Part 2 : The bubble bust aftermath
Published 7:00 am Friday, December 26, 2014
Our last column summarized the failure of Bear Stearns Companies, Inc., a New York based global investment bank, that failed in February, 2008.
To follow the sequence of events chronologically, President Bush then injected the government into the meltdown recovery effort by seeking and securing a stimulus bill from Congress. The Economic Stimulus Act of 2008, with its $152 billion for 2008, was enacted February 13, 2008, with the hopes of boosting the economy and averting a recession.
This law provided tax rebates to low and middle income U.S. taxpayers, tax incentives to stimulate business investment, and an increase in the limits imposed on mortgages eligible for purchase by Government Sponsored Enterprises (GSE) such as Fannie Mae and Freddy Mac. The website, www.economicstimulusdetails.com/stimulus-timelines.html, gives us a timeline of both the Bush and Obama administrations’ expenditures for 2008 and 2009:
March 2008: Bush stimulus $29 billion, for Bear Stearns / JP Morgan Chase deal.
May 2008: Bush stimulus $178 billion in tax rebate checks.
July 2008: Bush stimulus $300 billion for distressed homeowners.
July 2008: Bush stimulus $200 billion for Fannie Mae and Freddie Mac.
September 2008: Bush stimulus $50 billion to guarantee money market funds.
September 2008: Bush Stimulus $25 billion to Big 3 automakers.
September – November 2008: Bush Stimulus $150 billion to AIG.
October 2008: Bush Stimulus $700 billion to banks (TARP).
In late 2008, the second major New York global investment bank, Lehman Brothers, filed for Chapter 11 bankruptcy on September 15, 2008. Lehman was operating with the same business model as Bear Sterns, but with one exception. For some unknown reason, Lehman held on to a lot of the securities that were backed (secured) by the subprime mortgages, rather than selling them globally.
As the subprime mortgage defaults within Lehman continued, help was sought from from the government. A bailout for Lehman Brothers was denied because of the volume of “Toxic” mortgages they were still holding. This bankruptcy filing remains the largest filing in U.S. history, with Lehman holding over $600 billion in assets.
In late November, 2008, the Federal Reserve (Fed) started buying $600 billion in Mortgage-backed securities. Chairman of the Fed, Ben Bernanke, had several objectives in mind when this began. We will delve into this in our following column Part 3.
The Obama administration took office in January, 2009, and the economy was still reeling from recession.
Therefore, the stimulus effort continued as outlined below:
February 2009: Obama stimulus $787 billion in broad stimulus package.
February 2009: Obama stimulus $75 billion for distressed home owners.
February 2009: Obama stimulus $200 billion for Fannie Mae and Freddie Mac.
March 2009: Obama stimulus $30 billion for AIG.
March 2009: Obama stimulus $15 billion for small business lending.
March 2009: Obama stimulus $1 trillion to get “toxic” assets off banks’ books.
March 2009: Obama stimulus $22 billion for Big 3 automakers.
This concludes this column, Part 2, of the Aftermath. Take heed of 2 Chronicles 7:14.
By Aaron Russell, Sr.