The Federal government is spending hundreds of billions of dollars to add liquidity to the financial markets to avoid a complete collapse. Here's a chronology of the how the crisis evolved, what caused it and steps the government has been taking along the way.
How the Bailout Affects You
The bill should stop the current credit panic, allowing LIBOR rates to return to normal, and making it easier for everyone to get loans. Without credit market functioning, businesses are not able to get the capital they need to run their day-to-day business. Already it is difficult for people to get credit applications approved for home mortgages and even car loans. If the crisis were to continue, it would lead to a shut-down of small businesses, who can't afford the high interest costs. Also, those whose mortgage rates reset would see their loan payments jump. This would cause more foreclosures, which would add more houses to the market, further depressing home prices.
September - WaMu Goes Bankrupt
WaMu bank was taken over by the FDCI and sold to J.P. Morgan for $1.9 billion after its panicked depositors withdrew $16.7 billion in 10 days, leaving it with insufficient capital to run its business.
Obama's and McCain's Bailout Proposals
McCain's proposal is very similar to the government's bill, while Obama takes a more long-term approach.
Congress Added Needed Oversight to Bailout Plan
Congressman Barney Frank, Chairman of the Housing Financial Service Committee, worked with lawmakers to negotiate a plan that cost less and offered more protection for taxpayers. These measures made it into the final bill.
Credit Crisis Ends Investment Banking
Goldman Sachs and Morgan Stanley, two of the most successful investment banks on Wall Street, become regular commercial banks.
Paulson Submits Bailout to Congress
Treasury Secretary Henry Paulson has asked Congress to approve a $700 billion bailout to buy up mortgage-backed securities that are in danger of defaulting. By doing so, Paulson wants to take these debts off the books of banks, hedge funds and pension funds that hold them.
The Credit Freeze That Triggered the Bailout Bill
Widespread panic in the financial markets threatened overnight lending, needed to keep businesses running. The problem is beyond what monetary policy can do...which means the $700 billion bailout may be the only solution.
Central Banks Pump Billions Into Banking System
The crisis won't cause another depression because central banks around the world are doing what they are supposed to be doing - restoring liquidity. If only private banks would do the same.
Fed Buys AIG for $85 Billion
The Federal Reserve took over AIG, which insures trillions of dollars of mortgages throughout the world. If it had fallen, so would the global banking system.
Lehman Brothers Bankruptcy Signals New Market Bottom
Why Treasury Secretary Henry Paulson said no to a bailout because Lehman's bankruptcy wouldn't trigger a global disruption.
