On September 29, 2008 the (Dow Jones Industrial Average) Dow dropped 778 points which is the largest single day point loss in history. This point loss was because the Senate voted against the bailout bill. In this essay I will explain to you the events that lead to this economic collapse.
In 2007 the over-heated housing market started to slow down. Despite this slow down the market rose steadily throughout the year, which is surprising since there were signals that the housing market was starting to falter in 2006 thanks to subprime mortgages. It wasn’t until August of 2007 that the Federal Reserve realized there was a bank liquidity problem. The Federal Reserve began adding liquidity by selling its reserves …show more content…
As a result of subprime mortgages, on March 17th the Federal Reserve stepped into save the failing investment bank Bear Sterns. The markets took a small fall then recovered until July 2008. In July, Fannie Mae and Freddie Mac; which are government sponsored agencies were bailed out by the federal government. The Treasury Department guaranteed 25 billion dollars in loans and bought shares in Fannie and Freddie’s stock. The (Federal Housing Administration) FHA guaranteed 300 billion dollars in …show more content…
The Federal Reserve fought the ongoing banking liquidity crisis by lending $540 billion to money market funds, coordinating a global central bank bailout, and lowering the Fed funds rate to just one percent. However, the LIBOR bank lending rate rose to its high of 3.46%. On October 6, 2008, the Dow dropped below 10,000. It fell 800 points during trading hours but closed only 370 points down. On October 15, 2008 the Dow had its second largest point loss closing 733 points down. In the month of October, alone, the Dow loss 13%.
In November the Labor Department released figures reporting an economic loss of 240,000 jobs in October. More bad news came that the price of the AIG bailout rose to $150 billion. The Treasury announced it was using part of the $700 billion bailout to buy preferred stocks in the nations' banks. Additionally the three biggest automakers asked for a federal bailout. By November 20, 2008, the Dow had fallen to 7,552 a new low. Then in December the Federal Reserve dropped the Fed fund rates to zero its lowest level in history. The Dow ended the year at 8,776, down 34% for the