The 700 Million Dollar Bailout

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September 18th, 2008, was a very important date in economic policy history.This date legislators from the house and the senate met to discuss with the federal reserves, a 700 million dollar plan to stop the credit freeze of the financial market. This controversial decision impacted the financial market greatly and has changed economics from that point on. This situation stemmed from Wall Street gambling heavily on the risky housing market. When the housing market crashed it had an domino affect on the financial markets.
Bear Stearns was a global investment bank. A rumor arose stating that they were running out of money. It quickly came to the light that Stearns bought huge amounts of mortgages and then turned them into securities. This term is called toxic assets.
Tim Geithner head of Federal Reserve, initially thought to just let Bear Stearns go bankrupt, but quickly learned that doing that would not be a wise option. The feds learned that Bears had a lot of deals incorporating credit default swaps. Credit default swaps are insurances on bonds, for if they go bad the insurer would pay the own of the insurance. Bear Stearns failure to repay their debt would have directly affected all of Wall-Street, and all around the world. Systemic risk as some would say. The idea that the risk to the financial system as a whole would be too great if Bear Stearns would be allowed to go bankrupt. Unfortunately the Federal Reserve was unable to directly give money to Bear Stearn. So they thought up a plan to give the money to JP Morgan, the bank that backed Bear, and then they would pass it on to Bear Stearns.
Former Secretary of the Treasury Henry Paulson got involved. Paulson believe that the market was doomed to fail if an actual fix w...

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...acticing this. Pragmatism not ideology should govern policy. Pragmatism according to the Merriam-Webster dictionary is a logical way of doing things or of thinking about problems that is based on dealing with specific situations instead of on ideas and theories. While ideology is a set of ideas and beliefs of a group or political party. The struggle between these two is that one states that there is a united one way to think and do something, pragmatism. While ideology is based over time. For example Republicans pressured Paulson to let the various financial players go down, they insisted that the government has no role in the market. This thinking especially in the situation in which all else has failed already is very ideological. While the pragmatic approach would be to realize that something needs to be down within the market, especially if it cannot fix itself.

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