In recent months, the international financial system has experienced the most severe turmoil since the Great Depression of the 1930s—stresses that in September 2008 came close to completely freezing up the flow of credit that is the lifeline of all economic activity. The ensuing bankruptcies and fire sales of financial powerhouses and the government's interventions, have fundamentally changed the structure of Wall Street and international financial markets.
At this point, actions by the U.S. Federal Reserve, U.S. Treasury, and other countries' financial overseers have brought the financial system back from the brink of collapse. The Obama administration and Congress have taken further steps, including the enactment of an economic stimulus package of unprecedented proportions. Efforts are also under way to identify improvements in regulatory and market structures needed to address the flaws that produced the crisis.
Although the real-world impact of financial chaos is just beginning to unfold, it is useful at this point to contemplate the implications for private foundations and the constituencies they serve. I begin with a summation of the causes of the crisis, and then discuss the impact on markets in general and private foundations in particular. Next, after presenting a framework for analyzing the extraordinarily diverse U.S. private foundation sector, I offer some lessons on endowment management that foundations might take from the ongoing crisis. Finally, I turn to thoughts on how the spending plans and program strategies of these institutions are likely to be affected as they survey the damage that has been inflicted in recent months.
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