“the big banks blew themselves up”
— Simon Johnson
What, you want more? How about this primer, one clause at a time:
The big banks blew themselves up,
along with a gigantic housing bubble that they did much to inflate.
The collapse of house prices meant the collapse of the largest component of Americans’ wealth.
With banks in trouble and consumers having less money in their house-shaped piggy banks,
credit got harder to obtain
and consumers spent less,
which also caused firms to invest less.
Those last two things caused unemployment to skyrocket.
The Fed and Congress bailed out the banks,
which stabilized the banks,
but couldn’t get them to lend money
and couldn’t get nervous, indebted consumers and businesses to borrow money.
The Fed did practically everything it could to boost the credit markets,
by cutting its main interest rate to zero and creating lots of bank reserves,
but it wasn’t enough.
The government passed spending and tax stimulus bills to boost the economy,
but the stimulus was too small.
Another stimulus could help close the gap,
but the same folks who didn’t object to deficit spending for wars and tax cuts,
have a big problem with deficit spending for other purposes.
Let’s just hope the economy comes back on its own,
because that seems to be the only hope right now.