Financial Crisis

Issues: Economy

Congressional action was clearly needed to stabilize credit markets that were thrown into turmoil by the global financial crisis. What might have started as a Wall Street problem quickly became a full scale problem on Main Street -- for families, state and local governments, the auto industry and many types of small businesses. For this reason, Congress approved $700 billion for the Treasury Department at the request of the Bush Administration to promote financial market stability and restore the flow of credit under the Troubled Asset Relief Program or “TARP.” As a result of this extraordinary and difficult intervention, the nightmare scenario of a financial collapse was avoided and markets have stabilized.

Despite Congressional efforts to ensure rigorous taxpayer protections and oversight of the program, many of us were disappointed with the way the first $350 billion of this money was spent. There were disturbing stories of corporate junkets, bonuses and office redecorations. Despite some progress, credit remains too difficult to obtain for too many families and businesses and foreclosures continue to mount.

Partly due to pressure from Congress for its use of the first portion of TARP funding, the Obama Administration took a number of steps in its use of the second $350 billion in TARP funds. Specifically, the Administration has devoted $75 billion to help keep families in their homes through the Making Home Affordable programs.  In addition, the President signed the Small Business Jobs Act into law in September 2010.  This legislation includes a program to spur small business lending through community banks, and a program that I developed with colleagues from Michigan and elsewhere to provide funding for state small business credit programs. 

The Administration responded to the concerns raised by many of us in Congress and taken important steps to use these funds with more transparency and accountability, and has appointed a Special Master to monitor and approve executive compensation at the firms that have received the most TARP assistance.  Today, more than 93% of TARP funding has been repaid, and the Treasury Department projects that the final cost of the program will be approximately $38 billion – significantly lower than the $700 billion originally authorized by Congress.  

Wall Street Reform and Consumer Protection Act

During the financial crisis, our nation was faced with painful dilemma: risk the collapse of our financial system and a second Great Depression, or take action to stabilize financial markets.  On July 21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law.  This comprehensive financial regulatory reform will help to ensure that we are never again forced to choose between bailing out banks and saving our economy.

In the run up to the financial crisis, rampant speculation, and in some cases fraud, in the residential housing and mortgage markets combined with an explosion of complexity in our financial markets to create a bubble that when it burst, rippled through our entire economy.  The financial crisis that began in 2008 was the worst since the Great Depression and was enabled and made worse by a lax regulatory environment that for many years failed to properly supervise financial markets and control the risks Wall Street was creating. 

Under the Wall Street Reform Act, for the first time, there is now a federal regulatory body, the Financial Stability Oversight Board with the responsibility to identify and address systemic risks to our economy. Transparency will be brought to derivatives markets so that these complex financial instruments cannot transmit shockwaves through our financial system.  Consumers will be able to get the clear, accurate information they need to shop for credit cards, mortgages and other financial products, rather than being sold products that are too good to be true by unregulated lenders who know they are unaffordable.

The Wall Street Reform Act also created the new Consumer Financial Protection Bureau (“CFPB”).  Under the Reform Act, most Federal consumer financial protection authorities were consolidated into the CFPB, which was given the responsibility for supervision and enforcement of the laws over providers of consumer financial products and services.  Click here to learn more about the CFPB, or submit a complaint to if you’ve experienced difficulties with a financial product.

(Updated May 14, 2013)