A Look At The Global Financial Crisis of 2008 and Emergency Economic Stabilization Act Of 2008 - YouTube

Yo

The early 2000s was so nostalgic for me.

We had the first generation of IPhones,

we had some of the greatest animated films ever made to date,

and that extremely nostalgic voice whenever I put in my VHS or DVD of a movie.

>> "Coming soon on video and DVD"

>> Ohhh man!

What a wonderful time to be alive.

*Ominous sound (from Regular Show)*

Oh yeah...

We also had that near total failure of the global financial system.

Huh.

Let's talk about that...

𝄞 Justice Bao 1993 Intro Song 𝄞

*gong*

Banks,

Banks, what are they?

Banks are essentially businesses that make handling money easier for the everyday person.

The key word being "businesses."

The ultimate goal of any business is to make money.

Now, how do banks make their  money?

The main thing we'll be focusing on today are "Investments," making money with money.

Of these investments, we'll be looking at two specifically.

The first one being "Loans."

To keep things simple,

Loans are when you are given money under the promise that you will pay back the person loaning you the money.

(Usually with a little bit  extra, also known as interest)

However with every investment comes "Risk."

"Risk," being the term used to define the probability of making or losing money on an investment.

The higher the risk the more  likely you are to lose money.

Some of these riskier investments includes special types of loans called "Mortgages."

These are specific loans used in the purchasing or financing of property,

and gives the lenders the right to take that property if the mortgage is not repaid.

Something to note is that the price of the property fluctuates with the market,

meaning that if someone fails to repay their mortgage, and the bank takes back the property,

the bank still has a chance to make money if the property is worth more on the market compared to the original cost of the mortgage.

If loans like mortgages have the potential to earn us lots of money,

what are the ways we can reduce the  risk in the initial investment of a loan?

This is where Wall Street bankers came up with a clever idea called,

"Credit Default Swaps."

This is where things get a bit complicated.

I will do what I can to simplify things to the best of my abilities.

However, the confusing complexity of this financial trick is essential to try and understand the financial crisis of 2008.

Credit Default Swaps can be seen as "Insurance for loans."

Remember, these loans come with risk,

as whenever a bank issues alone there is always the risk that the borrower will not be able to pay back the loan.

In order to get around this risk, our bank makes a deal of another third-party.

This third-party usually comes in the form of another bank or another company.

Our primary bank is forced  to pay a fee for however long it is until the loan was due.

In return, our third party promises that whenever our loan is not paid off in full,

that they will pay off the rest of the loan.

This makes it near impossible to lose money on a loan, (foreshadowing)

For whatever loss you have sustained can be covered by our third party.

If this were a mortgage, and the mortgage was not paid off in full,

we not only get the insurance from our third-party, but also the ownership of the property.

This newly founded idea is incredibly important.

Risky investment usually comes with large rewards.

So, if we're able to eliminate the risk, this is easy money!

Wall Street instantly jumped at the chance of financing the "American Dream."

Housing prices were up, the market was up, everything was going great!

So how did things go horribly, horribly wrong?

𝄞 New Order - Blue Monday 𝄞

There are several causes of the financial crisis in 2008,

of which I'll be naming what I believe to be the main five.

I will only be quickly going over these five main points,

but if I have piqued your interest, there is a lovely FRONTLINE documentary that heavily inspired this project for me.

The link will be in the description below. (SHOW MORE)

One.

With the banks now looking to make more and more money, they went for riskier and riskier investments and loans.

The theory was that the risk  can be mitigated through a Credit Default Swap.

Meaning that these risky deals weren't all that risky at all and we're just easy money.

What these bankers failed to realize  or most likely chose to ignore,

was the fact that risk cannot be destroyed, only distributed.

This leads on to our second point.

Two.

Just as the banks are slowly realizing that their investments are slowly becoming worthless,

they turn to the help of their third-party insurers, these third-party banks.

However these third-party banks are also losing a lot of money as well.

Unbeknownst to the rest of Wall Street, these third-party insurers are doing business with several large banks.

They've promised to insure loans of up to millions of millions and billions of dollars.

Several large banks went to these third-party insurancers,

ALL AT THE SAME TIME

These quote-unquote insurance banks didn't have enough money to support the weight of everyone coming at them.

So they too were on the threat of failing and filing for bankruptcy.

Three.

What is the one thing you do when you're low on cash and need money now?

Why, it's to sell off your valuables.

However, the only things they have to sell are bad mortgages and terrible loans.

No one sensible would be willing  to buy these terrible, horrible mortgages and loans.

So if no one is willing to buy these toxic  assets the banks are stuck with them.

Four.

Banks, Wall Street, and the like are now very, very worried.

They have no money and no way to make money from selling the assets they own.

Nor are they able to get their quote-unquote insurance from their quote-unquote insurance company, because...

EVERYONE IS BROKE

Have you ever heard the phrase  "too big to fail"?

It's an economic theory that says some businesses are too giant and big to fail.

If, say, these businesses and banks did fall,

they would bring the economy down with them.

This was no longer just the fall of Wall Street,

it was the fall of the American economy.

Everyone was nervous, everyone was anxious.

And everyone had held their breath to see if Uncle Sam will put an end to this mess.

𝄞 Mellow Grove Rock Drum Loop - Jim Dooley 𝄞

Five.

There are three interesting "of note"  cases during the 2008 financial crisis.

The first of which involved the bank "Bear Stearns."

In 2007, it was approximately worth $20 billion,

and just before they were about  to go bankrupt,

they were estimated at around $236 million.

That's a near 99% loss!

With the bank's looming doom peering around the corner,

it was acquired by J.P. Morgan with the assistance of the United States Federal Reserve.

In order to help cover the cost of purchasing Bear Stearns,

the United States Federal Reserve gave J.P. Morgan an approximately

30 billion dollar loan.

AIG, also known as the "American International Group," was one of these insurance banks, these third-parties,

and probably one of the biggest ones there.

the amount of money they were on the hook for when the market stalled was approximately

$441 billion.

Due to AIG's several connections with large banks,

such as J.P. Morgan, CITIGroup, Bank Of America, and Wells Fargo, it was deemed "too big to fail."

Therefore, the Federal Reserve stepped in *directly (w/ taxpayers money) with its own $182 billion to help AIG out.

Before filing for bankruptcy in 2008,

Lehman Brothers was the fourth largest investment bank in the united states.

Before its fall, Lehman Brothers had approximately $680 billion in assets and investments.

Given its size and status in the United states and globally,

when it fell, it *fell*, hard!

This is a graph of the Dow Jones Index. The Dow offers a good indication of how the markets are doing.

And this line right here.

Yep... that is what happened after Lehman Brothers filed for bankruptcy.

No other banks came to its rescue, nor did the Federal Reserve offer any assistance.

*Opening bell of the NYSE

𝄞 Trackmania United Forever OST - Stadium - TicTac Remix 𝄞

>> "...down three and four and a half percent generally across  these markets..."

>> "Let's talk about the speed with which we are watching this market deteriorate..."

>> "We've read everywhere essentially down by four-five percent..."

>> "...we're down over 16 percent..."

>> "...(the) Dow at the same time has fallen about 18 percent..."

>> "...was the worst day on wall street since the crash of 1987."

>> "From the financial capital of the world...

the opening bell is going to ring in, uhh, five seconds

and to be honest with you we wish it wouldn't..."

*Music fades away*

>> "You created the mess we're in and now you're saying 'Sorry, trust us...'

You created CDOs! You created Credit Default Swaps! That never existed a few years ago.

Who was the brilliant person who came and said 'Let's do Credit Default Swaps?'

Find 'em! Fire 'em!"

>> The Secretary of the Treasury, Henry Paulson, was the one leading the charge in preventing the total financial meltdown.

He was the one who drafted a bill to "provide the authority for the federal government to purchase and..."

blah blah blah blah blah.

Also known as the "Emergency Economic Stabilization Act of 2008."

On September 29, 2008. The first version of the bill will be sent to the floor of the House of Representatives.

There the bill was  rejected in a vote of 228 (No) - 205 (Yes).

Only a few days later on October 1st, 2008. The second version  of the bill was proposed.

This proposal came as an amendment to an already existing bill that had already passed the House of Representatives.

There the Senate voted to pass this amended version of the bill in a vote of 74 (Yes) - 25 (No).

There was still work to be done, however.

Because the original bill approved by the House of Representatives was changed,

the House needed to reconvene and approve of these new changes before it could be sent to the President.

On October 3rd, 2008. The house voted 263 (Yes) - 100 (No) to approve the amended bill.

Only then, a few hours later, did President George W. Bush sign the bill into law the same day.

It took Henry Paulson and the combined floors of Congress only five days to get this bill passed into law.

This was done literally in a school week.

The bill also carried with several other pieces of legislation as well as many many other provisions.

However, the main focus of this bill was to establish the Troubled Assets Relief Program.

Remember, the banks were full of these toxic assets that no one wanted to buy.

This program allowed for the federal reserve to step in and purchase these toxic assets from the banks.

The amount of money Congress allowed the Federal Reserve to use in purchasing these toxic assets was approximately up to...

*cough cough*

700 billion dollars.

The number of banks of financial institutions that took part in this program were numerous.

Of these banks, the largest  ones received tens of billions of dollars.

The Troubled Assets Relief Program saved wall street.

But while wall street was saved...

3.55 to 23.1 million jobs were lost.

More than 3.1 million homes were foreclosed. Vacant and abandoned.

and reports estimated that the financial and economic  crisis cost Americans...

12.8 trillion dollars.

>> "You would have thought I had  recommended that we repeal the plan of salvation.

Why were they so opposed to it?

Money, money."

"Their are whole subdivisions like this, by the way,

that are just lost in this great  morass.

And so it affects Main Street,

because Wall Street was too greedy.

The greed of Wall Street ,

broke main street."

*Check the discription for names of songs used, as well as other useful information*