Inside the Meltdown

Topics: Subprime mortgage crisis, Henry Paulson, Bear Stearns Pages: 2 (490 words) Published: September 29, 2013

Inside the Meltdown Summary
The stock of a global investment company, Bear Stearns, began to drop drastically on March 10th, 2008. A share of Bear Stearns was as high as $171 and by the afternoon dropped to $57. Former CEO of the company, Ace Greenberg, tells CNBC that all of these rumors are “ridiculous.” As time goes on, Bear Stearns’ cash reserves were disappearing and people invested in the company were immediately withdrawing. Bear Stearns was basically racing to find a company to buy them out or they would go under. Current CEO of Bear Stearns, Alan Schwartz, got ahold of JP Morgan’s CEO, Jamie Dimon, to buy out Bear. A ton of government officials come to Bear to look over their records and it is not a pretty sight. Bear was deep in toxic assets. The Federal Reserve was prohibited from lending any money to Bear so they used JP Morgan to bail out Bear Stearns. Unfortunately the company could not be saved and Bear Stearns was gone after being sold to JP Morgan at $2 per share.

Fannie Mae and Freddie Mac, the two largest mortgage lenders in the world, lost 60% of their stock value in July 2008. The government fired the management and the feds took over both companies. Then in the beginning of September, Lehman Brothers, another investment bank, had their stock dropping quickly. It was once again toxic investments that once made them money before, but now was responsible for their company plummeting. The government would not intervene with Lehman and they let them fail. It turned out that Lehman Brothers was even more interconnected than anybody thought. Because of Lehman’s bankruptcy, no one could get a loan and everything freezes. The meltdown had begun.

Then the world’s largest insurance company, AIG, has huge problems and doesn’t have the money to pay off promises they made that Lehman wouldn’t go bankrupt. AIG was in desperate need of cash and the government had to save them. The government used $85 billion dollars for bailout and now owned AIG....
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