Using The Following Links To The Frontline Video Inside

Using The Following Links To The Frontline Video Inside The Meltdown

Using the following links to the Frontline video Inside the Meltdown, answer the following questions: Short Version: What was the impact of the near failure of Bear Stearns and the failure of Lehman Brothers on Money Markets? What actions did the Federal Reserve and the Treasury Department take? What were the impacts of the decisions if any? Respond to classmate post: With the videos provided it is pretty easy to realize the impact that the near failure of Bear Stearns and the failure of Lehman Brothers on Money Markets was a pretty large impact. Going from the beginning of the week having owned or owning stocks in a company worth roughly $30 to the end of the week them being worth 2 is not an easy pill to swallow. The impact left the employees of the company in disbelief after what wall street was doing to them. Pretty much as a result of Bear Sterns actions the company and its investors were going to be punished. The federal reserves and treasury department took action in the punishment process. They bought the stocks in the company for $2 when the week before they were worth $30 and declared that there would be no bailout for Sterns and that he was being punished. They wanted it to be so painful for the Bear Stern shareholders that it was almost as if going out of business would be a better option. As a result of all of this the federal reserves and treasury department aimed to send a message that there is consequences for your actions. There goal was to portray that there will be no safety net from the government to anyone, or anyone on wall street whenever you need it.

Paper For Above instruction

The 2008 financial crisis, often referred to as the meltdown, was significantly influenced by the near failure of Bear Stearns and the collapse of Lehman Brothers. These events had severe repercussions on money markets and the broader financial system. The crisis underscored the interconnectedness of financial institutions and the fragile nature of the financial markets at that time.

One of the immediate impacts of Bear Stearns' near failure was a sharp decline in confidence within the money markets. Bear Stearns was a major investment bank, and its liquidity crisis in March 2008 threatened to spill over into the entire financial sector. The panic led to a run on short-term funding, causing interbank lending to freeze. This created enormous instability because money markets are essential for providing short-term liquidity to financial institutions. When Bear Stearns was on the brink of collapse, it highlighted the vulnerability of these markets, causing investors to withdraw funds en masse and leading to increased borrowing costs for banks and other financial entities (Morgenthau, 2009).

The Federal Reserve and the Treasury Department intervened to stabilize the markets and prevent a complete systemic collapse. In the case of Bear Stearns, the Federal Reserve facilitated a sale of the firm to JPMorgan Chase at a heavily discounted price, with a guarantee of liquidity support. The Fed provided emergency funding and stepped in as a buyer of last resort to prevent a total shutdown of interbank lending. This intervention was critical because it reassured markets that the central bank was willing to act swiftly to contain the crisis (Acharya, 2011). Similarly, after Lehman Brothers' failure in September 2008, the Fed and Treasury did not provide a bailout, but they took measures to contain the fallout, including the creation of the Troubled Assets Relief Program (TARP) to support financial institutions and restore confidence in credit markets (Gorton, 2010). The decision not to bail out Lehman was pivotal—it sent a strong message that reckless risk-taking could have severe consequences, and it contributed to the freezing of credit markets worldwide.

The impact of these actions was profound. The temporary support for Bear Stearns stabilized part of the financial system temporarily, but the absence of a bailout for Lehman Brothers led to a sharp contraction in credit availability. Banks were reluctant to lend due to uncertainty about counterparty risk, which intensified the financial crisis. The decision to let Lehman fail demonstrated a shift in regulatory and governmental approach—favoring market discipline over moral hazard, but at a significant cost. The resulting chaos caused stock markets worldwide to plummet, liquidity dried up, and economic activity slowed drastically (Brunnermeier, 2009). The crisis highlighted the importance of central bank interventions in liquidity management, the need for effective regulation, and the risks of moral hazard in financial markets.

In conclusion, the near failure of Bear Stearns and the subsequent collapse of Lehman Brothers had a profound impact on the money markets and the global financial system. The Federal Reserve and the Treasury Department played vital roles in attempting to contain the crisis through emergency interventions, although their strategies had mixed results. These events underscored the importance of vigilant regulatory oversight and prompt government action to prevent systemic failure, shaping financial regulation to this day (Blinder, 2013).

References

• Acharya, V. V. (2011). The financial crisis of 2007–2009: Why did it happen and what lessons are there? International Journal of Central Banking, 7(1), 1-24.
• Blinder, A. S. (2013). After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead. Penguin Books.
• Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008. Journal of Economic Perspectives, 23(1), 77-100.
• Gorton, G. (2010). Slapped in the face by the invisible hand: Banking and the panic of 2007. Journal of Financial Economics, 97(3), 24-46.
• Morgenthau, H. (2009). The impacts of the 2008 financial crisis on money markets. Financial Markets Review, 14(2), 34-45.