Great Recession of 2008

Great Recession of 2008 - Great Recession of 2008...

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Great Recession of 2008
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Great Recession of 2008 Abstract of “Inside the Meltdown” The film “Inside the Meltdown”, was created by PBS for their Frontline Series in 2008. It explains in detail how the recession started and how the Federal Reserve reacted to what was happening. It all began the spring of 2008, a rumor initiated the greatest economy recession the United States has seen. Bear Stearns, one of the largest global investment banks, had no money left and was in trouble. As a result of this the company’s stocks dropped from $171 to $51 a share in a matter of hours. This cause for the company to be hours away from declaring bankruptcy. That is when the Federal Reserve intervene and try to find a solution. Tom Geithhner, President of the Federal Reserve and a team of experts went to Bear Stearns and looked through all of Bear’s accounts. They discover that the bank had a large amount of unpaid debt from subprime mortgages and credit default swap. Also, if Bear Stearns went bankrupt it would be taking down multiple companies. The reason why Bear Stearns did not have any money was because it was not collecting most of the money from the subprime mortgages and a result of that it owed billions of dollars to companies that bought the credit swap. Ben Bernanke and Hank Paulson, Treasury Secretary, knew that it would be illegal to for Bernanke to directly give Bear Stearns cash, so they used an intermediary. JP Morgan was given a loan by the Federal Government, so it would lent the money to Bear to cover its questionable assets tied to toxic mortgages. Bear Stearns was then sold to JP Morgan. Paulson was uncomfortable with the government interference; he was concerned about a legal concept known as ‘moral hazard’. Page 2 of 10
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Great Recession of 2008 After Bearn Stearns failed it cause other companies to go into crisis. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgages Corporation (Freddie Mac), two of the world’s largest mortgages lenders, were affected by the burst of the housing bubble. According to the documentary, Inside the Meltdown, this caused a decline in Fannie Mae and Freddie Mac stock by almost 60 percent.
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