On this day in economic and financial history...
On Nov. 25, 2008, in the depths of a once-in-a-lifetime financial crisis, the U.S. Federal Reserve, in partnership with the Treasury Department, announced a plan to buy up to $800 billion worth of distressed financial assets. This action, arriving shortly after frantic federal policy responses had already made trillions of dollars available to foundering institutions, marked the beginning of quantitative easing in the United States -- although the term wasn't popularized until a second round, known as QE2, arrived two years later.
QE1, as it's now known, was intended to remove a tremendous amount of distressed assets from the market in the hopes that clearing away bad debts might prompt freer monetary flow in what was then a locked-up economy. Consumer debt, including credit cards, car loans, and student loans, was given its own $200 billion program as part of QE1, and up to $500 billion was allocated to shore up the toxic mortgage-backed securities of foundering government-sponsored entities Fannie Mae (FNMA 7.51%), Freddie Mac (FMCC 6.78%), and Ginnie Mae. Another $100 billion was set aside to buy debt issued by these entities directly.
Analysts and market-watchers remain bitterly divided over the impact of the Fed's quantitative-easing programs. However, one indicator reacted positively: the Dow Jones Industrial Average (^DJI 0.95%). QE1 ran until the end of June 2010, by which point $2.1 trillion worth of toxic assets had been hoovered into the Fed's coffers. Over this time frame the Dow rose from 8,500 points to more than 10,000 points before dropping into the summer sell-in-May period. Subsequent quantitative-easing programs have become so closely linked to the market's performance that many investors now expect a marked downturn in stocks once the Fed finally ends its purchases.
