The Simple Graph That Shows the History of the Great Recession
On the five-year anniversary of the start of the Great Recession, it is important to understand the basic history of the events that happened from 2007 to 2010.
The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).
According to the National Bureau of Economic Research, there were 10 recessions between 1948 and 2011. But the global recession of 2008-2009 was the worst economic downturn since the Great Depression of the 1930s. Nine million Americans lost their jobs; at its peak, unemployment hit double digits. America’s economic woes echoed throughout the globe — nearly all developed and developing nations suffered extreme economic setbacks.
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The crisis drew significant attention to the risky investment strategies of many large financial institutions and lead to various emergency recovery efforts and subsequent regulations.
This graph illustrates the events of the 2007-2009 recession. On the left axis is the Standard & Poor’s, an index of the market capitalizations of the 500 top public companies — a common representation of the state of equity markets and also the state of the U.S. economy. On the right axis is consumer sentiment — peoples’ confidence in the market.
Bear Stearns collapsed in March 2008. Lehman fell six months later (five years ago) in September 2008, declaring bankruptcy on September 15, 2008. In the massive dip shown on September 29 of 2008, the Dow Jones – an indicator of the stock market — fell by 778 points.
The Dow was at about 11,000 when Lehman went under. It dropped to 8,500 within three weeks. For context, it is at 15,537 today.
On October 3, 2008, President George W. Bush signed the Troubled Asset Relief Program (TARP), designed to purchase assets and stocks from about 700 financial institutions. Every large bank was required to accept the money. The Treasury wrote that the program’s purposes were to prevent the collapse of the financial system, restart economic growth, and restore access to credit and capital. TARP originally authorized government expenditure of $700 billion, but the estimated cost ended up at about $340 billion.
President Obama took office a couple months later in January of 2009 — unfortunate timing, depending on your opinion. Shortly after his inauguration, the S&P began to rise, and as shown on the graph, consumer confidence and sentiment started to increase around March.
The first banks paid back the TARP money in June 2009. On July 21, 2010, Dodd-Frank was signed into law, giving regulators more control to dismantle and resolve large financial institutions if necessary.
So where are we now?
As of this past August, the unemployment rate was 7.3%. It was 5% pre-recession, roughly an ideal rate. According to a recent Pew report, only one third of Americans think we’re better off now then we were then.