Changes

On September 7, 2008, the government took control of the two largest mortgage holders, "Fannie Mae"<ref> Federal National Mortgage Association (FNMA)</ref> and "Freddy Mac"<ref>Federal Home Loan Mortgage Corporation (FHLMC) </ref>. The two had lost $15 billion on the $5.4 trillion in mortgages they owned, and their notes were widely held in [[China]] and many other countries.  The fear was that if the Treasury did not act the world's confidence in the US financial system would collapse.  However the rest of the world was in trouble too.  The stock markets in China and [[Russia]] plunged 50%, and the [[United Kingdom|British]] Treasury had to take over its largest mortgage company, [[Northern Rock]].  Vast sums of money flowed into the US because it was safer there than anywhere else.

On September 7, 2008, the government took control of the two largest mortgage holders, "Fannie Mae"<ref> Federal National Mortgage Association (FNMA)</ref> and "Freddy Mac"<ref>Federal Home Loan Mortgage Corporation (FHLMC) </ref>. The two had lost $15 billion on the $5.4 trillion in mortgages they owned, and their notes were widely held in [[China]] and many other countries.  The fear was that if the Treasury did not act the world's confidence in the US financial system would collapse.  However the rest of the world was in trouble too.  The stock markets in China and [[Russia]] plunged 50%, and the [[United Kingdom|British]] Treasury had to take over its largest mortgage company, [[Northern Rock]].  Vast sums of money flowed into the US because it was safer there than anywhere else.

By September the major banks were no longer lending money and most reported huge losses as they wrote down the value of the CDOs and other assets. Short sellers sold large amounts of stock in threatened companies, causing further panic and driving down share prices.<ref>The short sellers did not own the shares; the practice was stopped on Sept. 19, 2008, by the [[Securities and Exchange Commission]] because it destabilized markets.</ref> Lehman Brothers, one of the oldest and largest banks in New York, went bankrupt on Sept. 15 with no one to rescue it.  Merrill Lynch was sold to Bank of America for $50 billion, about half its value a few months before. Investors realized that AIG could no longer honor the insurance policies it wrote. It lost $13 billion in the first half of 2008 and its shares fell 95% in value. AIG was "too big" to be allowed to fail, so it was given an $85 billion loan from the government; in return the government received 80% of its stock.<ref> The Federal Reserve Bank of New York, part of the Federal Reserve System, handled the AIG case.</ref> In effect AIG, along with Fanny Mae and Freddy Mac were nationalized.  The Federal Reserve, with $800 billion in assets, was assisted by the Treasury, which gave it more funds.<ref> See [http://www.nytimes.com/2008/10/02/business/02crisis.html?_r=1&hp=&adxnnl=1&oref=slogin&pagewanted=all&adxnnlx=1222952525-cWL0bOgQjxNvxNo+OH1qAw Joe Nocera, "36 Hours of Alarm and Action as Crisis Spiraled," ''New York Times'' (Oct. 1, 2008)]</ref>  

By September the major banks were no longer lending money and most reported huge losses as they wrote down the value of the CDOs and other assets. Short sellers sold large amounts of stock in threatened companies, causing further panic and driving down share prices.<ref>The short sellers did not own the shares; the practice was stopped on Sept. 19, 2008, by the [[Securities and Exchange Commission]] because it destabilized markets.</ref> Lehman Brothers, one of the oldest and largest banks in New York, went bankrupt on Sept. 15 with no one to rescue it.  Merrill Lynch was sold to Bank of America for $50 billion, about half its value a few months before. Investors realized that AIG could no longer honor the insurance policies it wrote. It lost $13 billion in the first half of 2008 and its shares fell 95% in value. AIG was "too big" to be allowed to fail, so it was given an $85 billion loan from the government; in return the government received 80% of its stock. The government had to add another $38 billion to the AIG rescue in October.<ref> Barry Meier and Mary Williams Walsh, "A.I.G. to get Additional $37.8 Billion," [http://www.nytimes.com/2008/10/09/business/economy/09insure.html?_r=1&ref=business&oref=slogin ''New York Times,'' Oct. 8, 2008] </ref> In effect AIG, along with Fanny Mae and Freddy Mac were nationalized.  The Federal Reserve, with $800 billion in assets, was assisted by the Treasury, which gave it more funds.<ref> See [http://www.nytimes.com/2008/10/02/business/02crisis.html?_r=1&hp=&adxnnl=1&oref=slogin&pagewanted=all&adxnnlx=1222952525-cWL0bOgQjxNvxNo+OH1qAw Joe Nocera, "36 Hours of Alarm and Action as Crisis Spiraled," ''New York Times'' (Oct. 1, 2008)]</ref>  

    

    

===European crises===

===European crises===

HBOS (Halifax Bank of Scotland) had severe losses and in September was taken over by a bigger bank, the Lloyds TSB Group.   

HBOS (Halifax Bank of Scotland) had severe losses and in September was taken over by a bigger bank, the Lloyds TSB Group.   

In late September, the Fortis bank, the world's 20th largest business, was partially nationalized by three governments who injected $16 billion in emergency funds. The [[Belgium|Belgian]], [[Netherlands|Dutch]] and [[Luxembourg]] governments tried to inject capital but as consumer confidence plunged, Netherlands nationalized the Dutch wing of the company and the rest was sold in early October to the French bank BNP Paribas for €14.5 billion ($19.7 billion). In [[Germany]] Hypo Real Estate was given €35 billion ($50 billion) of credit guarantees by the government and other banks.  The government of [[Iceland]] took over two large banks, as the entire island economy verged on bankruptcy because it depended so much on large foreign loans. Most of the European countries hurriedly announced guarantees of personal bank deposits to avert further drop in consumer confidence and runs on the banks.  Stock markets around the world continue to decline as pessimism worsens.

In late September, the Fortis bank, the world's 20th largest business, was partially nationalized by three governments who injected $16 billion in emergency funds. The [[Belgium|Belgian]], [[Netherlands|Dutch]] and [[Luxembourg]] governments tried to inject capital but as consumer confidence plunged, Netherlands nationalized the Dutch wing of the company and the rest was sold in early October to the French bank BNP Paribas for €14.5 billion ($19.7 billion). In [[Germany]] Hypo Real Estate was given €35 billion ($50 billion) of credit guarantees by the government and other banks.  The government of [[Iceland]] took over its large banks, as the entire island economy verged on bankruptcy because it depended so much on large foreign loans. Most of the European countries hurriedly announced guarantees of personal bank deposits to avert further drop in consumer confidence and runs on the banks.  Stock markets around the world continue to decline as pessimism worsens.

The European Central Bank aggressively lent money to banks trying to ensure that banks would have adequate cash. The moves have not reassured savers or investors, and European stock markets have fallen even further than the American stock markets, as have the stock markets in China and Russia.  The leaders of France, Germany, Britain and Italy vowed to prevent a Lehman Brothers-style failure in Europe but they did not offer an American-style bailout package.<ref>Carter Dougherty, Nelson Schwartz and Floyd Norris, "Financial Crises Spread in Europe," [http://www.nytimes.com/2008/10/06/business/06markets.html?_r=1&hp&oref=slogin ''New York Times,'' Oct 6, 2008]</ref>

The European Central Bank aggressively lent money to banks trying to ensure that banks would have adequate cash. The moves have not reassured savers or investors, and European stock markets have fallen even further than the American stock markets, as have the stock markets in China and Russia.  The leaders of France, Germany and Italy vowed to prevent a Lehman Brothers-style failure in Europe but they did not offer an American-style bailout package.<ref>Carter Dougherty, Nelson Schwartz and Floyd Norris, "Financial Crises Spread in Europe," [http://www.nytimes.com/2008/10/06/business/06markets.html?_r=1&hp&oref=slogin ''New York Times,'' Oct 6, 2008]</ref>

Britain on October 8 announced a gigantic £500 billion ($850 billion) rescue plan for its banks; the government would partially own them.  Prime Minister [[Gordon Brown]] said banks would still be run by their old managers, but that the government would have to be "satisfied" on matters of [[salary|salaries]], [[dividend]]s and lending activities.  The money involved is about a third of Britain's annual [[Gross Domestic Product|GDP]].

Britain on October 8 announced a gigantic £500 billion ($850 billion) rescue plan for its banks; the government would partially own them.  Prime Minister [[Gordon Brown]] said banks would still be run by their old managers, but that the government would have to be "satisfied" on matters of salaries, [[dividend]]s and lending activities.  The money involved is about a third of Britain's annual [[Gross Domestic Product|GDP]] (comparable to $5 trillion in the U.S. economy.)

===$700 billion bailout proposed===

===$700 billion bailout proposed===