On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. "There was literally a pause in that room where the oxygen left," says Sen. Christopher Dodd (D-Conn.).
As the housing bubble burst and trillions of dollars' worth of toxic mortgages began to go bad in 2007, fear spread through the massive firms that form the heart of Wall Street. By the spring of 2008, burdened by billions of dollars of bad mortgages, the investment bank Bear Stearns was the subject of rumors that it would soon fail.
"Rumors are such that they can just plain put you out of business," Bear Stearns' former CEO Alan "Ace" Greenberg tells FRONTLINE.
The company's stock had dropped from $171 to $57 a share, and it was hours from declaring bankruptcy. Federal Reserve Chairman Ben Bernanke acted. "It was clear that this had to be contained. There was no doubt in his mind," says Bernanke's colleague, economist Mark Gertler.
Bernanke, a former economics professor from Princeton, specialized in studying the Great Depression. "He more than anybody else appreciated what would happen if it got out of control," Gertler explains.
To stabilize the markets, Bernanke engineered a shotgun marriage between Bear Sterns and the commercial bank JPMorgan, with a promise that the federal government would use $30 billion to cover Bear Stearns' questionable assets tied to toxic mortgages. It was an unprecedented effort to stop the contagion of fear that seemed to be threatening the rest of Wall Street.
While publicly supportive of the deal, Treasury Secretary Henry Paulson, a former Wall Street executive with Goldman Sachs, was uncomfortable with government interference in the markets. That summer, he issued a warning to his former colleagues not to expect future government bailouts, saying he was concerned about a legal concept known as moral hazard.
Within months, however, Paulson would witness the virtual collapse of the giant mortgage companies Fannie Mae and Freddie Mac and preside over their takeover by the federal government.
The episode sent shockwaves through the economy as confidence in Wall Street began to evaporate. Within days, in September 2008, another investment bank, Lehman Brothers, was on the brink of collapse. Once again, there were calls for Bernanke and Paulson to bail out the Wall Street giant. But Paulson was under intense political pressure from conservative Republicans in Washington to invoke moral hazard and let the company fail.
"You had a conservative secretary of the Treasury and conservative administration. There was right-wing criticism over Bear Stearns," says Congressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Paulson pushed Lehman's CEO Dick Fuld to find a buyer for his ailing company. But no company would buy Lehman unless the government offered a deal similar to the one Bear Stearns had received. Paulson refused, and Lehman Brothers declared bankruptcy.
FRONTLINE then chronicles the disaster that followed. Within 24 hours, the stock market crashed, and credit markets around the world froze. "We're no longer talking about mortgages," says economist Gertler. "We're talking about car loans, loans to small businesses, commercial paper borrowing by large banks. This is like a disease spreading."
"I think that the secretary of the Treasury could not fully comprehend what that linkage was and the extent to which this would materialize into problems," says former Lehman board member Henry Kaufman.
Paulson was thunderstruck. "This is the utter nightmare of an economic policy-maker," Nobel Prize-winning economist Paul Krugman tells FRONTLINE. "You may have just made the decision that destroyed the world. Absolutely terrifying moment."
In response, Paulson and Bernanke would propose -- and Congress would eventually pass -- a $700 billion bailout plan. FRONTLINE goes inside the deliberations surrounding the passage of the legislation and examines its unsuccessful implementation.
"Many Americans still don't understand what has happened to the economy," FRONTLINE producer/director Michael Kirk says. "How did it all go so bad so quickly? Who is responsible? How effective has the response from Washington and Wall Street been? Those are the questions at the heart of Inside the Meltdown."
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I wonder what country or family wanted America to fall so bad?I wonder why none of our government has tired anyone for treason especially the Bush and Clinton families.Who is America supposed to vote for in 2012?I feel I have no one to trust with our country.All of this is sad because now all the American people have to pay all this money back and they have ran to some other country.It dose not seem fair to American people.America needs a true audit in our finances.
1Littleagger 1 month ago
I have watch this movie in HQ for FREE at videoweed^es^tc/Contagion-2011-TS-XViD-ILLUMINATI^html (Replace ^ with dot)
LesleyRCrandell 3 months ago
@Jsledge85 send me your email I'll send you some links,
princeofswine 4 months ago
@princeofswine Rothschilf owns the gold exchange in london,bankrolled Rhodes to open south africa now own most mining interests,own steel companies,owns railways,bank rolls suros pension fund guy,owns or controls 269 app banks in the worls,owns most media companies,reuters.washinton post,cnn,cbs,owns Murdoh.OWNS the biggest oil company in the world,opened a bank in Lybia for the rebels?owned pp morgan before he died it goes on and on and on.Controls fed reserve ,300 yrs of Rothchild.??????
princeofswine 4 months ago
@Jsledge85
LW=tsil&iiwdeef=erutaef&sh0xyac1XJ=v?HCTAW/MOC.
REVERSE THIS LINK AND PUT ON YOUTUBE
OR PUT THREE W's infount of it
you tube wont let me post a link on here
princeofswine 4 months ago
@Jsledge85 (Do your reserch),they own the fed and are putting the USA in as much debt as possible to control it and earning from it,their doing a bloody good job,if they get rid of the fed they can print money without interest and clear their debt in the short terms.Rothschild owns or controls much of the central banks in most countries look at their historyI have been following them for years their power and influence is unimaginable.With them around countries will always be in their debt
princeofswine 4 months ago
@princeofswine While its a fact that the Rothschilds influenced on the bond market in Europe and North America in the nineteenth century, the idea that they single-handedly are behind this recession is the most idiotic conspiracy theory imaginable. Financial collapses are so complicated that they confound mathmaticians, so many variables are at play that one simply can not point to a single actor unless you have the IQ of two yr. old. The rest of the world doesn't walk around with tin hats.
Jsledge85 4 months ago
Your problem is the Rothschild their coming after your country ,research Rothschild youtube. 99% of people do not know they exist the jewish money lenders are the worlds problem they are undermining countries economies,and earning interest on loans to waring countries.They do not give a damm for anyone except the family bisiness,they own 3/4 of the worlds assets,THEY WANT AMERICA IN THEIR CONTROL and that day is near approaching
princeofswine 5 months ago
Bush w. :) He can be any character he would like to choose to be. Everywhere he will be the same.
kessass83 5 months ago
this ws all created first deregulate then put the companys that they wanted to buy or take out filled with toxic waste they created then buy them and desroy them cheap for almost nothing by the way jp goldman and fed are owned by the rotschilds they did the same in the london stockin 1799 london stock when they lied about the result of war with napoleon and bought the stock that falled for pennys on the pound this is what they do dont u found strange that goldman jp didnt had toxic waste
ukusapillage 5 months ago