Impact of the near failure of Bear Stearns and failure of Lehman Brothers
After watching the video, it is clear that the near-collapse of Bear Stearns and the failure of Lehman Brothers in 2008 had a devastating impact on Money Markets. After Bear Stearns and Lehman Brothers signed for bankruptcy, a crisis was triggered in Money Markets. The Reserve Primary Fund fell to $0.97 per share after the fund had written-off its losses from bad debt. This was the first time in investing history that a money market fund failed to maintain a net asset value of one dollar per share. As a result, shockwaves were sent throughout the industry, which resulted in a bank run that created fears and strained liquidity in money markets even more as investors redeemed bonds. Therefore, the government and the Federal Reserve took actions that would help with providing liquidity.
The Federal Reserve and Treasury Department’s actions and the impact of the decisions
The near failure of Bear Stearns and failure of Lehman Brothers is supposedly the cause of the 2008 financial meltdown. The Federal Reserve and the Treasury Department had to take action to prevent any crisis in the financial markets. As a result, the Federal Reserve and the Treasury Department decided to bail out Bear Stearns. The decision to bail out Bear Stearns is the cause of the 2008 financial crisis. This is because the bailout of Bear Stearns led investors to expect that Lehman Brothers would also be bailed out. Therefore, investors who had stakes in Lehman Brothers expected that they would minimize their losses when the government bails out Lehman Brothers. The government's decision not to bail out Lehman is what caused the 2008 financial meltdown as the inconsistent treatment of Bear Stearns, and Lehman set up creditors and investors for a fall.
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