The Wall Street market crisis has been building for some time. It
is essentially a credit crisis. Its roots are deep but connected to
the real estate bubble. The bubble burst in mid 2006 and the fallout
has been the “subprime” mortgage lending crisis. This
resource is an attempt to take a closer look at the causes and
connections between the following:
Credit Crisis
Mortgage Crisis – “Subprime Mortgages”
Deregulation and/or Lax Regulation
Investment Bank Failures
Commercial Bank Failures
Changing role of Government
Economic Market Ideologies
I. The Big Picture – The Wall Street Bailout: The Credit Crisis
Crisis Consensus: “Historic,” “Watershed,” “Extraordinary”
Consensus on the current situation falls into one of two
categories:
• This is the biggest thing that has happened to the U.S.
Financial System…
1. Since the Great Depression.
2. Ever.
The 700 Billion Dollar Questions:
• How much are the failed mortgage securities at the heart of this crisis worth? (No one knows yet.)
• Will this solve the underlying problem and root causes? (No, but it may stop it from spreading or getting
worse.)
Effects of the Bailout:
• it is an implicit acknowledgment of the failure of economic models and the unregulated free market
• it will fundamentally reorder the economy
• it will significantly change relationships between the private sector (businesses) and the government.
• it will create an entirely new economic model for financial institutions
• it will give unprecedented power to the executive branch of the government and the treasury secretary
particularly.
Dangers of the Bailout Deal:
• Some experts warn that Secretary of the Treasury, Henry Paulson, is seeking too much unregulated cash
and power in his effort to stabilize the economy and buy up bad mortgage-backed securities.
• Should the bailout go through, it will mark the largest transfer of power from congress to the administration
– more so than the Patriot Act, more so...