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Cameron Sepede

English 2010
July 19, 2016

The Great Recession


How and Why the Fed Saved the Day

If you were to conduct any research into the recent Great Recession of 2008, you would
find a lot of opinionated information criticizing the Federal Reserve leaders and their handling of
the recession. As you might already know, the recent Great Recession of 2008 was the toughest
economic times this country has faced since the Great Depression of the 1930s. However, most
members of the general public do not know how close this country, and much of the world was,
to falling back into depression era numbers and how much farther down we wouldve fell if not
for the bold and immediate actions the Federal Reserve leaders took during those tough times.
The Great Recession can trace its beginnings all the way back to the early 2000s and late
1990s during eras of strong economic output and federal de-regulation of financial institutions.
This deregulation made it easier for banks to lend large amounts of money, take eon much more
risk, make riskier investments, and in-turn during strong financial times take home
unprecedented amounts in bonuses and profit. However, as any high school physics student can
tell you, what goes up must come down. This principle is not only applicable to the study of
physics, but it applies heavily in the world of finance. Though the stock markets long-term trend
has always been an upward one, history tells us that short term spikes are almost always met with
a downward correction.

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Think of macro financial trends as tectonic plates. Movement throughout both is


guaranteed. Movement is guaranteed for both. However, it is almost impossible to predict how
much both are going to move. When more movement than expected happens in both, you get
corrections. When these corrections happen, you get earthquakes. That is exactly what happened
in 2008. You had prices in almost all financial investment vehicles inflated so much that when the
correction happened and the bubble burst, it sent shockwaves throughout the financial world
literally bringing down the biggest of buildings and businesses. (Haveman)
Some of the biggest businesses in the financial world came crashing down when those
ripples were sent out. Business such as Bear Sterns and Solomon Brother were among some of
the biggest ones to fall. If not for the Feds direct and immediate action many others including
the biggest one of all, AIG would have certainly met there end as well. Had AIG gone down it
would've put such a cripple in the legs of the American financial world that it would not have
been able to stand back up form such a crushing blow. (Sorkin)
The Feds leaders, Hank Paulson and Ben Bernanke worked tirelessly to soften these blows
that the financial markets were taking at the time. With how volatile and unpredictable things
were at the time it would be almost impossible to predict how much each decision and bail out
would positively or negatively affect the financial markets at the time. Stabilizing the markets at
the time was key. Many stock prices of financial institutions were in free-fall down at the time.
Which, left unchecked would render the stock of the companies virtually worthless and bringing
the entire business of the company down along with it. Even stocks of government backed
business such as Fannie Mae and Freddie Mac were in free-decline. Had a company the size of
AIG gone down as well, it would-have completely brought down what we know today as modern
finance, essentially sending us back to the stone-age. (Cassidy)

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This is what a lot of the general public today is unaware of, just how close we were to
falling right off of that cliff. The general public only sees the big bailouts for business who's soul
purpose to make money. After these big bail outs, the general public was left asking, wheres the
money for me, the little guy, about to loose his house. As valid of a point as that is, John Q. Public
was not aware that had these bail outs not been made, he really wouldnt have a job in the future
to even make rent payments on. (Sorkin)
Making the decisions that Ben Bernanke and Hank Paulson had to make leading up to
those crucial moments in finical history were not easy, nor were they the popular ones. However,
they were completely necessary for the betterment of the future of our financial institutions and
markets. Today, the countries financial markets have recovered to full strength. We truly have the
leadership of the Federal Reserve to thank for the health of todays economic times.

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Bibliography

Cassidy, John. "ANATOMY OF A MELTDOWN." New Yorker 1 Dec. 2008: n. page.


Print.

Havemann, Joel. "The Financial Crisis of 2008: Year In Review 2008." Encyclopedia

Britannica. N.p., 10 Dec. 2008. Web. 12 July 2016.

Sorkin, Andrew Ross. Too Big to Fail. New York: Viking, 2009. Print.

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