Edited by Kenneth Button and Aura Reggiani
Chapter 3: The Global Economic Crisis, Investment in Transport Infrastructure, and Economic Development
Andrew R. Goetz 3.1 INTRODUCTION On September 18, 2008, the Secretary of the US Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke held a meeting with leaders from the US Congress, informing them that without direct government intervention to save troubled financial institutions, the United States economy was in grave danger of a complete meltdown within a few days. The roots of this economic crisis lay in the subprime mortgage market, in which billions of dollars in toxic assets were packaged, re-packaged, and sold in ever-larger bundles to financial institutions which then ultimately became stuck with huge financial liabilities. After an initial bailout package was voted down, the US Congress soon thereafter approved a $700 billion federal bailout, authorizing the US Treasury Secretary to buy troubled assets from and provide capital injections to the major United States banks. These actions helped to avoid a complete economic meltdown, but the scale of the problem nevertheless led to a global economic crisis, plunging the United States and many other countries around the world into a severe economic recession. The United States stock market plummeted from a high of over 14,000 in the Dow-Jones Industrial Average in October 2007 to a low of 7000 in December 2008. The United States gross domestic product declined at an annual rate of 6 percent during the last quarter of 2008 and the first quarter of 2009. The United States unemployment rate grew to over 10 percent by October 2009. Across the world, too, economic...
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