Changes

Although an American presidential election is in its last month, candidates have not focused on the crisis. Both major parties blame the other for neglecting adequate regulation. Both the major party candidates have expressed anger at the crisis, and have promised extensive new regulations of the financial industry.

Although an American presidential election is in its last month, candidates have not focused on the crisis. Both major parties blame the other for neglecting adequate regulation. Both the major party candidates have expressed anger at the crisis, and have promised extensive new regulations of the financial industry.

The Bush administration undertook a "bailout" program in which it took control of several of the largest financial institutions (Fannie Mae, Freddie Mac, and AIG insurance), forced the mergers of others, and puchased $25 billion of ownership in each of the 9 largest banks in the U.S.  

The Bush administration undertook a "bailout" program in which it took control of several of the largest financial institutions (Fannie Mae, Freddie Mac, and AIG insurance), forced the mergers of others, and purchased $125 billion of ownership in the 9 largest banks in the U.S.  

By late October it appeared the financial crisis was slowing dowm the economies of all countries of the world, leading perhaps to a serious recession with widepread unemployment and loss of business. The major countries have been taking aggressive steps to dissolve the liquidity freeze and get money flowing again, and to stimulate economies that are headed downward.

By late October it appeared the financial crisis was slowing down the economies of all countries of the world, leading perhaps to a serious recession with widespread unemployment and loss of business. The major countries have been taking aggressive steps to dissolve the liquidity freeze and get money flowing again, and to stimulate economies that are headed downward.

==Causes==

==Causes==

On September 7, 2008, the government took control of the two largest mortgage holders, "[[Fannie Mae]]"<ref> Federal National Mortgage Association (FNMA)</ref> and "[[Freddie 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 "[[Freddie 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.  The collapse of Lehman had a multiplier effect worldwide, severely weakening other big banks and sharly increasing the level of fear and distrust inside the system that caused bankers to sharply reduce their lending. 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>  

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.  The collapse of Lehman had a multiplier effect worldwide, severely weakening other big banks and sharply increasing the level of fear and distrust inside the system that caused bankers to sharply reduce their lending. 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===

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 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.   

On Occtober 13, France, Germany, Spain, the Netherlands and Austria committed €1.3 trillion euros ($1.8 trillion dollars) to guarantee bank loans and take stakes in banks, in an emergency effort to head off the collapse of their financial systems. <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]; Gregory Viscusi, [http://www.bloomberg.com/apps/news?pid=20601087&sid=azerJ573HcbI&refer=home "EU Nations Commit 1.3 Trillion Euros to Bank Bailouts," ''Bloomberg.com'' Oct. 13. 2008]</ref>

On October 13, France, Germany, Spain, the Netherlands and Austria committed €1.3 trillion euros ($1.8 trillion dollars) to guarantee bank loans and take stakes in banks, in an emergency effort to head off the collapse of their financial systems. <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]; Gregory Viscusi, [http://www.bloomberg.com/apps/news?pid=20601087&sid=azerJ573HcbI&refer=home "EU Nations Commit 1.3 Trillion Euros to Bank Bailouts," ''Bloomberg.com'' Oct. 13. 2008]</ref>

Britain on October 8 announced a gigantic £400 billion ($680 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.)

Britain on October 8 announced a gigantic £400 billion ($680 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.)