Today in History: the Beginning of the 2008 Recession

Whether you want to call September 29, 2008, the “beginning” of the recession probably depends on the kind of economist you are (or aren’t). By today, both Lehman Brothers and Washington Mutual had filed for bankruptcy, and Bear Stearns was long gone, having been sold through a government-arranged deal to JP Morgan Chase in March. It was clear that there was a financial crisis going on. There weren’t so much canaries in the coal mine as an entire menagerie of birds, all cawing about the noxious fumes of subprime mortgages.

Still, on September 29, 2008, the U.S. House of Representatives voted against the Emergency Economic Stabilization Act of 2008, a bill with the funds needed to prop up the financial system and stave off a deep and lasting economic depression. In response, the stock market fell apart. The Dow Jones Industrial Average sank 7%, its largest point drop in history.

Lawmakers at the time balked at the $700 billion price tag, although just a decade later they would push through the $2,200 billion Coronavirus Aid, Relief, and Economic Security Act. Notably different, though, was that the 2008 bill gave financial support to businesses while the CARES Act supported both businesses and individuals.

A protester outside AIG‘s headquarters at the American International Building in New York City is interviewed by a news crew. Credit: David Shankbone, CC BY 3.0 license. Read his blog post about this photo.

This was a lingering result of what is sometimes named the “Great Recession,” the economic crisis that peaked in 2008. The government aid at the time was sufficient to keep the economy from stalling out but economic activity slowed and – without sufficient safeguards to protect against misuse – millions in government aid paid salaries and bonuses for banking executives who the public viewed as responsible for the crisis in the first place. Putting cash into banks that were foreclosing on homes and into businesses that were laying off workers felt like it was shoring up the wealthy at the expense of the broader public, so when it came time to ward off another economic crisis amid the coronavirus pandemic, Congress made sure it put money in the pocket of everyday folks, too. It also put strict rules on how businesses that got bailout funds could use them, including a prohibition on firing in the airline industry that recently expired.

But the changes in how the federal government provides aid are not absolute. Republicans have blocked further coronavirus aid out of a misguided fear that it discourages people from seeking employment (which, one: that’s the point in some circumstances and two: it doesn’t). President Trump supports expanding relief but has little real political power on Capitol Hill and hasn’t been able to push Republicans to his side; instead, he pushed a unilateral executive order that was far less effective than congressional action. If Republicans maintain their control in the next term, it seems likely that the CARES Act will have been an accident, a brief moment of understanding about the importance of including all Americans, and not just the wealthiest of them, in economic relief.

Featured image by Aditya Vyas