Executive Summary of Too Big To Fail
Andrew Sorkin wrote a book titled Too Big To Fail. This book focus on the collapse of the investment bank Lehman Brothers, Merrill Lynch was sold by Bank of American, Freddie Mac and Fannie Mae was nationalized, and the government took 80 percent of AIG that took place on the weekend of September, 15, 2012. Significantly, he examined the financial markets reactions to the bankruptcy of Lehman Brothers.
It starts with the failure of Bear Stern, one of the biggest banks in American. Bear Stern found the bank having too many toxic assets and could not cover its liabilities. The United States implement their own economy in the history of the largest and deepest government intervention. In May of 2008,
If AIG collapse, the company holding of bonds exposed on the risk. Then those bonds are not worth, which means AIG have financial problems, or even have to follow the collapse of a chain reaction. Finally, the U.S. government had to rescue AIG; it must to pay compensation to investors.
In August 2008, the financial market was collapse. Freddie Mac and Fannie Mae stock price were down 17% and 16%, the index fell to the lowest point since 1992. By the U.S. subprime mortgage crisis, two companies caught in a loss of $70 billion predicament. In September 7, 2008, the U.S. government announced to take over the troubled two major U.S. housing mortgage finance agencies. Treasury will provided $200 billion financial support to two companies, and acquisition of the related preferred stock.
The failure of Lehman sent ripples through a financial community. Investor confidence was completely shattered when news of the insolvency of Goldman Sachs, JP Morgan, Citigroup, Fannies Mae, Feddie Mac, and AIG hit the public. JP Morgan and Goldman Sachs intentionally changed themselves into a bank holding company to increase their solvency. The government deemed firms such as Fannie Mae, Feddie Mac, AIG and Citigroup “Too big to fail”. The federal government wanted to ensure these firms did not fail. So they created TARP (Trouble Assets Relief Program). Through this program, the government gave close to 200 billion dollars in a form of bailout failing firm such