The global financial crisis of 2008 led to the worst recession since the Great Depression of 1929. Many large banks such as Lehman Brothers, Bear Stearns, Merrill Lynch, along with major global financial services such as Fannie Mae and Freddie Mac, collapsed and with them the US economy. In this paper I will present reasons for the failure of each financial institutions individually which have caused the financial meltdown of 2008. I will also discuss the impact of the financial collapse on shareholders and depositors, and finally some of the measurements that the government has implemented in order to prevent future meltdowns.
What happened in 2008 can't be blamed on a single institution or company. But the reason I took special interest in Fannie Mae and Freddie Mac is because I believe the housing market was a major puppet in the meltdown of 2008. And as one begins to examine carefully the reasons of failure of the most important and large institutions one will come to realize quickly that the base of the meltdown has one common denominator, greed. Executives had too much confidence in their risk management strategies. Regulators, too, had excessive confidence in the measures that they had in place to ensure safety and soundness of banks and other regulated institutions. The crisis was both a market failure and a government failure (Kling, 2009).
I am going to start with presenting the case of Fannie Mae and Freddie Mac, which reveals that the government in this case can be blamed for being more or less oblivious to the consequences of greed and much confidence in the risk management of these giants.
Fannie Mae and Freddie Mac were ascendant, giants of the mortgage finance business and key players in the Clinton administration's drive to expand home ownership. Gensler, an undersecretary of the Treasury and other Treasury officials knew the dangers and feared the companies had grown so large that, if they stumbled, the damage to the U.