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New Members of Congress December 4, 2008

Explore the impact of the 2008-2009 economic recession on employment, financial markets, corporate governance, housing, and global economies. Uncover the origins of the crisis and its long-term implications.

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New Members of Congress December 4, 2008

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  1. New Members of CongressDecember 4, 2008 Jeffrey Frankel Harpel Professor of Capital Formation and Growth Harvard Kennedy School

  2. SEASONALLY ADJUSTED Employment peaked in Dec. 2007;since then we have lost almost 2 million jobs (12/5/08). Civilian labor force Civilian employment Payroll employment series Source: Bureau of Labor Statistics The unemployment rate rose to 6.8% in November (based on household survey). Unemployment rate

  3. On Dec. 1, the NBER Business Cycle Dating Committee announced that the recession had started December 2007. • This means that the recession is already • longer than 1990-91 & 2001 recessions (8 mos.) , • longer than average post-war recession (10 mos.) • Forecasts show no recovery before mid-2009 => Recession will be longer than any other post-war (16 months).

  4. Six-month Change in Payroll Employment at Annual Rate, September 1955 – November 2008

  5. Underestimated risk in financial mkts,incl. backward-looking option pricing Failures of corporate governance Incl. executive compensationrating agencies… Households saving too little, borrowing too much Federal budget deficits Monetary policy easy 2003-05 Excessive leverage in financial institutions Housing bubble Low national saving Stock market bubble Stock market crash Housing crash China’s growth Financial crisis 2007-08 Lower long-term econ.growth Eventual loss of US global hegemony Origins of the financial/economic crises Predatory lending Excessive complexity MBSs Foreigndebt CDSs CDOs Gulf insta-bility Oil price spike 2007-08 Recession 2008-09

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