RS 5 Inside the Meltdown

This documentary was very informative and clarified a lot to me about what was behind the meltdown of the market and all of these high powered firms.

The meeting that is talked about at the beginning of the documentary is very eye opening. Hearing people say things like, "the economy could melt down in a few days" is a really strange and scary thing to hear. For my whole life until then, The US seemed so strong and impervious to things like this, but this showed everyone that we were not and this documentary opened my eyes to the problems that were behind the meltdown. 

All I really knew before this was what caused the meltdown, but I only knew the cause and not why. It was shocking to watch the anatomy of the downfall of major banks like Bear Stearns and Lehman Brothers, but it was interesting to find the cause. The problem of all the mortgages they were giving out and people buying on credit created a monster that would crush them once the housing bubble burst. The "toxic assets" they were holding was what caused their downfall and what caused the government to eventually get involved to save the economy. 

One term I found really interesting was systemic risk. I never realized how the fall of one major firm could effect all the others around it and that the market is so interconnected now. The fact that the market is so interconnected now was a major factor in the downfall once the major firms started to fail. The major players on Wall Street that were involved in this were aware of systemic risk and they eventually realized it was happening and that it wasn't just a few firms that were at risk, it was the entire American economy. 

Although government action on Wall Street is rare and frowned upon by many, once they realized that there was systemic risk, they should have gotten involved. They became aware that this problem was a market wide problem and they should have gotten to work on a plan sooner than they did. The delay in government action allowed the market to slide further towards a meltdown while those in charge mulled over what they should do. 

After Bear Stearns was sold and Lehman Brothers failed several plans were discussed. It took a while to decide on a plan, but eventually the secretary of the Treasury decided on government injections into the economy. He disagreed with this decision, but although he did, an action should have been decided on sooner. 

The toxic assets like huge mortgages that were dragging down big firms, combined with the leaders being unsure of what to do to solve the problem is what led to meltdown of our economy and it is a meltdown that we are still trying very hard to recover from.