From Ed (We Are Not in a Recession) Lazear and Keith Hennessey, “Bush ended financial crisis before Obama took office — three important truths about 2008″, FoxNews (9/16):
The financial crisis was caused principally by unprecedented capital flows into the United States (and other developed economies).
In September 2008 we, on behalf of President Bush, were part of a team that asked Congress to write a $700 billion check on behalf of taxpayers to bail out the failing largest banks. President Bush didn’t want to do this. We didn’t want to do this. Congress didn’t want to do it (and said no the first time). Our reservations were based on the potential cost to taxpayers and the moral hazard created by bailing out failing institutions and some of their creditors. Even today this program is famously unpopular, but the evidence is that it worked.
It was President Bush’s task to stop the financial panic that was occurring in the autumn of 2008. He and his administration succeeded.
All the major financial sector rescue policies were created and implemented during the last five months of the Bush administration.
The Bush team put Fannie Mae and Freddie Mac into conservatorship, proposed, enacted, and implemented the TARP and its main component, the Capital Purchase Program.
Treasury guaranteed money market mutual funds. The FDIC expanded its guarantee of deposit insurance and created new guarantees for small business accounts and interbank loans.
The Fed created new mechanisms for commercial paper and began paying interest on bank reserves. Fed, the Treasury, and FDIC took specific actions (many of which were loans and “bailouts”) for AIG, Citigroup, Goldman Sachs, Morgan Stanley, Washington Mutual, American Express, CIT, General Motors, and Chrysler.
Permit me a few observations.
First, it’s not so clear that by January 2009, the financial system had been saved; consider the three month LIBOR-US Treasury spread (TED spread). There was clearly still a lot of distrust, as shown by the TED spread (recall, it’s likely the TED spread understated the degree of risk, given the distortions in the market). By the end of the Bush Administration, the spread shrank to where it had been in the immediate run-up to Lehman.
Source: Bloomberg via Econbrowser.
Second, the article also resurrects the “Blame it on Beijing” view of the origins of the crisis. As if all that capital flowing into America came out of nowhere — that housing boom, deregulation of financial markets, etc. had nothing to do with actual deregulatory actions pushed by the Administration. More on the “Blame it on Beijing” thesis here and here. (Heck, I got seemingly infinite numbers of offers for credit cards in 2007, but I didn’t take ‘em all, borrow to the max, and then default.)
Third, I agree that the measures undertaken in the immediate aftermath of Lehman were extremely important, including the conservatorship of the GSEs, and implementation of TARP. See the discussion by Phill Swagel of crisis management during the height of crisis.
But, Lazear and Hennessey blur the distinction between Fed actions and those of the Administration. To say the Bush Administration ended the crisis overstates the case (to say the least).
Finally, the entire article reminds me of the person who builds a house in the middle of a big area of dry grass, lobbies against putting any regulations that might require tile rooftop, goes on and puts on a wood shingle rooftop, fails to clear away the dry brush surrounding the house, and then — when the house catches on fire — claims victory when one room is saved because a lawn hose was trained on that part of the house.
More from Professor Lazear, on the beginning of the recession , on the size and timing of the 2009 stimulus package  on the recovery  , and on structural unemployment  (note: he is on both sides of the issue here).