Inside the Meltdown

Frontline looks into what caused one of the greatest economic crises in history and the ways in which the government reacted and responded. The film details the inside scoop on Bear Stearns deal, the bailout of AIG to the tune of 700 billion dollars, and the collapse of the Lehman Brothers. I watched a number of videos, one of them being "Inside the Meltdown," the first video of the Frontline series as produced by Michael Kirk. The video is quite interesting and does a great job at introducing the viewer to the characters and giving him or her a sense of how things are set up and the structure of the narrative. It therefore does not go into great detail explaining the intricate pieces but lays the ground work for the series and gives the viewer a sense of the direction of the drama (C2, 2010).

On Thursday, September 18, 2008, leaders of the U.S. Congress were gathered for a private session where they were to be briefed by the Federal Reserve chairman. The chairman told the shocked leadership that the U.S. economy was on the verge of a serious meltdown and things were probably going to take a nose dive for the worst in a few number of days. A sudden pause fell upon the room, almost as if oxygen had been sucked off it, remembers Sen. Christopher Dodd (D-Conn.) (TPF, 2009).

With the housing bubble bursting and trillions of dollars in mortgages beginning to go bad in the year 2007, fear began to spread through the big firms that are the heartbeat of Wall Street. By spring 2008, with billions worth of bad mortgages on their back, Bear Stearns -- an investment bank -- was rumored to be near collapse. The problem with such kind of rumors is that they can put so much strain on a financial institution that they get to bust. The financial markets had become volatile and no company wanted to be on the receiving end of disconcerting rumors. It didn't help that Bear Stearns was already in bad shape. The company's stock shed most of its value as it dropped to $57 down from $171 a share. The financial devaluation of the bank was indicative of two things: it was on the verge of bankruptcy and it was quickly becoming a toxic asset. A toxic asset is basically when a financial asset or institution loses its financial value, and the government could not afford Bear Stearns to be devalued any further, so something had to be done. The moral hazard to consider here was that Bear Stearns didn't have insurance or protection in anticipation of such a situation which meant that the solution had to be outside the box. The Federal Reserve stepped up to contain the situation and so Ben Bernanke, the chair of the Federal Reserve acted (TPF, 2009).

Ben Bernanke is a former Princeton economic professor who had studied the great depression deeply and so appreciated the extent of the damage that would have been done had the situation not been arrested. There are a few economic parallels that can be drawn between the great depression and the economic meltdown that the country was facing. He drew upon his economic background and experience to engineer one of the most memorable moves of the meltdown. To help bring the market to a stable state, Bernanke negotiated a marriage of convenience between JPMorgan and Bear Sterns. Since Bear Stearns was too big to fail, the deal involved the Federal Reserve committing up to $30 billion to cover the bad mortgages of Bear Stearns so it wouldn't go bankrupt and still continue to play an important role in the country's economy. It was a bold and unprecedented move to help stop the infectious fear that was fast catching on Wall Street as well as to save one of the big fishes in the financial world (TPF, 2009). This risk was a necessary step in order to avoid the breakdown of a market segment or to increase the systematic risk involved within the banking and loan sector of the US market. The bankruptcy of Bear Stearns would have made the e tire banking market volatile and vulnerable because Bear Stearns was the influential finances loner that it was, hence it needed to be drastically saved and the Federal Reserve chose to take the risk of saving it over the systematic risk that would have occurred in the market if Bear Stearns had been allowed to go bankrupt.

The show is definitely worth watching except for one unsettling detail. The detail which most people would miss is that the producer interviews Peter Schiff in footage of the "making of" the video but shows up nowhere in the actual show. This, however, does not take away from the rest of the show that captures the situation during the economic meltdown in great detail. The production of the show was also done very well (C2, 2010).

Bibliography

C2. (2010). Inside the Meltdown. Retrieved from https://contrast2.wordpress.com/2010/03/26/inside-the-meltdown/

TPF. (2009). America's Bankrupt Banks (Inside the Meltdown). Retrieved from Top Documentary Films: http://topdocumentaryfilms.com/america-bankrupt-banks-inside-meltdown/