DaiNguyen-CM225-14-Unit8-Assignment

DaiNguyen-CM225-14-Unit8-Assignment - Unit 8 Assignment The...

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Unit 8 Assignment The American Spirit Unit 8 Assignment Dai Nguyen College Composition II: Unit 8 Diana Gerow, Ed. M. 07:02:18
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The American Spirit The real estate bubble burst transformed mortgage-backed securities into toxic assets; threatening to undo banks once thought too big to fail. President Bush on Friday, October 3, 2008 signed into law a $700 billion dollar bailout bill. The Federal Reserve was under immense pressure to promptly disburse the $700 billion dollars to prevent the eminent collapse of the financial system. The crucial actions taken by the Bush Administration successfully saved key financial institutions from failure. With the immediate threat averted, the financial system and the US economy were given a fighting chance. Collapse and Bailout The risks from subprime loans were passed from borrowers, to lenders, to companies, and eventually investors. Banks provided high risk subprime products to borrowers with no collateral. These risky products were packaged and sold on the secondary market. The companies that bought these products on the secondary markets bundled them into securities and sold it to investors. When school teachers and firefighters began to purchase homes to flip; it was only a matter of time. Massive foreclosures in the housing market began to realize the risks of subprime loans throughout the market in 2007. Banks large and small were over extended on their leverage and were all susceptible to failure. Compounding the problem was the nature of the market; “it was impossible for many investors to figure out what collateral supported the mortgage-backed securities and derivatives they owned” (Sloan, Burke, Loomis,
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Varchaver, & Benner, 2010). The major players such as large banks, regulators, and investors did not know who was solvent. The confusion created fear and insecurity, freezing lending and the financial system. “On Sept. 15, [2008] Lehman entered bankruptcy -- and the global financial crisis was underway” (Caplovitz, 2010). The government had to act fast and act decisively to prevent a disaster the likes of which has not been seen since the Great Depression. Nearing the last few days of Presidents Bush’s administration, he signed into law the Emergency Economic Stabilization Act of 2008. The bailout bill as it is popularly referred by, was hastily passed in an effort to prevent bank failures like Lehman Brothers. President Barrack Obama inherited the challenges of the previous presidency when he took over the oval office. President Obama looked to our not too distant history in 1933 for guidance to decipher the looming crisis. According to T. Badger, the lessons learned in 1933
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DaiNguyen-CM225-14-Unit8-Assignment - Unit 8 Assignment The...

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