Inside the Meltdown…
I was in Texas last week and was able to see a number of “Tea Party” protests that are generally against big government, and are fed up with the currently elected government and the recent bailout monies allocated for these large banks. Since I fancy myself as a person who agrees with these ideals, I started researching into what really is going on with the recent bailouts. I’ve learned about how republican hardcore conservative political bodies suddenly were asking congress to pony up billions of dollars to shore up companies like Bear Stearns, Lehman Brothers, and AIG due to this newly discovered economic nightmare called, “Systemic Risk“.
Republicans…. Asking for money? Seriously? So while the “Tea Baggers” have valid points, why is there such difference in handling the current economic crisis from the typical repulican platform?
People generally thought that huge corporations are less likely to go belly up simply because their portfolios are so large no one event could cause total failure. With the housing market we all know and love these days, the US found out the hard way that not only are these extremely large corporations suseptable in their own right, they’re so interconnected in the markets now that when one goes down like Lehman Brothers, it causes a whole cascade effect. Example: Lehman has all these assets and bonds that go to hell because of the housing bubble popping. The government doesn’t intervene because of fears from “Moral Hazard“, so Lehman goes to bankruptcy. So why does AIG suddenly fail? So if you are AIG, and you’ve been selling insurance on Bonds and such where if a bond goes to crap and AIG will insure you against the risk – AIG is now required to honor all these insurance policies for bonds in the tank. AIG’s assets are also hurt by the market in general, and now with the prospect of having to pay all these insurance claims on bonds from companies like Lehmans, AIG is now in dire straits…. The trend goes on and on to the point now where there are entire countries like Iceland who are completely bankrupt!
The best program by far I’ve seen regarding this whole deal is the Frontline episode, “Inside the Meltdown”. While this is a PBS show, I’m a firm believer that every American needs to watch this at least once. Agree or Disagree with the details, but watch the program and educate yourself – Please!
http://www.pbs.org/wgbh/pages/frontline/meltdown/view/