Jobs, Housing, Bailouts and -- Yes -- Tiger Woods: The Top 10 Economic Stories of 2009

With economic growth finally turning positive, Federal Reserve Chairman Ben Bernanke declared the recession over in September. But, with non-farm employment falling every month for the past two years, joblessness above 10 percent for the first time since the early '80s, 16 million Americans being unable to find work, and hundreds of thousands having given up even looking for it, many Americans still feel in a crisis mode. Thus, though the recession may technically be over, the economy still has a long way to go before America is back to work again.

2. Housing crisis: Foreclosures reach record levels, home prices keep falling, and construction turnaround is nowhere in sight

The 2007 housing meltdown that erupted into a full-blown economic crisis in September 2008 continued to drag down America's economy through '09. It's difficult to see the end of the housing crisis, as the news is bad all around: a record 1 million homes are in foreclosure and the number of seriously delinquent mortgages is 75 percent higher now than last year. More worrisome, the problems are no longer limited to the subprime area, as the delinquency rate for prime mortgages has more than doubled since last year and the share of mortgages that are not in trouble has declined for six quarters in a row. Despite the help provided through the administration's Making Home Affordable program, more than half of these modified mortgages have fallen back into default within six months.

Even the good news is not that good. Home prices may no longer be falling as rapidly as they had been -- average prices dropped 9 percent in the most recent quarter, compared with a nearly 20 percent fall in the first quarter of 2009 -- but with two straight years of quarterly price declines, the typical home now sells for what it did in the fall of 2003. The housing market in many cities, such as Detroit (where prices remain below their 2000 levels) and Las Vegas (where prices have fallen for more than 37 months in a row), remain significantly depressed.

Most worrisome of all, the single-family home-construction market remains in a deep slump. As well-intentioned as it may have been, the temporary $8,000 tax credit for new homebuyers did not turn the housing market around. New home permits, housing starts, and privately-owned home completions are all lower now than they were in October 2008.

3. Health care reform: Progress made, but many miles to go

With the Senate and the House having finally passed reform packages, reconciling the two bills is the final step needed for President Obama to sign into law a program that has eluded his predecessors for nearly 50 years. Reaching compromise will not be easy, of course, as the House and Senate bills differ significantly in three major areas: the availability of a "public option," coverage for abortion services, and eligibility for illegal immigrants. In addition, the House and Senate disagree on how to pay for reform. The House would pay for it by levying a 5.4 percent surtax on high-income earners, while the Senate would levy a 40 percent tax on employer-provided high-end "Cadillac plans," increase the Medicare payroll tax on high-income earners, and increase fees on most health insurers and some medical-device suppliers.

4. Auto industry bailouts and "cash for clunkers"

In a fortuitous reading of the political tea leaves, President Obama rescued the American automobile industry with a $30 billion bailout to General Motors and Chrysler (the other major U.S. automaker, Ford, did not need assistance). Although both companies filed for bankruptcy protection in late spring, Chrysler later agreed to be sold to Italian carmaker Fiat, while GM emerged from bankruptcy in early summer.

Continuing its help for the auto industry, Congress passed the "cash for clunkers" bill that gave new-car buyers up to $4,500 in tax credits for exchanging their old, gas-guzzling clunker for a new, fuel-efficient model. This program boosted car sales by nearly 700,000 in late summer, but sales fell just as dramatically when the program expired, leaving many to conclude that the program merely shifted forward purchases that would have happened anyway.

5. Bonuses at AIG and Goldman Sachs: The tax that didn't happen and the profits that did, and the winding down of TARP

In March, news that $165 million in bonuses would be paid at AIG, a company that the U.S. government spent $180 billion rescuing, sparked widespread outrage. Within days, the House had passed legislation to levy a 90 percent tax on bonuses given by companies that had received more than $5 billion in federal bailout funds, but by the end of the week, this anger had dissipated and the bonus tax was nowhere in sight. In a puzzling event, Congress did not even blink when Goldman Sachs, which received $10 billion in bailout funds, reported that it was about to pay more than $16 billion in bonuses.

In the meantime, banks that had benefited from the government's $700 billion bailout of the financial sector took advantage of the weakened competition and earned handsome profits. According to the New York State comptroller, Wall Street firms collectively earned more than $22 billion in the first three quarters of 2009 and six of the largest bank holding companies had set aside $112 billion for compensation.

Most of the large banks that received bailout funds in 2008 have paid back their loans and exited from the Troubled Asset Relief Program (TARP). Their motivation, however, was hardly magnanimous, as some banks took this step largely to avoid restrictions on executive pay rather than because they were financially healthy. In a related matter, President Obama signaled his displeasure with the banks, which have failed to use their funds to increase lending, when he criticized "fat cat" bankers for their lack of gratitude and reluctance to help the American people who rescued them out a year ago.

6. Financial reform stalled; Madoff goes to jail; IRS nabs thousands of tax cheats

To no one's surprise, financial regulatory reform did not happen. The House did pass the Wall Street Reform and Consumer Protection Act in December, but the bill has so many exemptions it is unlikely to help prevent another financial crisis, much less to restrict the practices that led to arcane mortgages with their low teaser rates, adjustable payments and negative amortization, all of which contributed to the housing meltdown. The financial industry can claim credit for many of the loopholes, such the exemption of many derivative credit products from organized exchanges and limits on the power of the new Consumer Financial Protection Agency. (The industry spent more than $300 million lobbying on regulatory reform issues and, according to a report in the Christian Science Monitor, has nearly five lobbyists for every member of Congress.)

Despite the federal rescues of institutions such as Citigroup, AIG and Bank of America, politicians could not agree on what to do about institutions deemed "Too Big to Fail." New York Democrat Barney Frank proposed creating "corporate death panels" that would dismantle institutions the Treasury Department considers systemic risks to the economy. Over in the Senate, Banking Committee Chairman Christopher Dodd would create a consolidated bank regulator to maintain financial stability. The administration had its own ideas. FDIC chair Sheila Bair called for a future bailout fund financed by levying an upfront fee on financial institutions; to avoid the moral hazard problem that arises when companies know that they will be saved when their financial risks go wrong, Treasury Secretary Timothy Geithner would levy a fee on financial institutions only after one of them required rescue.

One villain from the financial crisis is paying a heavy price for his deeds. Bernard Madoff, the promoter of a Ponzi scheme that he says led to investor losses of $50 billion, began his 150-year jail sentence for multiple fraud and securities violations in July. In addition, the IRS hauled in a record number of tax cheats during 2009 when nearly 15,000 Americans took advantage of a temporary amnesty program and confessed to using offshore bank accounts to hide billions of dollars, and the associated tax payments, from the IRS. This success stems largely from former UBS banker Bradley Birkenfeld, who, in admitting that he helped one of his UBS clients commit tax evasion, also told how UBS abetted that evasion. (In February, UBS admitted to violating U.S. law and paid a $780 million fine as part of a settlement.) Birkenfeld hopes to claim a whistle-blower reward from the IRS; unfortunately, he will first have to serve a 40-month prison sentence, due to begin in January (though Birkenfeld has sought a delay).

7. Climate change at Copenhagen and the economics Nobel prize

Despite the presence of representatives from 193 nations and years of preparation, the U.N. climate change conference in Copenhagen was on the verge of collapse when President Obama saved the day -- at least from a U.S. perspective -- when he arrived to negotiate with his Chinese counterpart and left with China's agreement to cooperate on some downsized goals. Prior to those negotiations, the United States had helped create an opening to an agreement by offering to participate in a $100 billion fund to help developing countries meet their emissions-reductions goals.

In related environmental news, Indiana professor Elinor Ostrom became the first woman to win the Nobel Prize in Economics, which she earned largely for her work on how individuals with different interests can work collectively to protect a common resource. The fact that people can reach this outcome without resorting to government-imposed rules and regulations perhaps suggests that local communities can work to reduce carbon emissions even in the absence of global rules.

8. Federal red ink rises and state budget woes grow

As the Peterson-Pew Commission on Budget Reform so aptly pictures it, the federal government is drowning in a sea of red ink. The federal government spent $1.4 trillion more than it collected last year, and consequently drove the federal debt burden to nearly $12 trillion. As some experts said in a Dec. 14 conference, with no change in policy, federal debt will be more than two times as large as GDP in little more than a generation. (Peterson-Pew recommends 60 percent of GDP.) Congress, however, shows no willingness to confront this rising tide by reducing spending or raising taxes. Thus, with this fundamental disconnect between the services people expect to receive and the taxes they are willing to pay, there is no end in sight to the sea of red ink engulfing the federal government.

Budget problems are not limited to Washington. Out in Sacramento, California Gov. Arnold Schwarzenegger faced a multi-billion-dollar budget deficit that forced him to issue IOUs for state tax refund payments, increase the sales tax, cut billions in funding for public education, furlough state employees, increase tuition at the fabled UC university system by more than 33 percent, and nearly double the vehicle license fee. This latter effort must have been particularly difficult for Schwarzenegger, as he was elected during an exceptional recall vote largely on his promise to eliminate the car tax. The problems are not limited to California. According to the Center on Budget and Policy Priorities, states will accumulate $166 billion in deficits in the current fiscal year. Only two , North Dakota and Montana, are not spending beyond their means.

9. Tiger Woods and the dangers of the celebrity endorsement