The Federal government spent 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 took along the way.
November 2008 - Citigroup Bailout Critical for Economy to Recover
The U.S. Treasury gave Citigroup a $20 billion cash infusion in return for $27 billion of preferred shares yielding 8% annual return, and warrants to buy no more than 5% of Citi's common shares at $10 per share.
FDIC Insured Bank Loans
The FDIC agreed to guarantee up to $1.3 trillion in loans that banks made one another. About 1.2 million unemployed workers will receive an extra three months of benefits this year. GM, Ford and Chrysler, on the other hand, were denied their request for $50 billion in bailout funds.
Paulson, Bernanke Revived Credit Card Lending
The Treasury partnered with the Federal Reserve to use part of the $700 billion bailout to address a freeze in the consumer credit market. The $1 trillion secondary market for credit card, auto and student debt had come to a standstill.
AIG Bailout Revised to $150 Billion
The Federal Reserve's $85 billion bail-out of insurance giant AIG was revised upward. The Treasury Department purchased an additional $40 billion in preferred shares as part of its Capital Repurchase Plan. The Federal Reserve took on another $52.5 billion in mortgage-backed securities. The funds allowed AIG to retire many credit default swaps, freeing it up to lend more.
October - Fed Lent $540 Billion to Bail Out Money Market Funds
The Federal Reserve lent $540 billion to allow money market funds to have enough cash to meet a continuing barrage of redemptions. Since August, over $500 billion was withdrawn from money markets, which is where most businesses park their overnight cash. Businesses hoarded cash because LIBOR rates skyrocketed as banks panicked and stopped lending to each other.
World Governments Bailed Out Banks
Bank Bailout Bill Alternatives
Many of these alternatives to a bailout were eventually implemented anyway. These included coordinated central bank rate cuts, and the Federal Reserve stepping in as a commercial lender of last resort.
Did Fannie and Freddie Cause the Mortgage Crisis?
The $700 Billion Bailout Bill
Find out the truth about the bill that established the Troubled Assets Recovery Program (TARP). As originally envisioned, it was suppoed to give troubled banks the right to submit a bid price to sell their assets to TARP as part of a reverse auction. However, it would have taken too long to implement. Instead, Treasury bought shares of troubled banks to inject capital into the frozen financial system.
