This financial crisis was not inevitable. It happened when Wall Street wrongly presumed markets would continuously rise, and traded in complex financial products without fully evaluating their risks. Here in Washington, our regulations lagged behind changes in our markets -- and too often, regulators failed to use the authority that they had to protect consumers, markets and the economy.President Obama -- February 25, 2009
What nobody knew then was that on top of these long-term, chronic economic challenges we would soon be facing the most acute financial crisis in more than seventy years and the very real risk of a second Great Depression. In late 2007 through 2008, a massive housing debt bubble that had built up in the early 2000s began to burst-and a crisis that began on Wall Street very nearly brought down the entire Main Street economy.
When President Obama entered office, nearly 800,000 Americans were losing their jobs each month -- the equivalent of laying off the entire workforce of West Virginia every 30 days. The economy was collapsing at an annual rate of more than 8 percent. Deficits were projected to be more than $1 trillion before the President took the oath of office. Other indicators, like global trade and employment, were also collapsing at Depression-like rates. Nearly 9 million Americans lost their jobs in the Great Recession. More than 5 million lost their homes. Thirteen trillion dollars of household wealth was erased, far more as a share of total wealth than the losses that precipitated the Great Depression.
President Obama responded quickly and aggressively, marshaling $1.4 trillion of support for the economy in his first four years - through tax cuts, targeted investments, and support for keeping hardworking Americans on the job or helping the hardest-hit families make ends meet. The President rescued the auto industry, saving more than 1 million American jobs. And he stabilized the financial system with infusions of both liquidity and equity, backstopped critical markets, and stress-tested the banks to help markets understand their condition. The Obama Administration also helped millions of Americans refinance or modify their mortgages, so they could lower their monthly payments and avoid foreclosure. The Federal Reserve, acting creatively and aggressively under its independent authority, complemented these efforts. Economists Alan Blinder and Mark Zandi estimated that these policies prevented the loss of 8.5 million more jobs and the unemployment rate from rising to nearly 16 percent.
By the end of 2013, we recovered our pre-crisis levels of per-capita output, faster than in the majority of past systemic financial crises. This was also ahead of most other advanced economies confronting the global crisis. Between faster wage growth and falling gas prices, American workers have seen their inflation-adjusted hourly wages rise more than 5 percent since the end of 2012, more than double the cumulative growth from 1973 to 2007. This business cycle has seen the fastest growth rate of real wages of any since the 1970s. And in 2015, household incomes grew across the spectrum, with the largest gains for families at the bottom.
But the President knew that it was not enough to just come back from this crisis. We had to work to immediately do whatever we could to prevent this kind of a financial crisis from happening again. And so, even as he led the effort to get growth and job creation going, he also called his economic team into the White House and charged them with developing an aggressive plan for Wall Street reform that would lead to legislation that he could sign into law.
By the end of February 2009, President Obama called on his economic team to work - in consultation with Congress - to develop a framework for financial reform that reflected seven key principles he laid out to guide that reform effort in the coming weeks and months. President Obama then pushed his key economic and financial staff to work at a remarkable clip to deliver that framework, and it was released on June 17, 2009.
This framework was the basis for a year-long legislative push that culminated in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the President fought for and signed into law on July 21, 2010. President Obama and Congressional Democrats prevailed despite the relentless opposition by Republicans who fought against reform at every step of the way. The resulting law, which reflected the principles the President laid out when the process began and followed the contours of the framework his economic team put together - was the most ambitious revamp of the rules preventing abuse, recklessness, and irresponsibility in the financial system since the Great Depression. Among other things, this legislation and other Wall Street reforms put in place by the Administration:
These post-crisis Wall Street reforms have made our financial system more stable and supportive of long-term growth.
While Republicans in Congress predicted the sky would fall and that Wall Street reform would stifle growth and job creation, just the reverse has been true. President Obama hands to his successor a much stronger American economy than he inherited, that is now more than 10 percent larger than it ever was before the crisis began and with a record streak of job creation ongoing. Fifteen million private-sector jobs have been added since Dodd-Frank passed, while incomes rose at the fastest rate on record and poverty fell at the fastest rate in five decades in 2015. And our safer, stronger financial system has withstood a number of shocks in recent years without major financial firms failing or interruptions to the positive economic trends. So, Wall Street reform is working.
Learn more about how Wall Street reform works and the progress we have seen by checking out this slide presentation from the Treasury Department.