We begin 2009 hopeful that economists and policymakers are quicker to call an end to the recession than they were to declare the beginning of one. Our year started with the outgoing administration requesting the final $350 billion of the overall $700 billion in TARP funds. Upon taking office, we expect the incoming administration to submit to Congress a $825 billion American Recovery and Reinvestment Plan (ARRP or the Recovery Plan). These initiatives follow the unprecedented efforts in 2008 by the Secretary of the Treasury (Treasury), Federal Reserve Board (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC) and others to address the financial crisis that has gripped the country.

While observers, participants and policymakers have overwhelmingly come to the conclusion that no one factor is to blame for the current crisis, the precipitating event was the collapse of the mortgage market. Stagnant and falling home prices, and resetting adjustable-rate mortgages that couldn’t be refinanced, triggered rising foreclosures and began a downward spiral of home values. The resulting impact to the mortgage-backed securities market turned an American mortgage crisis into a global financial crisis.

Below we take a look at the reactions of the Treasury and others to the growing crisis, beginning with a review of the TARP. As we look ahead, we consider the modernization of financial system regulation that is needed to prevent future crises. Our current regulatory structure was born out of crisis, but has not kept pace with the innovation and globalization of financial instruments or markets. We hope that as we consider the transformation of our regulatory system, we will be able to learn from history and build a comprehensive system for the future, not one that only addresses the issues of the present.

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