One name that has gained popularity is the “Great Recession”, which is dated as beginning with the bankruptcy of Lehman Brothers on September 15, 2008. This name conveys both the severity of what occurred, as well as the calamity of what was avoided. The contraction in real output in the six months following the demise of Lehman Brothers exceeded in size any other post World War II recession – in that sense, it was a great recession. However, aggressive monetary and fiscal policy actions both domestically and abroad were successful in preventing a complete meltdown of the U.S. and the world economy. In that sense, the name also emphasizes what the crisis was not. However, the name tends to focus one’s attention too much on the effect and not the cause of the crisis. An alternative name is the “Panic of 2007”, which is dated as beginning with the announcement by BNP Paribus on August 9, 2007, of its suspension of redemptions for three of its investment funds. This name stresses the financial crisis as the precipitating event leading up to the severe decline in real economic activity slightly more than a year later. The name conveys that at its very basic level, the crisis was a form of a banking panic. The parallel to the name “Panic of 1907” is also a reminder to us that history has a way of repeating itself unless we learn and apply its lessons well.
14 In December, the FOMC announced that it would begin to significantly expand its balance sheet through purchases of long-term assets including agency debt, agency mortgage-backed securities and long-term treasuries – the Large Scale Asset Purchase or LSAP program. Other interventions were taking place directed by different agencies and in conjunction with the Treasury. At the same time, fiscal policy was engaging with Congress approving the $ billion Troubled Asset Relief Program (TARP) program. Policy had entered the “whatever it takes” phase in an effort to keep the Great Recession from becoming something much worse. 15 By the spring of 2009, the various guarantees and backstop liquidity facilities covering different sectors of the shadow banking system were in place. The last element required to deal with the Panic of 2007 was to address the uncertainty over the viability of the large systemically important financial institutions. A horizontal review of the 19 largest financial firms was conducted to assess their capital needs under a “worse-than-anticipated economic scenario” – this was called the Supervisory Capital Assessment Program or SCAP (you can tell that we are fond of acronyms). There were two design features of the SCAP program that were essential for its ability to reduce the uncertainty in financial markets. First, the process was designed to be transparent with both the methodology published up front and the firm-by-firm results published at the conclusion. Second, if a firm was deemed to need capital but was unable to raise it in the  14  See Brian Sack. 2010.