2009 Reports

Responding to the Crisis

Stiglitz, Joseph E.

The financial crisis that began in August 2007 turned into a recession in late 2008, and is now well on its way to being the longest and deepest downturn since the Great Depression. There is a growing consensus that at certain critical times it has not been well managed. This chapter deals with the four critical problems: (a) monetary stimulation; (b) fiscal policy; (c) dealing with the foreclosure problem; and (d) rescuing failing financial institutions It was written in August, 2008, before the Lehmann Brothers bankruptcy, before the massive bank bailout, before Obama's stimulus package and his foreclosure program. As this chapter goes to press, some eight months later, much has changed—but remarkably, much has stayed the same. I have added at the end of three of the sections a brief "April 2009" postscript.