APUSH APUSH Period 9 1980 Present The Great Recession 2008 Financial Crisis TARP Obamas Stimulus

Why This Matters

The Great Recession, also known as the 2008 Financial Crisis, is a pivotal event in modern American history that highlights the consequences of unchecked capitalism, deregulation, and the complexities of global economic interdependence. This crisis serves as a prime example of the AP theme of Politics and Power, demonstrating how the actions of governments, financial institutions, and individuals can have far-reaching effects on the economy and society. Understanding the Great Recession is essential for grasping the larger period of American history, as it has shaped the country's economic policies, social safety nets, and international relationships.

Key Events & People

• Bernanke, Ben (2006-2014): Chairman of the Federal Reserve, implemented unconventional monetary policies to combat the crisis.
• Bush, George W. (2001-2009): Signed the Troubled Asset Relief Program (TARP) into law, providing $700 billion in bailout funds.
• Obama, Barack (2009-2017): Signed the American Recovery and Reinvestment Act (ARRA), a $831 billion stimulus package to boost the economy.
• Lehman Brothers (1850-2008): Investment bank that filed for bankruptcy, triggering a global financial panic.
• AIG (1919-2010): Insurance company that received a $182 billion bailout, sparking controversy over executive compensation.
• FDIC (1933-present): Federal Deposit Insurance Corporation, which insured bank deposits and helped stabilize the financial system.
• SEC (1934-present): Securities and Exchange Commission, which oversaw the regulation of financial markets and enforcement of securities laws.
• Paulson, Henry (2006-2009): Secretary of the Treasury, played a key role in negotiating the TARP bailout.
• Geithner, Timothy (2009-2013): Secretary of the Treasury, implemented policies to stabilize the financial system and stimulate economic growth.
• Reinhart, Carmen (2008-present): Economist who co-authored "This Time It's Different," a book that analyzed the causes and consequences of the crisis.

Cause & Effect Chain

• Cause: Deregulation of financial markets, particularly the Gramm-Leach-Bliley Act (1999), which repealed parts of the Glass-Steagall Act (1933).
• Effect: Increased risk-taking and speculation in the financial sector, leading to a housing market bubble.
• Long-term consequence: The crisis led to a significant increase in income inequality, as the wealthy were more likely to recover from the crisis than the middle and lower classes.

Essential Vocabulary

• *Subprime Mortgage*: A loan given to borrowers with poor credit history, often with high interest rates and fees.
• *Credit Crisis*: A situation where lenders become reluctant to lend, causing a shortage of credit and exacerbating economic downturns.
• *Quantitative Easing*: A monetary policy tool used by central banks to inject liquidity into the economy by buying government securities.
• *Bailout*: A government intervention to provide financial assistance to a company or industry in distress.
• *Stimulus Package*: A government program designed to boost economic growth by investing in infrastructure, education, and other areas.
• *Austerity Measures*: Policies aimed at reducing government spending and debt, often implemented during economic crises.
• *Systemic Risk*: A situation where the failure of one institution or sector can have far-reaching consequences for the entire economy.
• *Shadow Banking System*: Unregulated financial institutions and markets that operate outside of traditional banking channels.
• *Financialization*: The increasing importance of financial markets and institutions in the economy, often at the expense of traditional industries.
• *Globalization*: The increasing interconnectedness of economies and markets worldwide, which can both facilitate trade and create new risks.

Common Student Mistakes

• What students often get wrong: Confusing the Gramm-Leach-Bliley Act with the Glass-Steagall Act.
• Correction: The Gramm-Leach-Bliley Act repealed parts of the Glass-Steagall Act, allowing commercial banks to engage in investment activities.
• What students often get wrong: Believing that the TARP bailout was solely responsible for stabilizing the financial system.
• Correction: The TARP bailout was part of a broader package of policies, including monetary easing and fiscal stimulus, that helped stabilize the economy.
• What students often get wrong: Assuming that the Great Recession was solely caused by the housing market bubble.
• Correction: The crisis was the result of a complex interplay of factors, including deregulation, excessive leverage, and global economic imbalances.

DBQ / LEQ Connections

• Possible essay prompt: Analyze the role of government intervention in the Great Recession. Be sure to discuss the pros and cons of policies such as TARP and the stimulus package.
  • Evidence: TARP legislation, Obama's ARRA speech, Bernanke's testimony before Congress.
• Possible essay prompt: Evaluate the impact of the Great Recession on income inequality in the United States. Be sure to discuss the long-term consequences of the crisis on the middle and lower classes.
  • Evidence: Reinhart and Rogoff's "This Time It's Different," Congressional Budget Office reports, Pew Research Center studies.
• Possible essay prompt: Discuss the global implications of the Great Recession. Be sure to analyze the impact on international trade, financial markets, and economic relationships.
  • Evidence: G20 summit communiques, IMF reports, World Bank studies.

Quick Self‑Check

1. What was the main cause of the housing market bubble?
   • Correct answer: Deregulation of financial markets, particularly the Gramm-Leach-Bliley Act.
   • Explanation: The Gramm-Leach-Bliley Act repealed parts of the Glass-Steagall Act, allowing commercial banks to engage in investment activities that fueled the housing market bubble.
2. Which government program was designed to boost economic growth by investing in infrastructure, education, and other areas?
   • Correct answer: American Recovery and Reinvestment Act (ARRA).
   • Explanation: The ARRA was a $831 billion stimulus package signed into law by President Obama in 2009.
3. What was the name of the investment bank that filed for bankruptcy, triggering a global financial panic?
   • Correct answer: Lehman Brothers.
   • Explanation: Lehman Brothers filed for bankruptcy on September 15, 2008, marking a turning point in the crisis.

Last‑Minute Cram Sheet

• ⚠️ The Great Recession was not caused solely by the housing market bubble.
• ⚠️ The Gramm-Leach-Bliley Act repealed parts of the Glass-Steagall Act.
• ⚠️ TARP was a $700 billion bailout package signed into law by President Bush.
• ⚠️ The American Recovery and Reinvestment Act (ARRA) was a $831 billion stimulus package signed into law by President Obama.
• ⚠️ The Federal Reserve implemented quantitative easing to inject liquidity into the economy.
• ⚠️ The SEC oversaw the regulation of financial markets and enforcement of securities laws.
• ⚠️ The FDIC insured bank deposits and helped stabilize the financial system.
• ⚠️ The Great Recession led to a significant increase in income inequality.
• ⚠️ The crisis was the result of a complex interplay of factors, including deregulation, excessive leverage, and global economic imbalances.
• ⚠️ The global implications of the Great Recession were far-reaching, affecting international trade, financial markets, and economic relationships.