What happened during the meltdown?

Written by Amina Isakovic

Here is a brief history of what happened in the past year and a half and how we got to the $700billion.

• In the summer of 2007, the housing market was in huge trouble. The prices started falling and foreclosures were quickly piling up.
• In June, 2007, two Bear Sterns hedge funds were forced into bankruptcy. The funds were invested in so called “AAA” rating mortgage backed securities. The value of these securities had plummeted fast and Bear Sterns didn’t have the cash to fix it quickly.
• Due to rumors of Bear Sterns running out money, on March 10, 2008 Bear Stearns stock starts falling in the morning and went from an average of $171 to $60 in the afternoon. The CEO of the company, tried to win back investor trust by going on CNBC, but it didn’t really work.
• March 15, 2008 hundreds of lawyers and accountants look through Bear’s books to see where the company really stands.
• March 16th, the Fed creates a deal and covers $30billion of Bear’s toxic loans, while JPMorgan buys Bear at $10 a share. This was suggested by Treasury Secretary Henry Paulson, who worked very closely with Fed Chief Ben Bernanke. Paulson is all about the moral hazard.
• On September 5th, Fannie and Freddie are told that the government will take 80% ownership in each, and will give them $200billion in capital.
• September 12, Lehman Brothers’ books are looked at, since they seem to be heading in the same direction as Bear. On the 14th, Lehman is forced to file for bankruptcy. On the 17th, Paulson announced this, and at the same time, the markets just started crashing.
• September 20th, an emergency bill is sent to congress by Paulson, requesting $700billion to get rid of all of the toxic loans and the mess that has been created.
• After first rejecting it, on October 8th, the house finally passes the bill.

And here we are in 2009, with one of the worst economies since the depression. Who do we blame it on? Bernanke, Paulson, or the banks for the toxic investments?

*the dates can be found at Frontline*