The Global Financial Crisis: Analysis and Policy Implications

Recent Developments and Analysis1

April 2, 2009. At the G-20 London Summit, leaders of the world's largest economies agreed to tackle the global financial crisis with measures worth $1.1 trillion, including $750 billion more for the International Monetary Fund, $250 billion to boost global trade, and $100 billion for multilateral development banks. They also agreed on establishing a new Financial Stability Board to work with the IMF to ensure cooperation across borders; closer regulation of banks, hedge funds, and credit rating agencies; and a crackdown on tax havens, but they could only agree on additional stimulus measures through IMF and multilateral development bank lending and not through country stimulus packages. The leaders reiterated their commitment to resist protectionism and promote global trade and investment. March 23. The U.S. Treasury released the details of its Public Private Partnership Investment Program to address the challenge of legacy toxic assets (mortgages and securities backed by loans) being carried by the financial system. The Treasury and the Federal Deposit Insurance Corporation with funding from the TARP and private capital are to purchase eligible assets worth about $500 billion with the potential to expand the program to $1 trillion. March 19. The International Monetary Fund projected global economic activity to contract by ½ to 1% in 2009—the first such fall in 60 years. The economic growth projections for 2009 include -2.6% for the United States, -3.2% for the Euro area, -5.8% for Japan, and 1.5% to 2.5% for the emerging and developing countries. March 18. The Federal Reserve announced that it would buy approximately $1.2 trillion in government bonds and mortgage-related securities in order to lower borrowing costs for home mortgages and other types of loans. February 13. With the passage of the $787 billion U.S. stimulus package, the United States joined with more than 30 other nations that have announced economic stimulus packages for their sagging economies. These include China ($586 billion), the European Union ($256 billion), Japan ($250 billion), Mexico ($54 billion), and South Korea ($52.5 billion). February 12. Director of National Intelligence Dennis C. Blair told Congress that instability in countries around the world caused by the current global economic crisis, rather than terrorism, is the primary near-term security threat to the United States.download