Christopher Dodd remembers the moment - vividly. Even though he
had witnessed a lot of history during his 30 years in the US Senate -
wars, impeachment proceedings, terrorist attacks - Mr. Dodd recalls
this encounter as one "seared in my memory."
It was Sept. 18, 2008. Lehman Brothers, the New York financial
firm, had collapsed three days earlier because of its risky
investments and the fall of the housing market. The Federal Reserve
had already bailed out Bear Stearns, another investment-banking
firm, and AIG, the big insurance company. Other Wall Street firms
were tremulous. The stock market was plunging. Credit markets were
seizing up nationwide.
Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson
Jr. called a meeting with top lawmakers. They met early that evening
in House Speaker Nancy Pelosi's Capitol Hill office, where a mural
on one hallway wall depicts - perhaps prophetically - a maiden
floating in the air with no visible means of support.
It was at this meeting that Dodd, who was in the room as the
chair of the Senate Banking Committee, remembers Mr. Bernanke, a man
usually as placid as the Federal Reserve's marble exterior, saying
flatly: "Unless you act in a matter of days, the entire financial
system of this country and a good part of the world will melt down."
A student of the Great Depression, Bernanke explained how such a
collapse would affect the economy, from bankruptcy at firms like
General Motors to soaring unemployment. The message for Congress was
blunt: The Fed and Treasury could no longer prop up companies one by
one. A more coordinated - and drastic - approach was needed. They
needed a Congress-authorized rescue plan.
Eventually Congress did act, after an acrimonious debate, passing
a rescue package that would allow the Treasury to inject billions
into troubled firms. During these chaotic days, the full depth of
the financial crisis began seeping out of the corridors of power in
Washington and into the living rooms and corporate cubicles of
Today, five years later, the United States and other nations are
still struggling with the task of recovering from the worst
financial crisis since the 1930s - and formulating how to prevent a
similar disaster from happening in the future.
The economy, despite massive revival efforts, is growing only
tepidly - a problem due in part to lingering effects of the crisis.
- One out of 5 mortgage borrowers today remains "under water,"
with loan balances larger than the home's market value.
- Unemployment in the US still hovers at a stubbornly high 7.4
percent - significantly higher at this stage than in any other
economic recovery since World War II.
- - Four years after the recession's official end, the Fed
continues to hold short-term interest rates near zero percent in a
bid to revive the economy - a remedy unprecedented in length and
magnitude in Fed history.
Such circumstances help explain why, in a new Christian Science
Monitor/TIPP poll, 36 percent of Americans say the financial crisis
has made the economy permanently weaker. Some 49 percent say the
crisis weakened the economy, but that the problems will ultimately
fade. Only 11 percent say the economy has already regained the
ground lost during the crisis.
The past five years have hardly been all gloomy. The economy has
improved, many debt-laden families and firms have cleaned up their
books, and both corporations and regulators alike have taken major
steps to make the financial system safer for the future.
Yet the task is far from finished. The Dodd-Frank Wall Street
Reform and Consumer Protection Act - Congress's major response to
the crisis, passed in 2010 - is only starting to be implemented. By
one tally, federal agencies have completed less than half of some
398 required rulemakings under that law.
What did the country learn from the crisis? Could a similar
collapse happen again? Here are five take-aways from a Great
Recession that has indelibly affected a generation, in America and
around the world. …