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From 2002-2007 banks were giving out mortgages that people could not afford. Most of these were adjustable tare mortgages and interest rose.
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Bear Sterns began to fail and were hours away from declaring bankruptcy. Their stock price dropped from $171 to $57.
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The Federal Reserve used $30 billion to cover the bad mortgages that Bear Sterns gave out. This was an attempt to contain the spread of fear.
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More companies, like insurance companies Fannie Mae and Freddie Mac, begin to collapse. The public saw this and it shook their confidence.
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The public realizes that no company is too big to fail. Since they no longer had any trust in the market, it begins to fall.
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Federal Reserve Chairmen proposes a $700 billion bailout plan for the failing companies. This is intended to get the economy back in order.
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Congress passes the plan to bail the companies out.
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The United States Treasury is authorized to spend $700 billion to resue the economy.
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This is passed in order to allow the government to better surpervise loans, Wall Street, and credit agencies. This is to ensure that nothing like this ever happens again.
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The economy has still not fully recovered from this crisis. Unemployment reamains at a high 7.5%.
