Planet Money: The Financial Crisis One Year Later

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RENEE MONTAGNE, host:

A year ago today, by most accounts, the financial crisis that nearly brought down the world economy began. On September 7th, 2008, the U.S. government took over Fannie Mae and Freddie Mac, fired their management, and dismissed their boards - all in a desperate effort to prevent a global financial meltdown. We're going to be looking back on the financial crisis from various angles this week, starting with that first day, which turned out to be a long one for Adam Davidson - part of NPR's Planet Money team. Good morning, Adam.

ADAM DAVIDSON: Good morning, Renee.

MONTAGNE: Do you remember exactly the events of one year ago?

DAVIDSON: I - I remember every minute of that day. I really think that's true. For months, we had had rumors that Fannie Mae and Freddie Mac were in trouble. But I don't think a lot of people outside of Washington or Wall Street were paying a lot of attention. And then, all of a sudden, on Sunday - September 7th, was a Sunday last year - we started hearing they are collapsing, the government is stepping in and rescuing them, taking them over. I jumped on a plane. I mean, it felt like covering a war. I jumped on a plane and flew to an already-existing conference of mostly former finance ministers from around the world.

And interviewing them, I started hear language I never thought I would hear in my life. People were talking about the entire global economy coming to a total standstill. We have a global economy built on credit, Fannie Mae and Freddie Mac are crucial to that global credit system. And if they go down, the entire global economy collapses.

MONTAGNE: Wow. Adam, I mean, as you describe it, you know, seconds away. How close did things get on September 7th, really?

DAVIDSON: Well, it depends. I mean, if the government had not stepped in, the case is pretty persuasive that this would be far worse than the Great Depression. But there was never a chance that the government wasn't going to step in for Fannie Mae and Freddie Mac. That day was so intense that if nothing else happened, I'd say 2008 would be remembered as just a shocking, shocking year of financial crisis.

MONTAGNE: But other things, of course, did happen. Am I right that it was just a few days later that we heard of trouble in Lehman Brothers and also AIG -AIG, by the way, who most people had never heard of?

DAVIDSON: Exactly. I mean, this all happened over the weekend. By September 8th, by Monday, it was everyone's breathing a sigh of relief - oh, goodness. Gosh, that was weird. We almost brought down the local economy. Luckily that's done with. And then on Friday, the Federal Reserve and regulators were shocked to learn that the world's most respected insurance company, AIG, needed a government bailout, or else it would collapse and, we were told, would also bring down the global economy.

Then over the weekend, we learned that Lehman Brothers was about the collapse. And we also learned that this time, we're not going to rescue them.

MONTAGNE: And, Adam, as I said, we're going to spend a fair bit of time in the coming days remembering those horrible days of the fall of 2008. But take us back a bit further. How did we get there?

DAVIDSON: So, it is important to note what this week is the anniversary of. This is the anniversary of the acute stages of the crisis, of that period of time where it was reasonable to talk about the collapse of the global economy. But that came after well over a year of increasingly bad news about our financial system.

In early 2007, certainly by summer 2007, we were hearing, oh, there's a really big problem, but it's really contained. It's in the small area called subprime housing mortgages. Then it spread beyond the housing sector to a whole bunch of Wall Street banks. Of course, Bear Stearns nearly collapsed in March and was rescued.

So, it was a year ago today that we really learned this thing is not contained. It is spreading all over the country, all over the world and affecting all of us.

MONTAGNE: So, here we are, September 7th, 2009, a year later, the government has been doing extraordinary things to keep the economy healthy. Is, Adam, the crisis over?

DAVIDSON: This is the scariest thing to say, cause it is so hard to tell. The acute stage seems to be over, but some say it's just resting. There are real problems in commercial real estate. Also, it's worth noting that this crisis did not come to a natural organic end. The U.S. government is keeping this economy afloat.

If the U.S. government and the feds stopped, well, we'd be right back to September 7th, 2008. We'd be right back to talking about the collapse of the global economy.

MONTAGNE: NPR's Adam Davidson, beginning our coverage of the anniversary of the financial crisis, which will continue throughout this week. Adam, thanks very much.

DAVIDSON: Thank you, Renee.

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