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Global Financial and Economic Crises

Other Events in Economic History

Project: Global Financial and Economic Crisis 2007-Present
Open-Content project managed by KJF, mtuck

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Testifying to Congress on his opposition to raising taxes on the wealthy, millionaire financier J. P. Morgan Jr. says: “If you destroy the leisure class, you destroy civilization. The leisure class can be defined by people who can afford to hire a maid.” [Hunt, 9/1/2009, pp. 4]

Entity Tags: J. P. Morgan, Jr.

Category Tags: Other Events in Economic History, Commentaries and Criticisms

US banker Douglas McDermott says of the US-backed Venezuelan dictator Marcos Perez Jimenez, “You have the freedom here to do what you want with your money, and to me, that is worth all the political freedom in the world.” [Hunt, 9/1/2009, pp. 9]

Entity Tags: Marcos Perez Jimenez, Douglas McDermott

Timeline Tags: US International Relations, US-Venezuela (1948-2005)

Category Tags: Commentaries on Economic Issues, Other Events in Economic History

John Meriwether, formerly of Salomon Brothers, starts the process of collecting talented individuals to form a team to head a new hedge fund based on arbitrage deals surrounding government bonds. The “new” model will pull from George Soros’ Quantum fund tactics and high-level academic consultants to achieve possible gains in derivatives off fluctuations in the valuation of the government bonds. The fund will start with a $2-3 billion dollar investment fund, which, from its inception, will be managed by “some of Wall Street’s best traders and some of academia’s most influential minds.” [New York Times, 9/15/1993]

Entity Tags: Long-Term Capital Management, John Meriwether

Category Tags: Other Events in Economic History

According to President Bush, al-Qaeda has “targeted our economy” in the 9/11 attacks. Congress has already passed $40 billion in emergency appropriations for security and recovery, and another $15 billion in aid for the airline industry. Bush says the attacks make it paramount that his tax cut plan—largely targeted at wealthy Americans and corporations—be passed as soon as possible. “There ought to be more” tax cuts, Bush will later say, “to make sure that the consumer has got money to spend, money to spend in the short term.” [Roberts, 2008, pp. 89]

Entity Tags: George W. Bush, Al-Qaeda

Category Tags: Other Events in Economic History

ACORN (the Association of Community Organizations for Reform Now) launches a campaign to register thousands of new voters in Florida, using a referendum that would raise the state’s minimum wage as a method to drum up support. One study shows that the referendum, if enacted, would raise salaries among the working poor by $443 million. A coalition driven by ACORN registers some 210,000 new voters, mostly in urban areas, before Election Day. Opponents of the referendum—mostly business leaders and Florida Republicans—fight back by mounting an ad campaign comparing the effect of the raised minimum wage to the devastation wrought by Florida’s recent hurricanes, and labeling it a “job killer.” They also level accusations of voter fraud, accusing the coalition of filing thousands of fraudulent registrations. National and state Democrats are hesitant to embrace the referendum, even though some polls show that as many as 81 percent of Floridians support it. Presidential candidate John Kerry (D-MA) rarely mentions the referendum during his campaign swings through the state. Although Kerry loses Florida and Republicans win a majority of the Congressional elections, the referendum wins in a landslide, garnering 77 percent of the votes cast and winning in every county, including the conservative counties in the Panhandle. In 2010, author John Atlas will write, “Kerry made the fatal mistake of not publicly embracing the minimum wage ballot.” [Atlas, 2010, pp. 112-114]

Entity Tags: John Kerry, Association of Community Organizations for Reform Now, John Atlas

Timeline Tags: Civil Liberties

Category Tags: Other Events in Economic History

The outside of the Standard & Poor’s office complex on Wall Street.The outside of the Standard & Poor’s office complex on Wall Street. [Source: Satellite Radio Playground (.com)]The US loses its top-rank AAA credit rating from the financial services company Standard & Poor’s; the firm drops the US credit rating one notch to AA-plus. The US has never had anything but top-tier credit ratings in its financial history, and has top credit ratings from S&P since 1941. S&P makes its decision based on the huge Congressional battle over raising the US’s debt ceiling, normally a routine procedural matter that was used by Congressional Republicans, who threatened to block the ceiling raise unless they were given dramatic spending cuts by the entire Congress and the White House. (House Speaker John Boehner (R-OH) boasted that he and his Republican colleagues got “98 percent” of what they wanted in the debt ceiling deal—see August 1, 2011.) Because of the dispute, the US was hours away from an unprecedented credit default until legislation was finally signed and the default avoided. S&P also cites the government’s budget deficit and rising debt burden as reasons for the rating reduction, saying in a statement, “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” The drop in the US credit rating will result in a rise in US borrowing costs for American consumers, companies, and the government. US treasury bonds, once seen as the safest securities in the world, are now rated lower than bonds issued by countries such as Britain, France, Germany, and Canada. S&P says the outlook on the US’s credit rating is “negative,” implying another downgrade is possible in the next 12 to 18 months. A senior investment officer with a West Coast management company says such a downgrade was “once unthinkable,” and says the entire global economic system will be affected. After the fierce Congressional battle, President Obama signed legislation mandating $2.1 trillion in spending cuts over the next decade, but S&P officials had asked for $4 trillion in savings as a “down payment” for restoring the US’s financial stability. Part of S&P’s rationale for the downgrade is its assumption that Congressional Republicans will not allow tax cuts implemented by the Bush administration in 2001 and 2003 to expire as scheduled by the end of 2012. The Obama administration immediately notes that S&P’s made a $2 trillion error in calculating the US debt, an error that the firm acknowledges but says does not affect its decision to downgrade the US credit rating. A Treasury Department spokeswoman says, “A judgment flawed by a $2 trillion error speaks for itself.” [New York Times, 8/5/2011; Reuters, 8/6/2011] Credit rating agencies such as S&P have suffered tremendous damage to their credibility in recent years; a Congressional panel called the firms “essential cogs in the wheel of financial destruction” after what the New York Times calls “their wildly optimistic models [that] led them to give top-flight reviews to complex mortgage securities that later collapsed.” [New York Times, 8/5/2011]
S&P Explains Decision: 'Political Brinksmanship' - S&P explains its decision in a press release. The firm is “pessimistic about the capacity of Congress and the [Obama a]dministration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.” Fiscal policy decisions between Congress and the White House, the firm says, “will remain a contentious and fitful process.” The firm accuses Congressional Republicans in particular of “political brinksmanship” in threatening to allow a debt default if their conditions were not met, and says such tactics destabilize both the US and the global economy. “The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy,” the firm says. “[T]he majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the” legislation. “The outlook on the long-term rating is negative.” [Standard and Poor's, 8/5/2011] In an email before the debt ceiling was raised, S&P’s global head of sovereign ratings wrote: “What’s changed is the political gridlock. Even now, it’s an open question as to whether or when Congress and the administration can agree on fiscal measures that will stabilize the upward trajectory of the US government debt burden.” [New York Times, 8/5/2011]
GOP Presidential Candidates, Congressional Members Blame Obama - The day after the downgrade, Republicans in Congress and on the campaign trail blame the Obama administration for the downgrade (see August 6-9, 2011).
Economist Lambasts S&P, Blames Congressional Republicans - Nobel Prize-winning economist Paul Krugman lambasts S&P and blames Congressional Republicans for the downgrade (see August 5-6, 2011).

Entity Tags: US Congress, US House of Representatives, Timothy Geithner, Paul Krugman, Obama administration, Barack Obama, John Boehner, New York Times, Standard & Poor’s, US Department of the Treasury

Category Tags: USA, Other Events in Economic History, US Monetary Policy, 2011 US Credit Default

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