Pbs: Inside the Meltdown Review

In: Business and Management

Submitted By hanggara
Words 568
Pages 3
Background
September 18th 2008

- They had bailed out one bank, that unless we give bailouts, the financial system will fail.

Spring 2008

- After the housing bubble burst.
- Wall St gambled on risky loans.

CNBC is important in Wall St.

Bear Stearns
Bear Sterns, the stocks go down.

- Stocks fall for 171 to 60, people nervous.

Ran out of cash.
But they have cash and no problems.
They bought bundled subprime mortgage.

- Because they thought housing can only go up.
- The value of houses have gone down.
- High-risk loans in the reaper market.

Goldman Sachs may be deserting Stearns.

- Public acknowledgement of its bad.

They only had option, to raise capital.

- Federal System, Tim Gygner
- Morgan, The Fed found toxic assets. Billion in hidden subprime mortgage loans and credit default swaps. - Credit Swap: - I sell you insurance, if they cannot pay, we pay. - They bought so many, hundreds of billions of dollars.

If they can’t pay people back, it would cause collapse

- There would be systemic risk, because Stearns is so connected to the banking world.
- If we allowed them to fail, they would collapse.

Federal Reserve and JP Morgan payout

- JP Morgan and Federal Reserve provided secure bailout.

Moral Hazard
If you bail someone out of a self-inflicted problem, what can they do
Paulson made millions of dollars, anti-government.
There is no responsibility, Bear Stearns was bought by JP Morgan.

Post-Bear Stearns
People took mortgages that you can’t afford.

- Buying the big houses make you look rich.

Brenanki and Paulson called that it was all fine.

- They said it was contained.

Toxic Mortgages continue to lower profits, losses are real.

- Trillions of dollars of losses.

Freddy Mae and Fannie Mae

- 60% of their stocks had lost.
- Was nationalised
- If two of the largest…...

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