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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

Investors now look askance at once-solid state and local bonds, raising borrowing
costs for many states and making their task of balancing the budget even harder. Mu-
nicipalities in Florida, the state with the third-highest rate of home foreclosures, saw
borrowing costs rise when they sold  million in bonds in September .

Impact at the federal level

The federal government’s response to the financial crisis and the ensuing recession
“included some of the most aggressive fiscal and monetary policies in history,” said
the economists Mark Zandi and Alan Blinder. “Yet almost every one of these policy
initiatives remain controversial to this day, with critics calling them misguided, inef-
fective or both.” 
The government’s fiscal initiatives began soon after the recession started: the Eco-
nomic Stimulus Act of , signed into law in February, provided roughly  bil-
lion in tax rebates for households and tax incentives for businesses. In October ,
at the height of the crisis, the  billion TARP was enacted; and in early , the
American Recovery and Reinvestment Act of  was enacted to stimulate the weak-
ening economy, costing another  billion in tax cuts and government spending.
Beginning with the rate cuts in mid- through the implementation of the
TALF in early , the Federal Reserve provided support to the economy through-
out the crisis. Aside from its emergency lending programs put in place during the fi-
nancial crisis, the Fed put about . trillion into the economy from September 
to October —primarily by buying financial assets such as mortgages-backed se-
curities and Treasury bonds, a process known as “quantitative easing.” And in No-

vember , officials announced another  billion in easing, designed to keep
long-term and short-term interest rates down.
In October , the Treasury Department reported that the TARP program
would cost far less than the  billion that Congress had appropriated in the fall of
, because banks had begun to repay the Treasury in . In fact, Treasury said,
TARP would wind up costing about  billion, mostly owing to the bailout of the
automakers General Motors and Chrysler and the mortgage modification program. 
The latest estimates from the Congressional Budget Office (CBO) put its cost at 

billion. As reported earlier, the CBO projects that the economic cost of the GSEs’
downfall, including the financial cost of government support and actual dollar out-
lays, could reach  billion by .
Overall, as spending increased and revenues declined during the recession, the
federal deficit grew from  billion in  to . trillion in . And it is esti-
mated to have risen to . trillion in . 

THE FINANCIAL SECTOR:
“ALMOST TRIPLE THE LEVEL OF THREE YEARS EARLIER”
While the overall economy has struggled, the story for the financial sector is some-
what different. Like other sectors of the economy, the financial industry has cut