The current financial crisis has been years in the making and the crisis is the product of years of reckless and irresponsible behavior by both government and financial institutions. Warning signs were clearly present in 2007 when the subprime mortgage 'bubble' burst. Throughout 2007 several major mortgage companies filed for Chapter 11 Bankruptcy and several venerable Wall Street firms found themselves in financial difficulty.
The troubled housing market sent warning signs to Washington and Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson expressed alarm about the dangers posed by the bursting housing bubble. Paulson stated, "The housing decline is still unfolding and I view it as the most significant risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."
Fast forward to 2008 and the crisis rapidly escalates. In March Bear Sterns, one of the oldest firms on Wall Street gets federal funding as shares plummet. Bear Sterns was acquired by JP Morgan Chase for $2 a share. In September rapidly deteriorating conditions prompt the Federal Government to take over Fannie Mae and Freddie Mac which at that point owned or guaranteed about half of the U.S. 's $12 trillion mortgage market. In mid September the crisis spiraled out of control with catastrophic events occurring daily.
On Sept. 14th Merrill Lynch was sold to the Bank of America, and the next day Lehman Brothers filed for bankruptcy. On Sept. 16th Moody 's and Standard and Poor 's downgraded ratings on insurance giant AIG 's credit on concerns over continuing losses to mortgage-backed securities. The next day the Federal Reserve loans AIG $85 billion dollars to help the firm avoid bankruptcy.
After a dismal week for markets Treasury Secretary Paulson unveiled his plan for a bailout. The plan was put to a vote in the House and failed 228 to 205. On October 1st the Senate passes a revised bailout bill laden with tax breaks for special interests. On Oct. 3rd the House passes the revised bill and President Bush sign the bill into law.
The short-term lending market had frozen, and companies began to worry that they would not be able to get the loans necessary to pay their bills or make payroll. On Oct. 8th Central Banks in Europe and the Federal Reserve announced coordinated rate cuts of half a percentage point. Despite early optimism the coordinated move did little to boost investor confidence and markets continued their decline. On Oct. 9th the Treasury Department announced it was seeking equity stakes in some of the country 's banks, in order to inject capital directly into the troubled financial system. This move would partially nationalize banks, something that was unthinkable in the United States.
Despite Action Markets Down
Despite drastic action by governments, credit markets were still frozen and the effects of the crisis started to creep into the day to day economy. Probably the most stunning news was that General Motors was considering bankruptcy. The already troubled US auto makers depend on consumer credit accessibility and frozen credit markets could spell doom for the auto industry.
The only good financial news in these troubled times is the fact that the US dollar continues to hold its value in Forex markets and Forex trading. The dollar continues to hold steady against most world currencies and has gained against the troubled Euro. It would appear that Forex investors and traders are the only ones making any money in these troubled times.
About the Author
Anthony Wayne works in the marketing department of the Forex Interbank site Interbank-FX in Pennsylvania. He is also editor of the Forex Network Site a network of Forex information and news sites.
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