American International Group Inc.

On November 4, 2008, candidate Barack Obama was elected for the first term of his presidency. The following February, The American Recovery and Reinvestment Act of 2009—or the ARRA—was signed into effect by congress, and made into law by President Obama on February 17, 2009. This stimulus package was originally proposed to be 816 billion dollars, but was eventually raised to be 840 billion dollars in 2012. The purpose of this bill was to inspire confidence in the American people that the economy would be up and running again. The ARRA was intended to give money back to small businesses as well as the American families who ran and worked at these businesses. This varies from TARP, or the Troubled Asset Recovery Program, which was a bill that was aimed at bailing out banks in October 2008. TARP worked to allow banks in danger to participate in reverse auction, in order to sell their assets.

Additionally, when America’s economy was melting in 2008, the Federal Reserve played a big role to stabilize it. Besides the Great Depression during the years 1929 through 1939 the worst economic time for the United States, 2008 was unmistakable one of the worst years of America’s economy history. When this economic recession was taking place, the Fed had to take action to avoid another depression and to stop a fall from the financial system. With the help of the Federal Reserve J.P. Morgan Chase and Co.’s they planned to help Bear Stearns (an investment bank) with financial assistance to help the government to buyout AIG, a well-known insurance company. This helped to produce a strategy targeting to stabilize the credit market and also the short-term interest rate from 45% to almost 0 from the benchmark (Coste). Thanks to the Federal Reserve and their well design plan to avoid another recession they prevented the economy of the world or better known as Macroeconomic system from falling and getting it

On October 3, 2008 President George W. Bush signed the Emergency Economic Stabilization Act of 2008, otherwise known as the “bailout.” The Purpose of this act was defined as to, “Provide authority for the Federal Government to purchase and insure certain types of trouble assets for the purpose of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes” (Emergency Economic Stabilization Act). In my paper I will explain and show the relationship between the Emergency Economic Stabilization Act of 2008 and subprime lending, the collapse of the housing market, bundled mortgage securities, liquidity, and the Government 's efforts to bailout the nation 's banks.

These losses necessitated governmental action in the financial markets. Companies such as Lehman Brothers and Bear Stearns lost all of their stock’s value and were forced into bankruptcy. This risk spread throughout the American banks, forcing the American government to step in and buy all of the securitized, troubled assets from the balance sheets of

In 2008, a series of bank and insurance company failures triggered a financial crisis that effectively halted global credit markets and required unprecedented government intervention. Fannie Mae and Freddie Mac were both taken over by the government. Lehman Brothers declared bankruptcy on September 14th after failing to find a buyer. Bank of America agreed to purchase Merrill Lynch and American International Group (AIG) was saved by an $85 billion capital injection by the federal government. Shortly after, on September 25th, J P Morgan Chase agreed to purchase

Government help was seen as the only way to avoid a total economic collapse in the United States, although many thought it could result in a worldwide economic recession. On September 18, 2008 the 700 dollar bailout plan was proposed to congress. Fed Chairman Ben Bernake is quoted telling congress, “If we don’t do this, we may not have an economy on Monday” (The Housing Market Crash of 2007, 2011). This is when it became apparent that the government had a stake in this situation. When people begin questioning whether the United States economy will still exist, the government then has a huge role in the survival of not just the economy, but the entire country. The government is in a situation where it must decide how to protect the American economy, the citizens, the businesses, and the future of the United States of America. On October 3, 2008 congress passed “Emergency Economic Stablization Act” (H.R. 1424- 110th Congress, 2008) which led to the lending of 700 billion dollars’ to

The law created a new Federal Insurance Office (FIO) under the Treasury Department, which would identify insurance companies, like AIG, that create risk to the entire system. AIG was caught in in a major liquidity crisis when its credit ratings were downgraded in September 2008. The U.S. Federal Reserve Bank had to step in and create an $85 billion emergency fund—taxpayer money—to help AIG meet increased financial payouts. The new FIO will also gather information about the insurance industry and make sure affordable insurance is available to

Of the five program areas, the majority of the TARP money was spent stabilizing banking institutions, with a total of $250 billion. $27 billion was committed to efforts in restarting credit markets, and another $47 billion committed to help families avoid foreclosure. The other two program areas were efforts to provide stability to the U.S. auto industry in the amount of $82 billion, and approximately $70 billion was committed to stabilize American International Group (AIG). In addition, the U.S. Treasury implemented standards of executive compensation for financial institutions that were rescued by the TARP program (Department of Treasury, n.d.).

The Lehman Brothers, another investment bank, also encountered failure due to rumors and toxic investments. Due to the Federal Reserveʻs assistance to Bear Stearns, Lehman brothers expected the same treatment, which Henry Paulson denied to them. As a result, markets failed and the entire system was jeopardized. AIG, the largest insurance corporation in the nation, also needed loans to avoid bankruptcy. Ben Bernanke then lent them 85 billion dollars, which meant that the government had 80% of ownership, and essentially controlled, the largest insurance company. By the end of the crisis, Paulson and Bernanke had no other option than to spend $700 billion dollars to aid all of the major banks, which ultimately contradicted their principle of opposition to government intervention. Even after this plan had been implemented, there was still uncertainty on whether or not all of the money spent would suffice to salvage the financial

This was to help good banks from collapsing because lenders were panicking. The government eventually came up with a program called tarp also known as the troubled assets relief program. This program gave 700 billion dollars to help sure up banks. White, L. H. (2009, August 1). Housing Finance and the 2008 Financial Crisis. Retrieved November 3, 2016, from https://www.downsizinggovernment.org/hud/housing-finance-2008-financial-crisis. This helped stop all the panicking in the financial system. Congress later on incorporated a stimulus package which gave the economy over 800 billion dollars from new spending and tax cuts. Amadeo, Kimberly Subprime mortgage crises: Effect and Timeline. (2016, September 8) Retrieved from: https://www.thebalance.com/treasury-yields-3305741)) This helped slow down the fall in the economy. In 2010 congress also passed a law named the DODD Frank law which basically stopped banks from taking big

During the largest recession the United States has seen since the great depression, the Treasury Department sprung into action to stave off another depression. Within a short period of time after the housing bubble burst, financial institutions started to fail. Credit and liquidity virtually vanished within days. The government was forced to react quickly to thwart a complete financial collapse. An estimate from the public interest group Better Markets has calculated the cost of the recession close to $12.8 trillion (Puzzanghera, 2012). This number is criticized since it includes losses in economic output, GDP, and bail-outs, while home equity losses and consumer net wealth are not. This figure does give a good idea of the magnitude of the Treasury Department’s actions. A multitude of industries, and companies received direct financial aid. The government identified key economic areas where policies were needed, and provided credit and liquidity for growth in those areas. The quick response of the Treasury Department helped in reducing the negative effects of the financial crisis. The three economic theories that I identified in this financial crisis consist of classical economics, Keynesian economics, and aggregate market (AS-AD) analysis. There was also a fear of monetarism which has not come to fruition at this time.

The Treasury Department purchased $40 billion in AIG preferred shares from its Capital Repurchase Plan. The Fed will purchase $52.5 billion in mortgage-backed securities. The funds are allowing AIG to retire its credit default swaps.” The case of AIG demonstrates a specific illustration of the “too big to fail” problem.

There has been a debate for years on what caused the Financial Crisis in 2008 and if there was one main cause, or a series of unfortunate events that led to the crisis. The crisis began when the market was no longer funding many financial entities. The Federal Reserve then lowered the federal funds rate from 5.25% to almost zero percent in December 2008. The Federal Government realized that this was not enough and decided to bail out Bear Stearns, which inhibited JP Morgan Chase to buy Bear Stearns. Unfortunately Bear Stearns was not the only financial entity that needed saving, Lehman Brothers needed help as well. Lehman Brothers was twice the size of Bear Stearns and the government could not bail them out. Lehman Brothers declared bankruptcy on September 15, 2008. Lehman Brothers bankruptcy caused the market tensions to become disastrous. The Fed then had to bail out American International Group the day after Lehman Brothers failed (Poole, 2010). Some blame poor policy making and others blame the government. The main causes of the financial crisis are the deregulation of banks and bank corruption.

In the second week of June, 1988, executives at BW/IP International, Inc. were assembling materials for a presentation they would make to their bankers on June 15. They recently had agreed to acquire United Centrifugal Pumps (UCP) for $18.5 million. UCP 's product line complemented BW/IP 's extremely well and the managers of BW/IP 's pump division were eager to combine the two. Nevertheless, BW/IP 's bank lenders were expected to be somewhat less sanguine. Only a year ago, in May 1987, they had lent $131 million to finance a $235 million leveraged buyout (LBO) of the company. BW/IP had performed according to expectations since then, but it still carried total

Dixon is raising debt capital by issuing long3 and short term bonds; an interest rate of