By Jacob M. Schlesinger and Hanna Sender 

There are similarities between the financial crisis of 2008 and the coronavirus pandemic of 2020. A sudden, jarring breakdown in the economy and markets, followed by a massive response from policy makers to try to prevent a 21st-century Great Depression.

One big difference: speed. Washington has this time done in weeks what took a year and a half back then.

The first signs of the financial crisis emerged in August 2007, when securities backed by subprime mortgages plunged. Congress and the White House ultimately allocated about $2 trillion to subdue the disaster. The final big piece wasn't enacted until February 2009.

This year, Congress has in March alone passed three laws throwing about the same amount of money at the problem, barely two months after the first officially reported coronavirus death in China.

Back then, the Federal Reserve was first to act, and for months took the lead as politicians were hesitant to deal with the complex, unpopular cause of aiding the banks. In retrospect, the Fed was also behind the curve, because it had to improvise measures to keep the financial system functioning. This time, the central bank has been able to quickly pull off the shelf a tested crisis tool kit.

One reason for the speed by authorities is that markets and the economy have crumbled much faster this time.

The decline also appears to be much deeper. At the low point of the great recession, gross domestic product contracted by an annualized 8%. Now, the median "pessimistic forecast" for a group of economists surveyed last week by The Wall Street Journal was a 10% drop for the quarter ending June 30. Morgan Stanley sees a more severe decline, saying Sunday that GDP could fall 30.1% for that period.

Another big difference between then and now: politicians worry much less about the budget deficit. As Congress weighed a big stimulus bill in early 2009, lawmakers labored to keep the price below $1 trillion -- a number they feared would look excessive. The $787 billion measure enacted was considered by many economists to be too tepid for the scale of the crisis.

In the coronavirus debate, the deficit gets scant mention. The starting point for this week's stimulus bill was $1 trillion, and a subsequent bidding war pushed the price tag to about $2 trillion.

For all the talk of paralyzing polarization, the political stars are better aligned this time for crisis response. In 2008, the country was led by a weak, unpopular, lame-duck president, George W. Bush, who couldn't count on support from his own Republican party. President Obama took over in 2009, facing staunch GOP opposition to his stimulus strategy. Those factors both delayed legislation and restricted the size and scope.

President Trump, in contrast, enjoys strong support from his party, unified behind his re-election, which rests heavily on the government's ability to contain the economic fallout from the pandemic. As for Democrats, then as now, they tend to be more supportive of big spending programs, regardless of who controls the White House.

The coronavirus crisis is still unfolding. And there are mounting signs the economic destruction could be far worse. In the depths of the last recession, the number of weekly initial claims filed for unemployment insurance never came close to a million. A record 3.28 million Americans filed for jobless benefits for the week ended March 21 -- nearly five times the previous record high set during the early 1980s recession. It's far too soon to know whether policy makers are responding fast enough to this crisis.

 

(END) Dow Jones Newswires

March 27, 2020 14:50 ET (18:50 GMT)

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