7% over the four quarters spanning 1937:1 to 1938:1. Gordon and Krenn, “The End of the Great Depression,” NBER Working Paper.
Chapter 2: In the Beginning . . .
chronicler of the housing bubble: Figure 2.1 is an adaptation of figure 2.1 in Shiller, The Subprime Solution, 33. I have updated his graph with quarterly data available on his public Web site: www.econ.yale.edu/~shiller/data.htm.
“existence of a housing bubble”: Baker, “The Run-up in Home Prices,” CEPR Briefing Paper.
convinced at the time: Case and Shiller, “Is There a Bubble in the Housing Market?,” Brookings Papers on Economic Activity.
“strong economic fundamentals”: Bernanke, “The Economic Outlook,” testimony before the Joint Economic Committee, October 20, 2005.
not alone in this judgment: Lindblad, Boudway, and Winter, “How’s Geithner’s Home Holding Up?,” Bloomberg Businessweek.
Wall Street Journal article: Barsky, “What Housing Bubble?,” Wall Street Journal, A10.
no entry for “bubble”: Smith and Smith, Houseonomics.
substantially more than that: Shiller, The Subprime Solution, 45.
over that same time span: “Will the walls come falling down?,” Economist.
central bank’s doorstep: See, for example, Taylor, Getting Off Track.
Chapter 3: The House of Cards
already drawing attention: A March 2002 HUD report called attention to “questionable marketing techniques and borderline or outright fraudulent business practices.” U.S. Department of Housing and Urban Development, Subprime Markets, the Role of the GSEs, and Risk-Based Pricing, 26.
as early as 2004: See Andrews, “The Ever More Graspable, and Risky, American Dream,” New York Times. Ironically, Andrews himself was subsequently caught in a mortgage problem.
sounding alarms there: Andrews, “Fed Shrugged as Subprime Crisis Spread,” New York Times. On the Gramlich-Greenspan episode, see also Ip, “Did Greenspan Add to Subprime Woes?,” Wall Street Journal.
it was too late: Andrews, “Fed Shrugged as Subprime Crisis Spread,” New York Times.
commercial bank (Wells Fargo): Two of the others were Lehman Brothers and Bear Stearns. The data come from a February 2007 Deutsche Bank report to clients, Shorting Home Equity Mezzanine Tranches. (It was good advice!)
brokers rather than by banks: Paulson, On the Brink, 69.
supervised banks and thrifts: Gramlich, Subprime Mortgages, 20–21.
conventional banking system: The size of the shadow banking system depends on what you count. Pozsar, Adrian, Ashcraft, and Boesky, “Shadow Banking,” Federal Reserve Bank of New York Staff Report, estimate that the shadow banking system was almost twice as large as the conventional banking system on the eve of the crisis.
history is instructive: See Tett, Fool’s Gold; Lewis, The Big Short; and others.
bailout by Wall Street firms: The story is beautifully told by Lowenstein, When Genius Failed.
tongue-lashing from Summers: Schmitt, “Prophet and Loss,” Stanford Magazine.
more wary about derivatives than Summers: Rubin and Weisberg, In an Uncertain World, 197–98, 287–88.
JP Morgan in the 1990s: Their story is arrestingly told by Tett, Fool’s Gold.
financial bets rather than hedges: “Following the A.I.G. Money,” New York Times, attributed the 80 percent estimate to Eric Dinallo, then the insurance superintendent for New York State.
marginal at best: This story has been told in a number of places. See, for example, Wagner, “Unreal Estate,” Metro (San Jose, Calif.).
FICO scores are below 620: It is not only the FICO score (for Fair Isaac Company, the inventor) that matters, but it is important. A potential borrower’s FICO score is the banker’s standard quantitative measurement of creditworthiness. It ranges between 300 and 850, with an average around 725. A score of 620 is pretty low, though not extreme. According to a company news release, roughly 30 percent of FICO scores are below 630.
people become homeowners: Gramlich, Subprime Mortgages.
eighteen-fold increase in just eleven years: Gramlich, Subprime Mortgages, 6.
no-doc variety: See Barth, The Rise and Fall of the U.S. Mortgage and Credit Markets, 93.
failed almost as often: Foote, Gerardi, and Willen,“Why Did So Many People Make So Many Ex Post Bad Decisions?,” in Rethinking the Financial Crisis.
began to erode: Acharya, Richardson, Van Nieuwerburgh, and White, Guaranteed to Fail, especially chapter 3.
mortgage business fell dramatically: See Acharya, Richardson, Van Nieuwerburgh, and White, Guaranteed to Fail, 51 (table 3.2) and 42 (figure 3.1). Some of this was undoubtedly due to constraints on their growth imposed in reaction to accounting scandals at Fannie and Freddie.
concentrated in the safest tranches: Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report, 123–24. Henceforth, this document will be referred to as “FCIC Report.”
non-GSE mortgages: Fannie and Freddie held 56 percent of all first mortgages but only 28 percent of seriously delinquent first mortgages, as of September 30, 2011. See Chang and Golding, “Measuring the Effect of Foreclosure Prevention on House Prices and the Spillover Benefit of Reduce[d] Defaults.”
Others do not, however: See, for example, Peter Wallison’s dissenting opinion in FCIC Report; Morgenson and Rosner, Reckless Endangerment.
“implications of those monstrosities”: See Tourre, e-mail to Marine Serres. The quotes come from a trove of e-mails that Goldman Sachs made public.
“not feeling too guilty about this”: Ibid.
consumers shun all beef: Paulson, On the Brink, 72.
Villain 7: This section is based on Blinder, “Crazy Compensation and the Crisis,” New York Times.
flip the big coins, too: Murphy, “Pay, Politics, and the Financial Crisis,” in Rethinking the Financial Crisis.
smaller once the bubble burst: Ellul and Yerramilli, “Stronger Risk Controls, Lower Risk,” NBER Working Paper.
“how little our big men know”: Rogers, Sanity Is Where You Find It, 120.
Chapter 4: When the Music Stopped
Case-Shiller ten-city composite index: Christie, “Home futures,” CNN Money.
“largely contained”: Paulson, On the Brink, 66.
“or to the financial system”: Bernanke, “The Subprime Mortgage Market,” speech at the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition.
(“toxic waste”) tranches themselves: Haubrich and Lucas, “Who Holds the Toxic Waste?,” Federal Reserve Bank of Cleveland, Policy Discussion Paper.
“certain assets fairly”: FCIC Report, 250–51.
“[in the subprime lending market] was carnage”: Gramlich, “Booms and Busts: The Case of Subprime Mortgages,” in Housing, Housing Finance, and Monetary Policy, 259.
“suffer a very serious downturn”: Feldstein, “Concluding Remarks,” in Housing, Housing Finance, and Monetary Policy, 499.
initial efforts were clearly inadequate: Wessel, In Fed We Trust, 123.
Chapter 5: From Bear to Lehman: Inconsistency Was the Hobgoblin
sales over the years 2000–2008: FCIC Report, 285.
securities from 2000 to 2007: FCIC Report, 280.
world-class bridge game than to his company: Kelly, “Bear CEO’s Handling of Crisis Raises Issues, Wall Street Journal, A1. See also Wessel, In Fed We Trust, 251.
“was like Bonds 101”: See Cohan, House of Cards, 421.
most of it overnight: FCIC Report, 281 and 283.
“confidence goes, it goes”: Quoted in Wessel, In Fed We Trust, 151.
declining a routine trade: FCIC Report, 287–88.
“very hard to say at the time”: Wessel, In Fed We Trust, 159.
“briefed them Friday morning”: Wessel, In Fed We Trust, 163.
“little negotiating leverage”: Paulson, On the Brink, 121.
pony up the cash: Wessel, In Fed We Trust, 169.
“investment bank’s shareholders”: Quoted in FCIC Report, 290.
“rogue operation”: Wessel, In Fed We Trust, 174.
“what I was taught”: Sorkin, Too Big to Fail, 78.
“someone like that is next?”: Sorkin, Too Big to Fail, 78.
“banking principles and practices”: Volcker, speech at the Economic Club of New York.
“worst policy mistake in a generation”: Quoted in Wessel, In Fed We Trust, 174.
moral hazard grounds: Wessel, In Fed We Trust, 174.
“create[d] even bigger losses”: FCIC Report, 291.
“implications for other firms”: FCIC Report, 291.
“whole system would be at serious risk”: Paulson, On the Brink, 102.
“just about 45 minutes”: FCIC Report, 294.
leveraged about 75 to 1: FCIC Report, 65.
16 percent in 2001 to 33 percent by 2004: Greenspan, “The Crisis,” Brookings Papers on Economic Activity, 207 (table 1).
“underwriting standards of Fannie Mae and Freddie Mac”: Gramlich, Subprime Mortgages, 22.
“U.S. government housing policy”: FCIC Report, 444.
“relaxing loan underwriting standards”: Morgenson and Rosner, Reckless Endangerment, 5.
“[as] fundamentally flawed”: FCIC Report, 323.
“central to the financial crisis”: FCIC Report, 323.
“‘save their ass’”: Paulson, On the Brink, 144.
“you may not have to take it out”: Paulson, On the Brink, 151.
“hardest thing I had ever done”: Paulson, On the Brink, 170.
$200 billion worth of repos outstanding: FCIC Report, 326.
“what we learned scared us”: Paulson, On the Brink, 121.
“naked short-selling came after us”: FCIC Report, 326–27.
better than they actually were: See Latman, “New York Accuses Ernst & Young of Fraud in Lehman Collapse,” New York Times.
longer-term debt by June: FCIC Report, 326.
rejected the idea as “gimmicky”: FCIC Report, 328.
$55 billion loan from the Fed: FCIC Report, 328.
Fannie and Freddie were taken over: Sorkin, Too Big to Fail, chapter 11.
Paulson refused: Paulson, On the Brink, 190.
“what would you need from us?”: Sorkin, Too Big to Fail, 94.
“‘I can’t do it again’”: Wessel, In Fed We Trust, 14.
“financial crisis was lunacy”: Wessel, In Fed We Trust, 15–16.
“statement is way out of line!”: Ibid.
“import our cancer”: Sorkin, Too Big to Fail, 350.
“take precautionary measures”: Bernanke, “The Economic Outlook,” testimony before the Joint Economic Committee, September 24, 2008.
voiced the same opinion: Sorkin, Too Big to Fail, 343.
“secure a Federal Reserve loan”: Bernanke, “Federal Reserve Policies in the Financial Crisis,” speech at the Greater Austin Chamber of Commerce.
Chapter 6: The Panic of 2008
“most unbelievable week in America ever”: Quoted in Sorkin, Too Big to Fail, 2.
116,000 employees in 130 countries: FCIC Report, 139.
“irresponsible bets”: Bernanke at a March 3, 2009, hearing of the Senate Budget Committee, as quoted by Wessel, In Fed We Trust, 194.
“can’t think of one, than AIG”: Ibid
virtually none of it was hedged: FCIC Report, 50.
“losing $1 in any of those transactions”: Sorkin, Too Big to Fail, 160.
“sleeping a bit easier at night”: Ibid.
Scary stuff: Sorkin, Too Big to Fail, 239.
“imminent danger”: Wessel, In Fed We Trust, 189–90.
“Fed should bail it out”: Ibid.
“dealer has exposure to them”: Quoted in FCIC Report, 347.
staggering sum: Sjostrom, “The AIG Bailout,” Washington & Lee Law Review, 975. But AIG never actually drew more than $126 billion of its $182 billion line of credit.
“rescuing a failing company”: FCIC Report, 350. This criticism came from a June 2010 report of the Congressional Oversight Panel that was set up to monitor the TARP.
“AIG is the most outrageous”: On ABC’s This Week, as quoted by Suskind, Confidence Men, 216.
“abrogated willy-nilly”: On CBS’s Face the Nation, transcribed by the author. “Summers: AIG Bonuses Are ‘Outrageous’,” CBS News, Face the Nation.
“rescind the AIG bonuses”: Suskind, Confidence Men, 233.
“affronted disbelief”: Scheiber, The Escape Artists, 114–15.
25 percent of the money: See Morgan, “Pay Czar Says AIG Bonus Flap to End in March.” Reuters.
“10 percent haircut”: Quoted in Nocera, “Sheila Bair’s Bank Shot,” New York Times Magazine, 29.
“cost for American taxpayers”: Geithner, “The Federal Bailout of AIG,” testimony before the Committee on Oversight and Government Reform.
“It was Monday”: This quote appears in many places. See, for example, Paletta, “Barney Frank Celebrates Free Market Day,” Wall Street Journal.
(leaving all the creditors whole): See the fund’s portfolio manager, Michael Luciano’s, testimony. FCIC Report, 356.
“Wednesday and Thursday”: Fed staff economist Patrick McCabe, quoted in FCIC Report, 357.
“commercial paper markets”: FCIC Report, 358.
unable to meet payroll: Sorkin reports a conversation with GE’s CEO, Jeffrey Immelt, to that effect. Sorkin, Too Big to Fail, 420.
“run on the dollar”: Paulson, On the Brink, 253.
had the same thought: See Paulson, On the Brink, 262.
deposited after that date: According to Paulson, On the Brink, 262, this was Bair’s suggestion.
“U.S. issuers of commercial paper”: “Federal Reserve and Other Central Banks Announce Schedules for Term and Forward Auctions of U.S. Dollar Liquidity for Fourth Quarter,” Federal Reserve System Monetary Policy Release. Note that this public announcement came a full week after the Board’s vote.
“#1 global underwriter of CDOs”: Quoted from Merrill Lynch advertisement, Derivatives Week.
“dicing them to CDOs”: Sorkin, Too Big to Fail, 144.
“super-senior was super safe”: Dow Kim, quoted in FCIC Report, 258. Most of the information in this paragraph comes from the FCIC Report.
“Worst American CEOs of All Time”: Porfolio.com, “Portfolio’s Worst American CEOs of All Time,” CNBC.
“Now we’re next in line”: FCIC Report, 360.
$35 billion on Friday: FCIC Report, 361.
$55 billion in a single week: FCIC Report, 362.
“manager should want to have”: FCIC Report, 362.
“real chance they would go under”: FCIC Report, 362.
“same thing for bondholders”: Nocera, “Sheila Bair’s Bank Shot,” New York Times Magazine, 29.
“with serious consequences”: FCIC Report, 366.
“Great Depression”: FCIC Report, 366.
“imprudent and dangerous”: Wessel, In Fed We Trust, 220.
“protected, and which are not?”: Wessel, In Fed We Trust, 221.
best-run bank in America: See, for example, “Fed Look at Wachovia in Drug Money Probe,” CNN Money.
73 cents on the dollar to 29 cents: FCIC Report, 367.
Let the play begin: The narrative and events below are based on information in Wessel, In Fed We Trust, 221–26, and FCIC Report, 366–71.
“bailed out again”: FCIC Report, 370.
reflected new due diligence: FCIC Report, 370.
“conference call with Citi officials”: Solomon, “Bair’s Legacy: An FDIC with Teeth,” Wall Street Journal. Citi representatives denied this.
Second, throughout its seventy-five-year history: The FDIC’s October 14th press release announced a temporary program to insure balances in non-interest bearing transactions accounts (basically, business checking accounts) in unlimited amounts. That program wound up being extended twice. “FDIC Announces Plan to Free up Bank Liquidity,” FDIC Press Release.
“necessary to avoid or mitigate”: Quoted from Section 13(c)(4)(G) of the Federal Deposit Insurance Act.
any other financial organization: For a partial accounting, see Keoun, “Citigroup’s 1.1 Trillion of Mysterious Assets Shadows Earnings,” Bloomberg Businessweek.
“associated hedges”: The quotation is from the accompanying term sheet in Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and U.S. Department of the Treasury, “Joint Statement by Treasury, Federal Reserve, and the FDIC on Citigroup,” FRB Press Release.
“colossal lack of judgment”: Paulson, On the Brink, 430.
more “candy”?: Wessel, In Fed We Trust, 259.
“firm believer in free markets”: Paulson, On the Brink, 3.
“don’t even let dry cleaners fail”: Wessel, In Fed We Trust, 22.
untenable fiscal position: The story is told, with both pathos and humor by Lewis, Boomerang.
What a mess: Aspects of the mess are recounted by Lewis, Boomerang.
“This time, we did not cause it”: Norris, “Quotes of the Day at Davos,” Economix, New York Times.
Chapter 7: Stretching Out the TARP
“making it up as we went along”: Paulson, On the Brink, 254.
“only some of it” or “none of it”: Pew Research Center, Auto Bailout Now Backed, Stimulus Divisive.
“in case things got worse”: Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 32.
four basic options: Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 33.
“hold the system together”: Paulson, On the Brink, 254.
“We can’t keep doing this”: Sorkin, Too Big to Fail, 431.
“inadequate capital rather than insufficient liquidity”: Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 33. Remember that Bagehot had counseled central bankers to lend only in order to relieve illiquidity, not insolvency.
“reasons of democratic legitimacy”: Sorkin, Too Big to Fail, 431.
“an economic 9/11”: Sorkin, Too Big to Fail, 417.
Stiglitz also urged that alternative: Krugman, “Cash for Trash,” New York Times; Soros, “Paulson Cannot Be Allowed a Blank Cheque,” Financial Times; Stiglitz, “A Better Bailout,” Nation.
“I’ll be hung out to dry”: Wessel, In Fed We Trust, 203.
“scare the shit out of them”: Sorkin, Too Big to Fail, 445.
“heaven help us all”: Sorkin, Too Big to Fail, 446.
“members of Congress ashen-faced”: Paulson, On the Brink, 259.
“I kind of scared myself”: Wessel, In Fed We Trust, 204.
“selling it to the American people”: Wessel, In Fed We Trust, 205.
“flush the toilets around here”: Wessel, In Fed We Trust, 447.
“we need to do this”: Ibid.
“important to our economy”: “Statement by Secretary Henry M. Paulson, Jr. on Comprehensive Approach to Market Developments,” U.S. Department of the Treasury Press Release.
“far less than the alternative”: Ibid.
account of how their conversation went: Sorkin, Too Big to Fail, 450.
impeached just for proposing it: Blinder, “Financial Rescue Plan,” NPR, Diane Rehm Show.
“members would add provisions”: Paulson, On the Brink, 266.
“came across as overreaching”: Paulson, On the Brink, 267.
not worked on the bill: Sorkin, Too Big to Fail, 469.
“wouldn’t they?”: Sorkin, Too Big to Fail, 474.
“but our Constitution as well”: Paulson, On the Brink, 283.
“Total Abdication of Responsibility to the Public”: Sorkin, “A Bailout Above the Law,” New York Times. Rosner later coauthored a muckraking book with the Times’ Gretchen Morgenson. Morgenson and Rosner, Reckless Endangerment.
“communications mistake”: Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 45.
“Fed stands down”: Wessel, In Fed We Trust, 205.
“exactly what I didn’t want to do”: Paulson, On the Brink, 260.
“about as welcome as malaria”: Wessel, In Fed We Trust, 214. The congressman was Walter Jones.
“got them into trouble”: Ibid.
“sensitive to the public outrage”: Paulson, On the Brink, 261.
“We can’t say that now”: Wessel, In Fed We Trust, 227.
was no easy task: Though the technical problems required thought, they were not insoluble. Swagel reports that “we had reverse auctions to buy MBSs essentially ready to go by late October 2008—including a pricing mechanism.” Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 55.
drew huzzahs from many experts: One example: Krugman, “Gordon Does Good,” New York Times.
I was one of four people on earth: Little did I know that Warren Buffett, the Sage of Omaha, was another. Sorkin, Too Big to Fail, 510–12.
“we went that route”: Irwin and Cho, “Paulson’s Change in Rescue Tactics,” Washington Post, D1.
“banking system provided greater leverage”: Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 50.
weighed heavily on the officials’ minds: Wessel, In Fed We Trust, 238.
“you’re not going to like the terms”: Sorkin, Too Big to Fail, 527.
“cheap capital”: Wessel, In Fed We Trust, 240.
“bailing you out”: Sorkin, Too Big to Fail, 528.
“you’re undercapitalized”: Ibid.
“banks would be unwise to refuse it”: Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 52.
“good, bad, or indifferent”: Sorkin, Too Big to Fail, 517–18.
“feet on the ground, and the other guy was not”: Scheiber, The Escape Artists, 15.
“new Secretary of the Treasury in about two months”: Blinder, “Whatever Happened to the Troubled Assets Relief Program?,” testimony before the Committee on Financial Services.
buying troubled assets: See, for example, Barr, “Banks Want the Old Bailout Back,” CNN Money.
profit of about $25 billion: See Congressional Budget Office, Report on the Troubled Asset Relief Program—March 2012.
grab bag of financial-market policies: Almost all of the academic studies focus on the Fed’s large-scale asset purchases. See, for example: Gagnon, Raskin, Remache, and Sack, “The Financial Market Effects of the Federal Reserve’s Large-Scale Asset Purchases,” International Journal of Central Banking; Krishnamurthy and Vissing-Jorgensen, “The Effects of Quantitative Easing on Interest Rates,” Brookings Papers on Economic Activity.
July 2010 by Mark Zandi and me: Blinder and Zandi, “How the Great Recession Was Brought to an End,” Moody’s Analytics.
Chapter 8: Stimulus, Stimulus, Wherefore Art Thou, Stimulus?
times were demonstrably horrible: CBS News, “CBS Poll: Americans Optimistic About Obama,” CBS News Opinion.
“needed feedback and critiques”: Scheiber, The Escape Artists, 84.
“bordered on bipartisan bliss”: Connolly, “Obama Chooses Peter Orszag as Chief of Office of Management and Budget,” Washington Post.
practically at war: Suskind, Confidence Men, 297ff; Scheiber, The Escape Artists, 155ff.
“broader discussion by Summers”: Suskind, Confidence Men, 151; Scheiber, The Escape Artists.
“They weren’t”: Suskind, Confidence Men, 262.
bit too pro–Wall Street for the times: Scheiber, The Escape Artists, 12.
“health care team?”: Suskind, Confidence Men, 277.
Iraq war, polled just 13 percent: Jones, “Domestic Priorities Top Americans’ To-Do List for Obama,” Gallup.
“That’s not enough for me”: Scheiber, The Escape Artists, 15–16.
“ended up having to do”: Scheiber, The Escape Artists, 147.
“too serious for this kind of politics”: Obama, Town Hall speech, Raleigh, N.C.
“Republicans would have to be bipartisan”: Scheiber, The Escape Artists, 96.
“Obama to be a one-term president”: Garrett, “Top GOP Priority: Make Obama a One-Term President,” National Journal.
kicking and screaming (internally): Wessel reports that Richard Fisher, president of the Federal Reserve Bank of Dallas, initially lodged a dissent but then withdrew it. So the reported vote was unanimous. Wessel, In Fed We Trust, 257–58.
modest shot in the arm: Parker, Souleles, Johnson, and McClelland, “Consumer Spending and the Economic Stimulus Payments of 2008,” NBER Working Paper; Sahm, Shapiro, and Slemrod, “Check in the Mail or More in the Paycheck?,” American Economic Journal.
“we’re in with a bang”: Goolsbee, “Looking for Lasting Solutions,” CBS News, Face the Nation.
about in the right place: Scheiber, The Escape Artists, discusses this debate at length.
“shovel-ready as we expected:”: See his remarks at the Council on Jobs and Competitiveness.
bankers and investors rather than the middle class: CNN/Opinion Research, “Polls: Stimulus Unpopular, but Its Uses Have Broad Support,” CNN Politics.
Only 34 percent thought it was President Bush: Pew Research Center, Political Knowledge Update.
a year and a half later was 1.7 percentage points: Blinder and Zandi, “How the Great Recession Was Brought to an End,” Moody’s Analytics.
highly publicized study: Blinder and Zandi, “How the Great Recession Was Brought to an End,” Moody’s Analytics.
several economists of the Right: See, for example, Cogan, Taylor and Wieland, “The Stimulus Didn’t Work,” Wall Street Journal; Cogan, Cwik, Taylor, and Wieland, “New Keynesian Versus Old Keynesian Government Spending Multipliers,” Journal of Economic Dynamics and Control, 281–95.
addressed these criticisms: Feyrer and Sacerdote, “Did the Stimulus Stimulate?,” NBER Working Paper.
how does that destroy jobs?: Blinder, “The GOP Myth of ‘Job-Killing’ Spending,” Wall Street Journal.
$49 billion dribbling out over fiscal years 2013–2019: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022.
Chapter 9: The Attack on the Spreads
Rogoff (and Krugman again) for the United States: Krugman, “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap,” Brookings Papers on Economic Activity; Rogoff, “The Bullets Yet to Be Fired to Stop the Crisis,” Financial Times.
“almost treasonous”: Daly, “Rick Perry Jabs Bernanke, Says ‘Printing More Money . . . Is Almost Treasonous,’” CBS News Political Hotsheet.
“magically fix economic problems”: Palin’s letter to the editor appeared on November 18. Blinder, “In Defense of Ben Bernanke,” Wall Street Journal; Palin, Letter to the Editor, Wall Street Journal.
A few have actually done so: The list includes Chile, Hungary, and Thailand. See, for example, Dalton and Dziobek, “Central Bank Losses and Experiences in Selected Countries,” IMF Working Paper. The Banco Central de Chile has operated effectively with negative net worth for years.
“long-term perspective”: “Remarks by President Obama and British Prime Minister Gordon Brown after Meeting,” White House Press Release.
“for those institutions which need it”: “Secretary Geithner Introduces Financial Stability Plan,” U.S. Department of the Treasury Press Release.
Lee Sachs pushing to go ahead: Scheiber, The Escape Artists, 124–29.
Chapter 10: It’s Broke, Let’s Fix It: The Need for Financial Reform
banking disaster of the last several decades: Appelbaum, “Citi’s Long History of Overreach, Then Rescue,” Washington Post.
“they are too big”: King, speech at Lord Mayor’s Banquet for Bankers and Merchants. The “distinguished American economist” was Allan Meltzer.
“multi-function, international (financial) firms”: Quoted in Wessel, “Bernanke: Smaller Banks Not Necessarily the Answer for ‘Too Big to Fail’ Dilemma,” Wall Street Journal.
had one existed in 2005: The next paragraph is based on Blinder, “It’s Broke, Let’s Fix It: Rethinking Financial Regulation,” International Journal of Central Banking, 286–87.
Homeland Security, the CIA, and even the IRS!: Saad, “CDC Tops Agency Ratings; Federal Reserve Board Lowest NASA Ratings Remain High, While Federal Reserve Has Lost Ground,” Gallup.
“child’s car seat sold on the American market”: Warren, “Unsafe at Any Rate,” Democracy: A Journal of Ideas. See also Bar-Gill and Warren, “Making Credit Safer,” University of Pennsylvania Law Review.
worst decisions he had ever made: See Hirsh, “The Re-education of Larry Summers,” Newsweek.
“regulate financial derivatives”: Clinton, Back to Work, 41.
“financial weapons of mass destruction”: I believe this oft-quoted phrase first appeared in Berkshire Hathaway, 2002 Annual Report, 15.
“automatic teller machine”: Volcker, speech at the Wall Street Journal’s 2nd Future of Finance Initiative.
“more money than God”: Mallaby, More Money Than God.
policy debate into high gear: U.S. Department of the Treasury, Financial Regulatory Reform.
Chapter 11: Watching a Sausage Being Made
bankruptcy procedures worked well!: Wallison,“The Argument Against a Government Resolution Authority,” Pew Financial Reform Project Briefing Paper; Wallison and Skeel, “The Dodd Bill: Bailouts Forever,” Wall Street Journal.
“towards subsidized housing”: Frank at a September 25, 2003, hearing of the Committee on Financial Services, as quoted in “What They Said About Fan and Fred,” Opinion, Wall Street Journal.
by more than 3 to 1: Lake Research Partners, “Wall Street Reform: One Year Anniversary.”
conservatives rather than to liberals: Center for Responsive Politics, Open Secrets.
Chapter 12: The Great Foreclosure Train Wreck
problem festers to this day: Cordell, Dynan, Lehnert, Liang, and Mauskopf, “Designing Loan Modifications to Address the Mortgage Crisis and the Making Home Affordable Program,” Finance and Economics Discussion Series, table 1. Data come from the Mortgage Bankers Association.
Home Owners’ Loan Corporation: The next several paragraphs draw heavily on Blinder, “From the New Deal, a Way Out of a Mess,” New York Times, which in turn owes a great deal to Harriss, History and Policies of the Home Owners’ Loan Corporation.
mortgagees knew their banks: Actually, Foote, Gerardi, and Willen argue that the apparent novelty of mortgage finance in the 2000s is exaggerated. Foote, Gerardi, and Willen, “Why Did So Many People Make So Many Ex Post Bad Decisions?,” in Rethinking the Financial Crisis.
refinance between 1 million and 2 million homes: Blinder, “From the New Deal, a Way out of a Mess,” New York Times. Note the early date of this op-ed, even before Bear Stearns. In August 2012, Senator Jeff Merkley (D-OR) introduced a proposal that was very similar to the HOLC.
other assets of any defaulting borrower: Feldstein, “How to Stop the Mortgage Crisis,” Wall Street Journal.
30-year fixed-rate mortgages at 5.25 percent: Hubbard and Mayer, “First, Let’s Stabilize Home Prices,” Wall Street Journal.
“write a check”: Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 22.
authority to modify mortgages: Geanokoplos and Koniak, “Mortgage Justice Is Blind,” New York Times.
insured only 762 houses: U.S. Department of Housing and Urban Development, FHA Annual Management Report, FY 2011, 16.
“bankers and investors compared to foreclosure”: “FDIC Implements Loan Modification Program for Distressed IndyMac Mortgage Loans,” FDIC Press Release.
$11,000 per loan: Luhby, “FDIC’s Bair Pushes Aggressive Mortgage Plan,” CNN Money.
$50 billion from TARP would ever be utilized: Congressional Budget Office, Report on the Troubled Asset Relief Program—March 2012.
60,000 mortgages had been refinanced: Timiraos, “Confusion Roils HARP Program for Refinancing,” Wall Street Journal.
short of the administration’s goal: Gopal, “Banks Block Obama’s Mortgage Stimulus Plan,” Bloomberg Businessweek.
57,000 short sales had been arranged: U.S. Department of the Treasury, Making Home Affordable Program Performance Report through June 2012, 5.
In his words: Oddly, CNBC has no transcript of the rant, even though it may be the most famous words ever uttered on that network. An Internet search surfaces numerous alleged “transcripts,” but they are inaccurate. I compiled this one directly from the video clip. Santelli, “Rick Santelli and the ‘Rant of the Year,’” YouTube.
origin of the Tea Party: See, for example, Zernike, “‘Boiling Mad’: A Tea Party Origin Story,” NPR, All Things Considered.
whopping 64 percent to 33 percent margin: Newport, “Views on Government Aid Depend on the Program,” Gallup.
Chapter 13: The Backlash
“inject the government into the private sector”: Paulson, On the Brink, 3.
catastrophe into something that was merely awful: Blinder and Zandi, “How the Great Recession Was Brought to an End,” Moody’s Analytics. Remember, some economists dispute our methodology.
ideologically conservative: This is a very old idea in American political science. See, for example, Free and Cantril, The Political Beliefs of Americans. For more recent evidence, see Fiorina and Abrams, Disconnect: The Breakdown of Representation in American Politics.
“government hands off my Medicare”: This quote was reported in many places. One example is Cesca, “Keep Your Goddamn Government Hands off My Medicare!,” Huffington Post.
“join in the government-bashing”: Clinton, Back to Work, 7.
Cochrane excoriated the bailouts: Cochrane, “Lessons from the Financial Crisis,” Regulation.
Meltzer accused Bernanke: Meltzer wrote that “Chairman Ben Bernanke seemed willing to sacrifice much of the independence that Paul Volcker restored in the 1980s. He worked closely with the Treasury and yielded to pressures from the chairs of the House and Senate Banking Committees and others in Congress.” Meltzer, “Policy Principles: Lessons from the Fed’s Past,” in The Road Ahead for the Fed, 13.
Taylor argued that the Fed’s: In Taylor’s words: “In my view, the financial crisis was caused, prolonged, and worsened by the Fed’s departure from traditional monetary policy.” Taylor, “The Need for a Clear and Credible Exit Strategy,” in The Road Ahead for the Fed, 85.
“Reagan proved that deficits don’t matter”: See Suskind, The Price of Loyalty, 291.
351 “determined to stamp out”: “The Rise of the Anti-Keynesians: Paul Ryan’s Intellectual Hinterland,” Economist.
reduce federal spending, not to increase it: Hirsh, “The Party of Goldwater?,” Newsweek.
despite costing over $800 billion: This work is summarized in Taylor, “An Empirical Analysis of the Revival of Fiscal Activism in the 2000s,” Journal of Economic Literature.
“stimulating the economy”: Taylor, “The 2009 Stimulus Package: Two Years Later,” testimony before the Committee on Oversight and Government Reform, Subcommittee on Regulatory Affairs.
“finding should come as a surprise”: Ibid.
“unprecedented policy regime”: Taylor, “The Need for a Clear and Credible Exit Strategy,” in The Road Ahead for the Fed, 85.
“return to traditional monetary policy”: Ibid.
formulaic rule for interest-rate setting: Taylor, “Discretion Versus Policy Rules in Practice,” Carnegie-Rochester Series on Public Policy.
“Fed’s departure from traditional monetary policy”: Taylor, “The Need for a Clear and Credible Exit Strategy,” in The Road Ahead for the Fed, 85–100.
“broad-based robust economic recovery”: Greenspan, “Activism,” International Finance, 1 and 7.
“Liquidate labor”: Hoover, The Memoirs of Herbert Hoover, 30.
“pick up the pieces from less competent people”: Ibid.
Taylor Bean & Whitaker: The details of the story come from Norris, “After Years of Red Flags, a Conviction,” New York Times.
largest financial crises America has ever seen: Protess, “Mortgage Executive Receives 30-Year Sentence,” New York Times.
Chapter 14: No Exit? Getting the Fed Back to Normal
“the economy, not the calendar”: Di Leo and Hilsenrath, “Fed Could Keep Short-Term Interest Rates Near Zero Well Beyond Mid-2013,” Wall Street Journal. Plosser dissented against the language change in August 2011.
“future rise in inflation”: Bernanke, “Semiannual Monetary Policy Report to the Congress,” testimony before the Committee on Financial Services. This quotation and others in the next paragraph come from this testimony.
“reduce the stock of reserves”: Bernanke, “The Federal Reserve’s Balance Sheet: An Update,” speech at the Federal Reserve Board Conference on Key Developments in Monetary Economics.
“both in combination”: Ibid.
“corollary risks with long-term effects”: Warsh, “The New Malaise and How to End It,” Wall Street Journal.
smaller than those from QE1: Krishnamurthy and Vissing-Jorgensen, “The Effects of Quantitative Easing on Interest Rates,” Brookings Papers on Economic Activity.
in non-Treasury securities: Blinder, “The Fed Is Running Low on Ammo,” Wall Street Journal.
never again cause a depression: Bernanke, “On Milton Friedman’s Ninetieth Birthday,” remarks at Conference to Honor Milton Friedman.
Chapter 15: The Search for a Fiscal Exit
CBO report on the budget outlook: Congressional Budget Office, The Long-Term Budget Outlook, October 1, 2000.
long-run debt-to-GDP projections: Congressional Budget Office, The Long-Term Budget Outlook, December 1, 2003, 12.
CBO now scores at $831 billion: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022.
“moderately important”: Jones, “Americans Want Congress, Obama to Tackle Economic Issues,” Gallup Politics.
61 percent in favor, 17 percent opposed: Stein, The Fiscal Revolution in America, 117–18. Stein noted, “Public opinion seems to have been in 1939 what it had always been.”
reducing spending on any domestic program: Blinder and Holtz-Eakin, “Public Opinion and the Balanced Budget,” American Economic Review, 145.
small-government stalwarts: Sides, “Republican Primary Voters Embrace Government,” Model Politics, YouGov.
“bowl of Jell-O”: Wallsten, Montgomery, and Wilson, “Obama’s Evolution: Behind the Failed ‘Grand Bargain’ on the Debt,” Washington Post.
“could not deliver a pizza”: Ibid.
“without any further policy actions”: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022, table 1-7. I use here numbers from the CBO’s “Alternative Fiscal Scenario.”
some important modifications: The commission’s recommendations are in Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform.
“if growth exceeds the targets”: Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform, 41–42.
“substantial structural reforms”: Ibid.
Chapter 16: The Big Aftershock: The European Debt Crisis
UK had a large share, too: For an entertaining account of the craziness in Iceland and Ireland, and the aftermath in both countries, see Lewis, Boomerang.
modern-day world record: Whelan, “Ireland’s Sovereign Debt Crisis,” Centre for Economic Research Working Paper, University College Dublin.
gaining independence in the 1830s!: Reinhart and Rogoff, This Time Is Different, 98.
conceal its mounting debt: Story, Thomas, and Schwartz, “Wall St. Helped to Mask Debt Fueling Europe’s Crisis,” New York Times.
go into default: California, a much larger state, resorted to issuing scrip in 2009. But that strange event didn’t shake the national financial markets. The last state to default on its debt was Arkansas in 1933. See Davey, “The State That Went Bust,” New York Times.
deal with government debt: Sargent, “United States Then, Europe Now,” Nobel Prize in Economic Sciences Lecture.
“urgent recapitalization”: Lagarde, “Global Risks Are Rising, but There Is a Path to Recovery,” in Achieving Maximum Long-Run Growth: A Symposium Sponsored by the Federal Reserve Bank of Kansas City.
“chains of contagion”: Ibid.
“using public funds if necessary”: Ibid.
“public undertakings of any Member State”: Article 125 of the version of the treaty posted on the ECB’s Web site. European Central Bank, “Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union,” Official Journal of the European Union. It was formerly Article 103.
“assistance to the Member State concerned”: European Central Bank, “Consolidated Versions of the Treaty on European Union and the Treaty on the Functioning of the European Union,” Official Journal of the European Union, Article 122 (formerly 100).
“central banks of debt instruments”: European Central Bank, “Consolidated Versions of the Treaty on European Union and the Treaty on the Functioning of the European Union,” Official Journal of the European Union, Article 130 (formerly 108).
“it will be enough”: McHugh, “Draghi: ECB to Do ‘Whatever It Takes’ to Save Euro,” Associated Press.
Chapter 17: Never Again: Legacies of the Crisis
“integrity of Wall Street”: Frum, “Full Comment,” National Post.
“amounts of risk to build up”: Geithner, “Financial Crisis Amnesia,” Wall Street Journal.
“Because we can”: From a November 1998 conversation with then White House chief of staff Erskine Bowles, related in Clinton, My Life, 824.
“public views an issue”: Friedman, “Obama Should Seize the High Ground,” New York Times.
“learned anything from history”: Hegel, Introduction to the Philosophy of History.