Here are your options for your Chapter 3 essays: (Remember chose 2 of the three)
1) Describe the federal system as formulated in the original design of the Constitution. Explain how federalism has evolved or changed since the writing of the Constitution, particularly in terms of the establishment of national supremacy.
2)Explain what happened in the Supreme Court cases of McCulloch v. Maryland and Gibbons v.Ogden? What is the importance of each case to the distribution of powers between the states and the national government?
3)Explain and give specific examples of the advantages and disadvantages of federalism for democratic government.
YOUR ESSAYS NEED TO BE HANDWRITTEN THE NEXT PART NEEDS TO BE A POST ON THE BLOG BY SUNDAY AT MIDNIGHT.
After watching and taking notes during the film (JACOB!!!) please give me a 3 paragraph(6 sentences per paragraph) detailed response telling me how we got to this point, what investment banks caused the windfall and how is the government going to help Wall Street out of this mess. You probably want to draw parallels to Chap 17 and by probably I mean you want to. Good Luck!
http://www.pbs.org/wgbh/pages/frontline/meltdown/
16 comments:
“Hello, my name is Travis Andersen and I recently watched a documentary called ‘The Meltdown’, which aired on PBS.”1 This documentary covered the topic of our economic meltdown in Wall Street in September of 2008. I found this documentary very helpful, and very interesting. It gave me knowledge in this area, where I wasn’t so sure I knew exactly what was going on. This wonderful documentary provided me with the capability to comprehend chapter 17 in our AP Government book. I find these front line documentaries by PBS tremendous.
“The Meltdown” concerned the finical crises that began in September 2008. Head of the Federal Reserve Ben Bernanke and Treasury Secretary Hank Paulson attended a meeting in Nancy Paloses office due to the enormous amount of unregulated money, which is due to the Free Market economy in America. The bank that triggered it all was Bear Stearns. Bear Stearns had invested in credit default swaps and mortgages called sub prime loans, which later became known has toxic assets and what they would do was bundle up thousands of these loans, make them into securities and sell them to investors, and when the housing market crashed, so did Bear Stearns. When Tim Geithner found out, he decided to give Bear Stearns a bail out which would be paid with American tax payer money, which was given to JP Morgan, so they could give it to Bear Stearns. Within the next couple of days Lehman Brothers to would fail, because of the toxic assets they had invested in. This time, the Government would not bail them out, because of moral hazard. Hank Paulson used them as an example for Wall Street to get their act together. Lehman brothers drank their own kool aid as some would say.
There needs to be regulation on Wall Street, so nothing like this ever happens again. This has been the worst economic crisis since the Great Depression, and whats been called the Recession, is starting to feel like a Depression for some people. If Wall Street is regulated like gaming is (gaming has more regulations than Wall Street, which is hard to believe) than that’s a step in the right direction. More focus I believe needs to be put on the banks as well. If the banks fail, we are in for a bad ride. If the banks are more stable, than it will give investors more confidence on Wall Street and take the money from the sidelines and put it in play. This video gave me a better understanding of how Wall Street works and I’m glad I was able to watch it.
Work Cited
1. Agpawa, Leo. Personal Interview. 13 March, 2009.
“Hello, my name is Leo Agpawa and I recently watched a documentary called ‘The Meltdown’, which aired on PBS”1. It is a wonderful documentary about how we got to the current state of our economy. “The Meltdown” identified the significant figures in the entire situation. It also breaks down the entire situation in a dramatic fashion. The music and images were very motivating, and provided necessary intensity to show people how serious our situation really is. Along with that, it assisted me in further understanding chapter 17 in our Government textbooks.
The free market economy is what got us into this situation. The government allowed the market to run wild and deregulated the banks and big businesses because they thought that we could be responsible. This was essentially an effort towards implementing the idea of a Republic, which puts power into the hands of the people. However, the people were not responsible with their power and made awful economical decisions. The meltdown began with Bear Stearns in September of 2008. They invested in credit default swaps sub-prime loans, made them into securities and sold them to other companies. That intertwined Bear Stearns with several other companies, meaning that if they fell, they would cause a domino effect and bring everybody else they sold their toxic assets to with them. Tim Geithner saved Bear Stearns by allowing JP Morgan to bail them out. Lehman Brothers were in the same situation; however, the treasury secretary, Henry Paulson, and head of the Federal Reserve, Ben Bernanke didn’t bail them out because they didn’t know how many other companies were connected with Lehman Brothers’ toxic assets. Paulson and Bernanke were attempting to use Lehman Brothers as an example to other companies by sending the message that bailouts would not be provided and corporate leaders need to stop messing around. Lehman Brothers triggered a domino effect and brought several other companies down with them because Paulson and Bernanke were unaware about how interconnected they were with others and allowed them to collapse.
Although they were the first to fall to toxic assets, Bear Stearns should not be entirely at fault for the situation. There were several other companies that made the same bad investments as Bear Stearns did; they just happened to be the first to get caught. The irresponsible companies that invested in toxic assets should all be at fault for this economic downfall. Now, our government must bail them out in order to save our nation, and other countries throughout the world. As mentioned in the documentary, we are connected to several other nations, and when our economy declines, others do too. Bailing these companies out is essentially all we can do, because if we allow them to fall, our economy will crumble down to the bottom of the barrel. In summary, I think that the free market economy is a great idea. I like the idea of giving power to the people. However, the people must be responsible with their power, and that was not the case this time. Therefore, we can’t be trusted with a free market, and the government needs to regulate and monitor the economic actions of banks and businesses. The free market will only work if we’re responsible, and judging by the state of our economy, we’re not.
Works Cited
Andersen, Travis. Personal Interview. 13 March, 2009.
It all start with the housing market. Most Americans were buying and selling houses that they couldn't afford. Investors started to in invest on these houses. But in the end of the summer of 2007 the housing market start to drop because there was no real money being made. And since there was no true money, houses that were sold or bought were starting to be foreclosed on. This housing market burst causing investors that invest in it were destined to fail as well.
Bear Stern's became in trouble, so people started to pull their money investments out. Bear's tried to find a buyer but JP Morgan and the Fed found that Bear has toxic assets, like: Sub prime mortgages and credit default swaps (illegal insurance). Secretary Paulson said that this "financial institutions must be allowed to fail" but when Bear Stern failed it affect Fannie and Freddie Mac. Paulson soon ask the government to help, so the government take 80% ownership of Fan and Fred.
Bern Stern failure effected Lehman Brothers. Lehman Brothers didn't give out all their paper work to Fed to look at; Lehman hid their toxic and their direct connection to Wall Street. Paulson didn't want to bailout Lehman Brothers because he was concerned about moral hazard. After Lehman goes under AIG is doomed.
AIG were into unregulated credit default swaps which were insurance policies on companies like Lehman Brothers betting that they never go bankrupt. So AIG become nationalized. Paulson sends a bill to congress so they can but up the toxic mortgage securities from the banks. Two weeks later the bill was passed to purchase $700 billion in mortgage assets from the banks. So this is how the government is going to help Wall Street out of this mess. Well hope to get out of this mess.
During the summer of 2007, the housing market started showing signs of trouble, putting the mortgage companies and big lenders in trouble. The problem was ignored until rumors circulated that Bear Stearns was in trouble. Frenzied investors began pulling their money, which eventually led to the company being bought by JPMorgan only after the Fed offered them $30 billion dollars to guarantee the toxic loans held by Stearns. After this happened, many were concerned that this act would set a bad precedent. To counter these claims, Former Secretary Paulson stated that "for market discipline to be effective, it is imperative that market participants not have the expectation that lending from the Fed, or any other government support, is readily available. ... For market discipline to constrain risk effectively, financial institutions must be allowed to fail." This alluded to the notion that the government would no longer interfere in such matters. Soon after, however, mortgage lenders Fannie Mae and Freddie Mac were in danger of going under and ended up being taken over by Secretary Paulson. Lehman Brothers stock started to fall a mere month later, and, staying true to his previous statement, Paulson and Fed chairman Ben Bernanke let the company fail. They were unaware of how interconnected Lehman was with other banks and when it went under, AIG (the largest insurance company) went under with it. This resulted in AIG's nationalization and Bernanke's plan to enact a bailout to salvage the rest of the banking institutions.
Bear Stearn was the first financial institution to start to fail. With help from the Fed, JPMorgan was willing to take over the corporation. This buyout helped to temporarily divert some of the consequences of the company's potential failure. Next, Fannie Mae and Freddie Mac began to show signs of trouble. Secretary Paulson threatened to take over both corporations if they were unable to get it together. Shortly thereafter the government took 80% ownership in both companies and replaced the company heads. Lehman Brothers was probably the most influential company to go under. With it, they put AIG in between a rock and a hard place.
With the failure of these institutions and a potential economic catastrophe looming in the distance, Paulson and Bernanke were pressed to appeal to Congress for help. Seeing as how Chapter 17 in our text dealt with economic policymaking, the following events gave real life examples of such policymaking in action. We saw two branches of government working together for a common cause. Paulson asked for a $700 billion to spend as he saw necessary to prolong companies' existence as need be. His first proposal was shot down, but as things intensified a resolution was passed. The bill has kept several major banks afloat so far, and President Obama recently got a bill passed that will use even more money to help solve the housing crisis (the root of our economic problems). It will also provide funds to each state with certain provisions and is expected to steer our economy in a new, happy direction.
The investment bank of Bear Sterns deserves much of the blame for the poor economic state in which we find ourselves today. Due to the insurmountable number of failing mortage investments rumors that the company was going to fall began to spread early last year. As Alan Greenberg stated, Rumors..."put you out of business." For Bear Sterns this comment became more and more their reality with each day that passed by. Hours before Bear Sterns was to go bankrupt, Ben Bernanke, who is a specialist on the Great Depression, decided to save the company by giving JP Morgan $30 billion to get rid of Bear's "toxic assets". Politicians such as Henry Paulson felt that government should not interfere, but the fall of Fannie Mae and Freddy Mac soon changed their mind.
Although government, through JP Morgan, spent billions of dollars to stabalize the economy; their efforts were ineffective. The plan to keep people's trust in Bear Sterns backfired. The involvement of JP Morgan in the salvation of Bear sent the message, "this istitution is about to fail." The failure of Bear Sterns created a domino effect to which companies like Fanny Mae, Freddie Mac, and Lehman Brothers Co. fell victims to. Lehman Brothers, unlike Bear Sterns was left to crash. Government wanted Wall Street to step up, and the result of their inactivy was the crash of the stock market. AIG then began to have problems, and the failure of that company would have been suicide for the United States economy.
Efforts to stabalize the economy were needed again. Bernake felt that there was a need for a bailout plan for the nation, and Congress needed to get involved. The United States is slowly becoming less and less of a mixed economy, but government involvement is needed. To save the economy a revised $700 billion bill was passed, this bill allowed capital injection. Bank CEO's were forced to sign a contract allowing government to hold stakes in the nation's largest banks. The government has taken a central role in the financial system.
Our current economic situation was caused by numerous irresponsible things done by banks and lending agencies. Wall Street gambled on risky mortgages and bought more and more mortgages as the housing industry grew. These companies thought that prices would go up, but instead, mortgages started losing value rapidly. Furthermore, investment banks, like Bear Stearns, were unregulated agencies that did whatever they wanted. They got involved in credit-default swap deals, which in the end ruined them. They never saw their failure coming, which did not prepare them for the troubles ahead. These lending companies gave money out to people who couldn't afford to pay them back and often, these loans had ridiculous conditions.
Two investment banks had a big part in causing the windfall. The first one was Bear Stearns. This bank was interconnected to many others, not just in this country, but globally. The government worried about moral hazard,but decided that systemic risk would be more damaging. The government bailed out Bear Stearns because of how they connected to other banks and they did not want those other banks to go under. On the other hand, Lehman Brothers, one of the biggest investment banks in the world, was also in trouble. The government saw how this bank's greed ruined them and saw their problems as self-caused. They had no sympathy for them and did not bail them out. Here, moral hazard was much more important to the government. The government thought that if they bailed them out, the big banks would never learn to be responsible for their own actions. No one imagined this would have too big of an impact on the economy, but it did. Lehman Brothers was more interconnected to other banks than Paulsen imagined, which made many think that it should have been bailed out. As a consequence, credit froze and lending was hesitant, and was not happening at all. No one wanted to lend because they were afraid they wouldn't be paid back.
The government is trying to bailout banks, but they want these bailouts to be more broad. Also, they've set conditions to be met by those who benefit from these bailouts. The government realized that bailouts could not be for just one industry and that they had to include more. Not only was the housing industry affected by this recession, but so was the automotive industry and normal people the most. Many Feds wanted to include capital injection in the bailout, just like Sweden, Japan, and FDR had used in times of economic turnmoil. In the end this was used and now many companies are now nationalized. Also the government is taking a step to regulazing agencies and banks because they realize that the deregulation has gone to far and has brought the economy to this point.
Hello my name is Aubrei Grove, and during the Frontline documentary several key points were made about the financial crisis what the United States is now in. There were also facts that lead me to believe that our crisis is going to get worse before it gets better. The economic problems this county is facing did not start in September of 2008, they started many years ago. We are now paying for those problems today.
In Wall Street terms there is something called a credit default swap. This is basically an insurance on stock that someone holds. Many Wall Street companies were using the "toxic assets". Subprime mortgages are also known as toxic. In September the company Bear Sterns' stock price began to drop. CMBC reported on the drop and started a small panic. This caused many of the stockholders to sell off their stock. The market had no confidence in Bear Stern. Bear Stern was going under, but the problem was that Bear had 100's of billions of dollars worth of those subprime mortgages. Those subprime mortgages linked Bear with many of the other big name companies on Wall Street. If Bear fails so do many of these companies. Ben Bernanke and Ron Paulson were brought in to help with the situation. They convenced the government to give millions to Bear Sterns so that they could stay a float. Their plan didn't work. So Bear Sterns merged with Chase. On top of what was already going on the housing market bubble burst! The whole market became toxic. At this point the government began to step in. In America we had a more capitalist, but with all the problems that are now going on we are leaning to a mixed market economy. Also this is about the time that Fannie May and Freddy Mac went under. Unlike with Bear Sterns, the government nationalized them. Leimen Bros. were the next to fail. They had 100's of billions on credit default swaps. Leimen Bros. left out many parts of the story, which caused the government to let them fail. Bernanke and Paulson failed. American was entering a recession. AIG was next, Bernanke and Paulson gave 87 billion to help so that they did not fail. by now something needed to be done. So Bernanke and Paulson when to congress and asked for a 700 billion dollar bailout. Basically a blank check. Countries all around the world were beginning to fail, due to our economic problems.
In the United States we were using supply-side economics which states that there is too much income is going into taxes and not enough is going into purchasing. The solution was to cut taxes which left us with less money in the federal reserve. In short if it wasn’t for the greed of some of these companies. We wouldn’t be in the mess that we are in. If it wasn’t for the billions of dollars in toxic assets our economy wouldn’t be in the crisis that it’s in. Because of Bear Sterns, AIG, Leimen Bros. and a few others our economy wouldn’t be in the shape that it is in now.
The Meltdown covered topics about The economic failure America has gone through in the past year. The documentary went over the problems Wall Street was facing.
It all started off with three of the most biggest banks and insurance companies, Bear Stearns, AIG, and Lehman Brothers. Soon those companies started playing dominoes and knocking every other company down as well. The stock numbers where extremely down as well. People were scared to leave money in the bank because it was no longer safe, therefore they began taking away money. The head of the Federal Reserve Ben Bernanke and the Treasury Secretary Hank Paulson knew they had to react or the second Great Depression would soon be approaching. There was talk about three banks becoming nationalist. From Bear Stearns, they were running out of money. They established toxic acids. They made mistakes in getting people to invest money and pay off in the near future as well as making credit swaps and sub prim loans. In order to survive they needed more lenders to invest in their company. It came to the point that they didn't have enough money to open up the following day. When they began to furthermore investigate they found many hidden things. Tim Gitner soon called Bernanke for advice. He decided to give Bearn Sterns a bailout caused by J.P Morgan, after only two days everything had gone down. After Bear Stearns failed so did the Lehman Brothers, they also invested in toxic assets. Commercial banks were now being infected. The only difference was that the government would not bail them out.
The was talk about nationalist, especially form Freddie Mac. But the government did not want to do that. As for AIG, they also ran out of money. But moral hazard came into place. Two days after AIG went down. Burnanke told Republicans they needed a bailout.
I bliv that Wall Strt nThe Meltdown covered topics about The economic failure America has gone through in the past year. The documentary went over the problems Wall Street was facing.
It all started off with three of the most biggest banks and insurance companies, Bear Stearns, AIG, and Lehman Brothers. Soon those companies started playing dominoes and knocking every other company down as well. The stock numbers where extremely down as well. People were scared to leave money in the bank because it was no longer safe, therefore they began taking away money. The head of the Federal Reserve Ben Bernanke and the Treasury Secretary Hank Paulson knew they had to react or the second Great Depression would soon be approaching. There was talk about three banks becoming nationalist. From Bear Stearns, they were running out of money. They established toxic acids. They made mistakes in getting people to invest money and pay off in the near future as well as making credit swaps and sub prim loans. In order to survive they needed more lenders to invest in their company. It came to the point that they didn't have enough money to open up the following day. When they began to furthermore investigate they found many hidden things. Tim Gitner soon called Bernanke for advice. He decided to give Bearn Sterns a bailout caused by J.P Morgan, after only two days everything had gone down. After Bear Stearns failed so did the Lehman Brothers, they also invested in toxic assets. Commercial banks were now being infected. The only difference was that the government would not bail them out.
The was talk about nationalist, especially form Freddie Mac. But the government did not want to do that. As for AIG, they also ran out of money. But moral hazard came into place. Two days after AIG went down. Burnanke told Republicans they needed a bailout.
I bliv that Wall Strt nThe Meltdown covered topics about The economic failure America has gone through in the past year. The documentary went over the problems Wall Street was facing.
It all started off with three of the most biggest banks and insurance companies, Bear Stearns, AIG, and Lehman Brothers. Soon those companies started playing dominoes and knocking every other company down as well. The stock numbers where extremely down as well. People were scared to leave money in the bank because it was no longer safe, therefore they began taking away money. The head of the Federal Reserve Ben Bernanke and the Treasury Secretary Hank Paulson knew they had to react or the second Great Depression would soon be approaching. There was talk about three banks becoming nationalist. From Bear Stearns, they were running out of money. They established toxic acids. They made mistakes in getting people to invest money and pay off in the near future as well as making credit swaps and sub prim loans. In order to survive they needed more lenders to invest in their company. It came to the point that they didn't have enough money to open up the following day. When they began to furthermore investigate they found many hidden things. Tim Gitner soon called Bernanke for advice. He decided to give Bearn Sterns a bailout caused by J.P Morgan, after only two days everything had gone down. After Bear Stearns failed so did the Lehman Brothers, they also invested in toxic assets. Commercial banks were now being infected. The only difference was that the government would not bail them out.
The was talk about nationalist, especially form Freddie Mac. But the government did not want to do that. As for AIG, they also ran out of money. But moral hazard came into place. Two days after AIG went down. Burnanke told Republicans they needed a bailout. I believe that Wall Street needs to pay more attention to what is happening and not to loose control over anything. The government should do something to make people invest in banks once again and establish that sense of trust within them.
The documentary made me open my eyes to something I knew nothing about.
"The Meltdown," gave me a better understanding on how the economy became so bad. In 2007, both the stock and housing markets started going down. Banks, specifically Bear Stearns, were involved in credit default swaping. Insurance was being sold on bonds; however, that government money was actually "fake" because it was not really there. In dire need of help, the Democrats and Republicans met on September 18 of 2008 to discuss what needed to be done. Their best suggestion was the nationalization of banks.
Who got us in this mess??? Why it began with Bear Stearns and the act of credit default swaping. After Stearns was so far in the hole, a bailout was needed. The Federal Reserve and J.P. Morgan agreed to bail out Bear Stearns. Two men were mainly involved in bailing out the bank, and they were Henry Paulson and Burnanke (sorry for any misspellings). Unfortunately, Stearns was sold to J.P. Morgan for only two dollars a share... a much lower price than what was expected. Soon after, Fanny Mae and Freddy Mac lost 60% of their stock value and were then nationalized. Yet another major cause of the depression was the failure of another large investment bank, Lehman Brothers. The government had refused to intervene; therefore, Lehman was forced into bankruptcy. Finally, there was AIG. AIG had sold hundreds of billions in default swaps as did Stearns. Burnanke wanted $700 billion to buy out the "toxic mortgages" in attempt of a bailout, but the bill was voted against.
Our nation's banking problems have spread nationwide. President Obama passed a revised bill that has put a lot of money towards banks in hopes of boosting them. I recently read a newspaper article in my english class dealing with the money given to banks. Supposedly many of them want to give the money back to the government because they feel that the government has attached strings to the money in which they have no control over. Banks are in fear of being controlled by the government. I missed who said this quote in "The Meltdown," but I think it is something to take into consideration, "If you bail someone out, there are chances that they will make the same mistake." The people working for the government need to gain some common sense or something... something really needs to be done.
The crisis began in Spring 2008 when the first tremors showed the crash of the housing market, easily assisted with the television company CNBC. The company Bear Sterns was indeed in trouble at the end of the housing boom. Bear Sterns was involved in buying toxic assets and had its hand in many sub prime mortgages, this posed a huge problem along with their big involvement in credit default swaps. CNBC's take on the entire situation only made things worse, as their involvement made Goldwin Sackks contemplate on taking away their support.
Ben Bernake and Henry Paulson took action and in a sense had a shot gun marriage between JP Morgan Chase and Bear Sterns. But this isolated only one incident for a temporary basis because within 7 days Bear Sterns was gone.
The continuation of the crisis lead to Fanny Mae and Freddie Mac. There was a huge systemic risk if they failed. Bernake and Paulson nationalized Fanny Mae and Freddi Mac on September 7th, 2008. "They learned that no company was too large to not fail from the housing bubble."
The next company that led to the depression *(not recession)* was Lehman. Paulson declared that there would be no bailout for this company. He was obviously tired and under political pressure. On September 15th the stock market crashed and all "heck" broke loose. With the downfall of Lehman came the fall of AIG whom invested in mortages and partook in unregulated credit default swaps. With these events, the contamination went global. In October capital injections were sent out, following the October 12th meeting of the 9 most powerful CEOs of the largest banks. There were no negotiations, it was a direct infusion from the government to save Wall Street.
The documentary "The Meltdown" showed me in perspective the events leading up to this economic crisis. This shows the effects of the economic state of the stock market has on the overall state of the country. It also showed me a more current view on chapter 17. It showed how we went from a free market, unregulated, and Reaganomics minded capitalist country to a strict socialist economy in a mixed economy. Here we see how different party eras come into play as the economy now calls for more of a government involvement and focus on democratic ideals. The biggest one being unemployment. I really understand the importance of economic policy making and its effect on the country now.
We got to this point from “wall street gambling heavily on risky home mortgages.” People were taking mortgages that they couldn’t afford because the housing market was very healthy, and they were getting loans that they couldn’t afford to pay back. Most people knew that they couldn’t afford these mortgages, but assumed that they would get rich by reselling their house. Wall Street focused on the pros of lending money, and were negligent of the cons. Unregulated lending agencies and banks did whatever they wanted, because Hank Paulson wasn’t the regulating type. Banks had credit-default swaps, which lost them tons of money from people losing their money and not paying it back. These loans were unregulated, a recipe for disaster.
Bear Stearns was the first bank to fall. Bear Stearns bought up mortgages at the same rate that people were getting loans. As the housing market went up, Bear Stearns bought more mortgages and more people took huge loans. With the credit default swaps, Bear Stearns was extremely vulnerable, and took a huge hit as its stocks fell. Bear Stearns was stocked with low priced mortgages, and their reserve was nearly dry. The government needed to bail them out to hopefully stop a chain reaction, but the chain reaction had begun long before. Lehman Brothers was also going belly up. Dick Fold took Lehman “deeply into the high risk real estate mortgage market”. They were making it extremely easy to qualify for loans, and people couldn’t pay them back, resulting in this meltdown.
The government is trying to help out Wall Street by regulation. These companies are going to be heavily watched over so these mistakes aren't made twice. Investment banks and lending agencies are going to be held on a short leash, which is necessary now. A revised $700 billion bailout plan was passed, which was a major step in revitalizing the economy. The government has extreme oversight over the big time corporations. With regulation and the government looking over Wall Street's shoulder, hopefully this trend of irresponsible spending will hault.
After watching the film I had a better understanding on how we got to the point we are in today. It all began in the spring of 2008 after the housing bubble had burst. There had been 303,410 foreclosures on U.S. properties in December. This is the result of de-regulation that all the Bush administration had. They thought that everything would be better if there was less government involved. Unfortunately this was not true. March 10 was when something strange began to happen, Bear Stearns’ stocks started to go down. The rumor was that “we're running out of cash and that we might be in trouble." After that more and more people started calling saying they wanted their money out or that they didn’t wanted to trade with Bear anymore.
The first company that started this whole domino effect was Bear Stearns. Their road to riches was simple: Buy hundreds of thousands of mortgages, then bundle them into securities and sell them to investors. This then later became “toxic assets”. “In 2005, a mortgage lender lends money to a lot of people and does not expect to be repaid by them, but bundles up the right to be repaid by them and sells it to a lot of other people. The bigger the housing market grew the more Bear and other investment banks bought. Accelerating housing prices created a mentality among everybody that housing prices could only go up.” Many people did this during 2005 and 2006 but by 2007 many of them started to realize that they were in trouble. After the Bear Stearns was bailed out by JP Morgan with help of the government the second company that was in trouble was Fannie Mae and Freddie Mac, the largest mortgage lenders in the world. After that they were followed by Lehman Shares. But it didn’t stop there the world's largest insurance company fall 61 percent because AIG had poured billions into unregulated credit default swaps. When the government examined their books they found “billions in hidden subprime mortgage loans, and something worse, credit default swaps, a form of insurance.” After this everything started to fall apart for everyone and the government decided that they were not going to be a safety net for every single company that had decided to do stupid mistakes.
There aren’t many ways in which the government can help Wall Street out of this mess but there are some obvious ones. It is obvious that the government will have to inject some capital for the few companies that are left unless they want them to go out as well. They also have to get rid of the de-regulation mind that many of those CEOs in Wall Street have because it obviously didn’t get us very far. Like it was said at the end of the film “all eyes are now on Barack Obama to turn it around.” The word nationalization sounds scary for some of them but it might be the only way out of this whole mess. They have shown that they can’t deal with things in a responsible manner without being regulated by the government.
Hello my name is Jacob Bailin and I have a documentary called ‘The Meltdown’, which aired on PBS.
The United States is in the biggest financial crisis since the Great Depression. We got to this spot from Insurance companies and Banks giving out bad loans which created toxic assets and from credit default swaps. An example of a toxic asset is a man takes a loan out for a house of $200 thousand. As the housing market declined the value of his house drops to $150 thousand. Not being able to pay his mortgage the man is forced to foreclose on his house, which the bank now own. Unfortunately for the bank, they paid $200 thousand for a house that is now only worth $150 thousand. Credit default swaps also caused this recession to happen. A credit default swap is when a buyer makes periodic payments to a seller, and in return receives a payoff if an underlying financial instrument defaults.
At first it was just a minor scare when Bear Sterns was looking at bankruptcy from the credit default swaps and toxic assets they accumulated over the years. After bailing out Bear Sterns with $30 billion, Treasury Secretary Henry Paulson lets the nation know that the government will not bail other companies out. Shortly after the world's largest mortgage lenders Fanny Mae and Freddie Mac lose 60%in stock value. This forces the government to step in take over. When a similar plight happens to the company, Lehman Brothers, the government does not step in and bails them out or take over the company and Lehman Brothers goes under. After Lehman goes under, the stock market nosedives and global credit markets freeze. Not even a month later the world's largest insurance company AIG, is nationalized due to a 61% drop in stock value. When people saw these big companies fall, which they never thought could happen, they became scared and started to pull there money out of the stock market. It just became the domino affect after that.
Inevitably the government had to step in. What they have done , to resolve the issue of the recession, is by forming a bailout plan and having the FDIC stepping in to banks business to help resolve the issue so they don’t fall in to bankruptcy. These moves are only thought to be the steps in the right direction. It is not certain that these actions will help push us out of a recession, but we won’t know until time passes.
Hello my name is jasmine and i recently watched the documentary "The Meltdown", which led me to further understand exactly what this crsis is and how it began. The free market economy is what brought us in the state we are in. The government allowed the banks to take matters in their own hands thinking that they were responsible. Bcause the government did this, the regulation of banks was not to its peak. The owners of these bank didnt take the responsibility they needed to and made horrible economic decisons. Essentially these companies were selling credit defaults leading us into this crisis.
Credit default swaps is when the comapny sells you a bond and tells you if the bond goes belly up you'll get the orginal amount you paid for it back. The comapnies did this with no idea that this crisis would soon approach. Seeing as chap.17 deals with policymaking this whole document showed real life examples when the two branches of government had to work together. Bear Sterns was the first to fall. They found billions of dollars in hidden mortage loans. After bear sterns fell the government had to bail them out. After sterns failed it effected Fannie and freddy mac. After them lehman brothers failed and paulson didnt want to bail them because he was afraid of moral hazard. This led lehman brothers to go bankrupt which led to the failure of AGI the biggest insurance comapny in the world.
The help of the government is essential to help walstreet. There is a lot of things that need to go into effect to get us out ths crisis. Bailouts have already undergrew. Immediate change has to take place and that might involve the government taking over banks for a while. these companys haven't been accountable for their actions and have basically gotten away with murder and now where in a deep mess. i dont know exactly what steps the government needs to take to fix this but iknow its in their hands with the help of the people and whatever needs to be done, needs to be done fast.
The current situation in the stock market as well as the housing market is rooted in something called a credit default swap. This, essentially, is when a company sells insurance on a bond. If the bond were to lose value and go under, the company pays out the insurance on the bond, and life goes on. The problem is, the insurance companies were insuring bonds with “imaginary capital,” so when all the bonds went under, and people sought after their insurance, the companies had no money to pay out their insurance. When the insurance could not be paid, many people pulled their money out of the companies’ stocks, and everything lost value. In all actuality, government regulation would have prevented this.
The first bank to cause this meltdown was Bear Sterns. Bear Sterns and their chairman Alan Greenberg were handing out credit default swaps, and in the end got screwed because of it. The next bank to fail was Lehman Brothers. As well, AIG almost went under as a result of Lehman Brothers failing. As Lehman Brothers failed, the government did not bail them out as a result of a thing called “moral hazard,” it prevented them from saving them, because they felt that the ones who did wrong should have to suffer the consequences.
Finally, what the government did to prevent the economic meltdown from going full scale was they bailed out Bear Sterns, and prevented it from going under. Though, Paulson and Bernacke realized that if they bailed out every bank that failed, this would provide no incentive to fix the companies’ mistakes. In light of this moral hazard, Paulson and Bernacke chose to let Lehman Brothers fail. Lehman Brothers was more interconnected than they believed, and with its demise, AIG was dragged under. The government provided $85 billion to help AIG, since it was the worlds largest insurance company, and they simply could not let them fail. As a result, AIG, along with Fannie Mae and Freddie Mac are now completely nationalized.
The economic crisis we are currently experiencing all started with the crash of the housing market. People were buying houses that they couldn’t afford and banks were handing out loans with money they didn’t have. The primary bank for this mess was Bear Stearn who was full of credit default swaps and sub prime mortgages. Rumors started going around that Bear Stearn was going to crash and soon the rumors were true. If the Federal Reserves didn’t find a bank to bail Bear Stearn out, then Bears was going to fail.
Since the Fed couldn’t directly give the money to Bear Stearn, they had another bank, JP Morgan, give the loan out. The Fed gave the money to JP Morgan who then gave the money to Bear Stearn in order to save them. Soon afterward Fannie Mae and Freddie Mac were in the same position in which they needed help or else they would also fail so the government took control of more than half of both the institutions and saved both Fannie Mae and Freddie Mac. The Fed then promised that they were no longer going to interfere with the banks and when Lehman Brothers showed signs of failure they stayed true to their word and let Lehman Brothers go under.
What they didn’t realize was that with the fall of Lehman Brother an even larger company, AIG, was going to greatly suffer. AIG also had credit default swaps and was deeply intertwined with numerous other banks. Letting AIG, the largest insurance company, fail was not a good move so Head of the Federal Reserve Ben Bernanke and Treasury Secretary Hank Paulson then saw it necessary to go to congress and present them with a bill to save the failing banks. Their first bill was rejected but soon afterward it was obvious that capital injection was going to be necessary and a $700 bail out was issued. Chapter 17 deals with policy making and this video shows how the Federal Reserves, Congress, and the Treasury all work together to pass a bill. The government is now going to help out the banks by giving them this money to help them get out of this mess and get them on the right track. The government should also more closely monitoring their spending so no more “toxic assets” are uncovered.
Post a Comment