At Times, Government Bailouts Are The Only Solutio Essay

1737 Words7 Pages
At Times, Government Bailouts are the Only Solution At Times, Government Bailouts are the Only Solution Millions of readers were absolutely astonished when “The Credit Crisis-The Bailout Plan” (2010) printed “$700 billion”, as the proposed amount of money needed to save the American economy (p.B5). This startling figure left many people to wonder about how this happened. This was a result of the housing market collapsing. The profits made on housing enticed many banks to invest heavily into mortgages. When the market fell through, many of these banks could not afford the substantial losses incurred. This was the initial spark that led to government intervention on Wall Street. Many citizens believed that the government had no authority to meddle in what the United States has always held in such high regard, a free market. The investment bank bailouts were necessary to avoid the collapse of the American economy; however this is only a temporary solution and must not be seen as a safety net for high risk banking. One of the banks that had invested heavily into mortgages was Bear Stearns Investment Bank. This bank played a major role in the sense that it was the first bank to recognize the huge problem created by the fall of the housing market. Investments made into the housing market became known as toxic assets. Although Bear had high levels of reserves and was a trusted bank by investors, rumours began to surface that Bear was in trouble. A financial disaster was imminent. With the housing market plummeting, concerns about toxic assets caused investors to start pulling investment from the bank. This caused Bear Stearns’ stock to drop. The C.E.O decided to make a public statement, reassuring the public that Bear Stearns was not in trouble. The bank claimed that it was merely a misunderstanding. Investors saw this as an act of desperation and started to pull

    More about At Times, Government Bailouts Are The Only Solutio Essay

      Open Document