e c o n o m i c r e p o r t p r e s i d e n t

more substantial declines. One particularly important market is that forcommercial paper (short-term notes issued by firms to finance key operatingcosts such as payroll and inventory). The market for lower-tier nonfinancial(A2/P2) commercial paper collapsed in the fall of 2008, with the averagedaily value of new issues falling from $8.0 billion in the second quarter of2008 to $4.3 billion in the fourth quarter. In addition, securitization ofautomobile loans, credit card receivables, student loans, and commercialmortgages ground to a halt.This freezing of credit markets, together with the decline in wealthand confidence, caused consumer spending and residential investment tofall sharply. Real GDP declined at an annual rate of 2.7 percent in the thirdquarter of 2008, 5.4 percent in the fourth quarter, and 6.4 percent in thefirst quarter of 2009. Industrial production, which had been falling steadilyover the first eight months of 2008, plummeted in the final four months—dropping at an annual rate of 18 percent.Many industries were battered by the financial crisis and the resultingeconomic downturn. The American automobile industry was hit particularlyhard. Sales of light motor vehicles, which had exceeded 16 millionunits every year from 1999 to 2007, fell to an annual rate of only 9.5 millionin the first quarter of 2009. Employment in the motor vehicle and partsindustry declined by 240,000 over the 12 months through January 2009.Two domestic manufacturers, General Motors (GM) and Chrysler, requiredemergency loans in late December 2008 and early January 2009 to avoiddisorderly bankruptcy.The most disturbing manifestation of the rapid slowdown in theeconomy was the dramatic increase in job loss. Over the first months of2008, job losses were typically between 100,000 and 200,000 per month.In October, the economy lost 380,000 jobs; in November, 597,000 jobs.By January, the economy was losing jobs at a rate of 741,000 per month.Commensurate with this terrible rate of job loss, the unemployment raterose rapidly—from 6.2 percent in September 2008 to 7.7 percent in January2009. It then continued to rise by roughly one-half of a percentage point permonth through the winter and spring; it reached 9.4 percent in May, andended the year at 10.0 percent.Wall Street and Main StreetAs described in more detail later, policymakers have focused muchof their response to the crisis on stabilizing the financial system. ManyAmericans are troubled by these policies. Because to a large extent it wasthe actions of credit market participants that led to the crisis, people ask whypolicymakers should take actions focused on restoring credit markets.44 | Chapter 2