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Motgage companys like Bear Stearns where giving out loans on mortgages to people who could never pay them back.
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Fear spreads to people who have loans and the governments after rumors of an economic collapse is put out to the public.
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The chairman of the Federal Reserve Ben Bernanke makes a plan betweetn Bear Stearns and JPMorgan. This plan stated that the federal government would used $30 billion to cover Bear Sterns toxic mortgages.
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Henry Paulson agreed to help bailout the giant comopany Bear Stears but sent out a warning to other companys like thyem that they should not expect future government bailouts.
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Fannie Mae and Freddie Mac, another large mortgage compnay begins to collapse months after Bear Sterns.
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Within days Lehman Brothers accounces they are near bakrupcy and calls to Bernanke and Paulson to help bail them out like they did with Bear Stearns.
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Henry Paulson was under political pressure from other failing mortgage companys and the federal government after bailing out Bear Stearns. He urges Lehman Brothers CEP Dick Fuld to find a buyer for his failing company before it was too late.
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The federal government urged Paulson and Bernanke to invoke moral hazard and let these companys fail.
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Dick Fuld was unable to sell his company because he did not recieve a bailout similar to Bear Sterns and his company failed.
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Paulson and Burnanke proposed a $700 billion bailout to congress to bailout these large companys.
