RS5: Inside the Meltdown

This blogpost is my take on "Inside the Meltdown", released by PBC On February 17, 2009.

As a high school senior, I did not really understand much about this thing they called “a recession” in the news. I knew about the stock market crash in 1929 and the Great Depression of the 30’s and how it impacted this country from countless lessons in history class throughout the years, but no way could something like that be happening in 2008. But it was true, the stock market was crashing again, and the economy was going down, and the country was in economic turmoil.

According to the video, the whole thing started from a rumor that Bear Sterns didn’t have enough money and was going to go bankrupt. Upon investigation, Bear Sterns had proved that they did have enough money, but it didn’t matter now, because the story was out. People started to sell they’re Bear Sterns stocks, and according to credit default contracts, every other big company was connected to Bear Sterns. IF Bear sterns went down, every other financial company was going to go down with it. So in attempts to restore the balance, the government gave money to J.P.Morgan Bank, who in turn lent that money to Bear Sterns.

Another company, Lehman brothers, along with Fannie May and Freddie Mac, was giving housing loans out to unqualified buyers. When the buyers couldn’t pay their mortgages, the banks took the houses back, as an attempt to gain their money back. But because of the slow economy, no one was able to afford to buy a home, and so Lehman Brothers started to lose their capital.

Its just such a surprise for me that a rumor could start something so severe. In this world where everyone knows that liars and schemers are at large always, how can we let a rumor take down our entire economy so low that the government had to step in because the nation was in danger of losing its economy! Once the government s involved, nothing stays as a private business. The banks all became part of the government, having to follow the rules and regulations the government puts on them instead of running their businesses as they please. How can one rumor put a country like the United States go into economic crisis?

 I’m not sure how I feel about the government being a part in this either. I understand that they had to step in to help Bear Sterns because of its connection to the rest of Wall Street, but did it really have to be so involved in other companies? What if they had just sat back and allowed what was happening to happen and see where it took us. But there would have been backlash anyways, no matter what choice the government made. The economy is slowly making its way up, maybe this was the right choice to make, for the government to step in and buy stocks to help even out the scales.