2008 Financial crisis
1. Bear Stearns→gov bailout
2.Freddie&Fannie→gov bailout
Moral hazard→gov was not willing to bail out any more
→seek private-sector solution
3. Merrill: acquired by Bank of America
4. Lehman:
-assets except real estate: acquired by Barclays (But British regulator did not approve the deal)
-real estate: loss covered by other american banks
→end up annoncing Lehnan's bankruptcy
→impact on other american banks' stock price
(Customers account frozen: think that their money not safe in bank. Not trust Lehman, other onvestment banks all over the world either→massive pullout from all the investment banks)
→impact on the whole banking industry
*the Great Depression 1930s
→start because of a stock market crash
→but what hit the general economy was a disruption of credit
(Average citizen unable to borrow money, therefore cannot start a business, stock their shelves…)
"Credit has the ability to build a modern economy."
5. AIG
To save AIG
Proposal 1 merge: investment bank&commercial bank →Not work out due to banks' unwillingness
Proposal 2 gov buy toxic assets (rescue bill) →too slow
Proposal 3 capital/cash injection: gov purchase preferred stock in banks in order to give banks money so that they can lend it out to unfreeze credit and stabilize the market→banks unwilling to accept because of gov restrictions on banking compensation, but agreed in the end→not work well because in reality banks made fewer loans, the market continued to tumble…
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