The Great Recession Part 2

Our ESL Students are buzzing about the facts behind the 2008 financial crisis known as “The Great Recession” and many of us at Hancock International College are learning things we never knew so let’s get into the next chapter.

Thebalance.com says, “The 2008 financial crisis timeline began in March 2008. Investors sold off their shares of investment bank Bear Stearns because it had too many of the toxic assets. Bear approached JP Morgan Chase to bail it out. The Fed had to sweeten the deal with a $30 billion guarantee. By 2012, the Fed had received full payment for its loan. After the Bear Stearns bailout, Wall Street thought the panic was over. Instead, the situation deteriorated throughout the summer of 2008.

Congress authorized the Treasury Secretary to take over mortgage companies Fannie Mae and Freddie Mac. It cost $187 billion at the time. Since then, Treasury has made enough in profits to pay off the cost. On September 16, 2008, the Fed loaned $85 billion to AIG as a bailout. In October and November, the Fed and Treasury restructured the bailout. The total cost ballooned to $182 billion. But by 2012, the government made a $22.7 billion profit when Treasury sold its last AIG shares. The value of the company had risen that much in four years.

On September 17, 2008, the crisis created a run on money market funds. Companies park excess cash there to earn interest on it overnight. Banks then use those funds to make short-term loans. During the run, companies moved a record $144.5 billion out of their money market accounts into even safer Treasury bonds. If these accounts had gone bankrupt, business activities and the economy would have ground to a halt.

That crisis called for a massive government intervention. Three days later, Treasury Secretary Henry Paulson and Fed Chair Ben Bernanke submitted a $700 billion bailout package to Congress. Their fast response stopped the run. But Republicans blocked the bill for two weeks. They didn’t want to bail out banks. They only approved the bill after global stock markets almost collapsed.

The bailout package never cost the taxpayer the full $700 billion. Treasury disbursed $439.6 billion from the Troubled Asset Relief Program. By 2018, it had put $442.6 billion back into the fund. It made $3 billion in profit. How did it do this? It bought shares of the companies it bailed out when prices were low. It wisely sold them when prices were high.

The TARP funds helped five areas. Treasury used $245.1 billion to buy bank preferred stocks as a way to give them cash. Another $80.7 billion bailed out auto companies. It contributed $67.8 billion to the $182 billion bailout of insurance company AIG. Another $19.1 billion went to shore up credit markets. The bank repaid $23.6 billion, creating a $4.5 billion profit. The Homeowner Affordability and Stability Plan disbursed $27.9 billion to modify mortgages.

President Obama didn’t use the remaining $700 billion allocated for TARP. He didn’t want to bail out any more businesses. Instead, he asked Congress for an economic stimulus package. On February 17, 2009, he signed the American Recovery and Reinvestment Act. It had tax cuts, stimulus checks, and public works spending. By 2011, it put $831 billion directly into the pockets of consumers and small businesses. It was enough to end the financial crisis by July 2009.”

Full Article: https://www.thebalance.com/2008-financial-crisis-3305679

Idiom of the Day

Bail Out

Meaning: By extension, to get someone out of trouble or help them with a problem. A person’s name or a pronoun can be used between “bail” and “out.”

Example: I thought I would get in trouble for staying out too late, but luckily my sister bailed me out and told my mom I’d had car trouble.