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Financial Crisis

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In 2008, a sequence of bank and insurance company failures resulted in a financial crisis that effectively brought global credit markets to a halt and required unprecedented government intervention. For example, Fannie Mae (FNM) and Freddie Mac (FRE) were both taken under the control of the government. In addition Lehman Brothers declared bankruptcy after it was unable to find a buyer. Furthermore, Merrill Lynch was purchased by Bank of America, and American International Group was bailed out by the federal government with an $85 billion dollar capital injection. Shortly after, Washington Mutual (WM) went under; however, J P Morgan Chase (JPM) agreed to purchase the assets of WM resulting in the largest bank failure in the history of the United States. Due to the failures stated above it brings me to realize why banks are so hesitant to lend money between themselves or to anyone.

The crisis began in the real estate market and the subprime lending crisis. As long as we can remember, the values in commercial and residential properties have been exponentially increasing and were not interrupted for nearly a decade. With housing prices increasing it lead to banks lowering lending standards allowing unqualified buyers to take out mortgages while at the same time deregulation blended lines between traditional investment banks and mortgage lenders. However, when housing prices failed to rise and homeowners were not able to keep up with their payments, banks were obligated to recognize write offs and write downs on these assets causing many institutions to become insolvent and having to either raise capital or go bankrupt. The above paragraphs are a brief introduction about what my paper will consist of and will go farther in depth on the subject matter. The contents of my paper will consist of: some facts about the 2008 financial crisis, proposals for immediate help, how did we get here, fiscal stimulus and bailouts, and how do we get out of this mess. I...