What the Heck Just Happened
What the Heck Just Happened. The Causes of the Financial Meltdown in 2008.
Paul J. Mahoney
Brandman University
The Government of the United States, in an attempt to appease everyone and level a playing field, as well as stave off a recession created the biggest reasons for the financial meltdown of 2008. “US. Housing policies are the root cause of the current financial crisis. Other players, greedy investment bankers; foolish investors; imprudent bankers; incompetent rating agencies; irresponsible housing speculators; shortsighted homeowners; and predatory mortgage brokers, lenders, and borrowers—all played a part, but they were only following the economic incentives that government policy laid out for them” (Wallison, 2011). “Investment banks like Bear Stearns are the lifeblood of capital markets, providing the cash flow that keeps economic gears turning. They facilitate short-term loans to businesses, raise money for corporate expansions and IPOs and assist the trading of securities. Without them, financial markets would grind to a halt” (NPR, 2008). While Government intervention played a huge role in this crisis, Investment banks and their bundling and selling off of mortgages for profit exposed this mess. One of those banks, and the first to fall was Bear Stearns. In 2007, “Bear Stearns, the 5th largest investment bank in the US, announced large losses in 2 of its hedge funds with exposure to subprime assets. Clients were prevented from withdrawing money and the funds were eventually shut down at a $3 billion dollar loss” (Wall Street Oasis, 2012). In an effort to stave off a crisis the Government, “ extended JPMorgan Chase a $30 billion credit line to help it buy Bear Stearns, a firm with an 85-year history on Wall Street that was on the verge of collapsing due to losses in the mortgage market” (Godoy, 2008). The purpose of this paper is to examine how this occurred, what role Bear Stearns, one of many, played in it, and what can be done
Paul J. Mahoney
Brandman University
The Government of the United States, in an attempt to appease everyone and level a playing field, as well as stave off a recession created the biggest reasons for the financial meltdown of 2008. “US. Housing policies are the root cause of the current financial crisis. Other players, greedy investment bankers; foolish investors; imprudent bankers; incompetent rating agencies; irresponsible housing speculators; shortsighted homeowners; and predatory mortgage brokers, lenders, and borrowers—all played a part, but they were only following the economic incentives that government policy laid out for them” (Wallison, 2011). “Investment banks like Bear Stearns are the lifeblood of capital markets, providing the cash flow that keeps economic gears turning. They facilitate short-term loans to businesses, raise money for corporate expansions and IPOs and assist the trading of securities. Without them, financial markets would grind to a halt” (NPR, 2008). While Government intervention played a huge role in this crisis, Investment banks and their bundling and selling off of mortgages for profit exposed this mess. One of those banks, and the first to fall was Bear Stearns. In 2007, “Bear Stearns, the 5th largest investment bank in the US, announced large losses in 2 of its hedge funds with exposure to subprime assets. Clients were prevented from withdrawing money and the funds were eventually shut down at a $3 billion dollar loss” (Wall Street Oasis, 2012). In an effort to stave off a crisis the Government, “ extended JPMorgan Chase a $30 billion credit line to help it buy Bear Stearns, a firm with an 85-year history on Wall Street that was on the verge of collapsing due to losses in the mortgage market” (Godoy, 2008). The purpose of this paper is to examine how this occurred, what role Bear Stearns, one of many, played in it, and what can be done
References: Funding Universe. (2003). Bear Stearns Companies, Inc. History. International Directory of Company Histories, Vol Godoy, Maria. (2008). Fed 's Moves Highlight Fragile State of Markets. National Public Radio. Gwartney, James. (2009). The Economic Crisis of 2008. Cause and Aftermath. Retrieved from: http://www.commonsenseeconomics.com/Activities/Crisis/Economic%20Crisis%202008. Singe, Manoj. (2009) Wallison, Peter Wall Street Oasis. (2012). Financial Crisis 2007/2008 Overview. Retrieved from: http://www.wallstreetoasis.com/financial-crisis-overview