Beginning in summer 2007,the value of some financial instruments backed by U.S. subprime mortgages declined sharply as it became clear that many of the borrowers would default on the mortgages. This caused a crisis as the banks holding the mortgages saw their assets decline in value and rushed to foreclose the loans.[11] Swagel investigated many of these mortgages for Treasury,finding that in many cases borrowers were in homes they could not afford.[10]
In early 2008,fearing that the crisis could escalate,Paulson directed Swagel and fellow Treasury aide Neel Kashkari to write a plan to recapitalize the financial system in case of total collapse.[12] The plan called for Congress to authorize Treasury to spend $500 billion to buy mortgage-backed securities from troubled banks,replacing them on banks' balance sheets with safe,liquidTreasury bills. This would prevent runs on the banks and encourage them to lend. The plan was conceived as an alternative to proposals from the staff of the House Financial Services Committee,then led by Democratic Representative Barney Frank.[13]
As the global financial crisis unfolded throughout 2008,Swagel played a key role in the U.S. government's response.[14] He argued for bold action to stabilize the banks,[15] and his and Kashkari's plan became the basis for the Troubled Asset Relief Program (TARP),which Kashkari ran.[16] Swagel also sat on the five-member investment committee within Treasury that decided which financial institutions would receive TARP funds.[17]
Shortly before leaving office,Swagel sparred with fellow economist Luigi Zingales at the annual meeting of the American Economic Association. Zingales charged the bailout had been costly and ineffective;Swagel countered that Zingales was underestimating the risks of doing nothing and neglecting legal constraints policymakers faced.[18] Shortly after leaving office,Swagel published an account of the government's response to the financial crisis in Brookings Papers on Economic Activity. He argued that Treasury's actions to stabilize the financial system were necessary and successful but that the administration had not adequately explained its actions and reasoning to the public. He also contended that policy disorganization,legal constraints,and political considerations prevented Treasury from doing more to limit the scope of the crisis.[19] However,at least one pundit thought Swagel sounded at times like a critic of the Bush and Obama administrations rather than the policy insider he was.[20]
Since leaving Treasury,Swagel has continued to comment on economic policy. He argued against giving Treasury "resolution authority" to seize and shut down failing banks,while acknowledging the dissonance between this position and his role in TARP.[25] Later,he came out against Daniel Tarullo's plan to limit the size of large U.S. banks,[26] instead praising a plan proposed jointly by the Bank of England and the U.S. Federal Deposit Insurance Corporation.[27] He made several proposals for reforming the government-sponsored enterprisesFannie Mae and Freddie Mac,[28][29] one of which inspired a bill in the U.S. Senate sponsored by Senators Bob Corker and Mark Warner.[30] He was one of several economists from the Bush administration who in 2010 supported Obama's plans to increase infrastructure spending.[31]
Swagel is currently a professor of International Economic Policy at the University of Maryland School of Public Policy. In 2019,Swagel was nominated to be the tenth director of the Congressional Budget Office (CBO).[32]
Dan Blumenthal,Phillip Swagel. Awkward Embrace:the United States and China in the 21st Century. AEI Press,2012. ISBN978-0844772356
Brent Neiman, Phillip Swagel. The Impact of Post-9/11 Visa Policies on Travel to the United States. CreateSpace Independent Publishing Platform, 2015. ISBN 978-1505390650
N. Gregory Mankiw and Phillip L. Swagel. Antidumping: The Third Rail of Trade Policy. (pamphlet) Foreign Affairs, July / August 2005[33]
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