Four Years After Bailouts, Banks Have Bounced Back, Still Making Risky Bets
JUDY WOODRUFF: We turn to the impact of government bailouts here in the U.S. and questions that continue to surround those decisions.
It was September 15, 2008, when the investment bank Lehman Brothers filed for bankruptcy protection.
RAY SUAREZ: Lehman Brothers’ collapse sent employees packing and the stock market plummeting. The Bush administration had decided it wouldn’t rescue Lehman.
The Treasury Department had taken over mortgage giants Fannie Mae and Freddie Mac that same month, and saved Bear Stearns earlier that year.
Treasury Secretary Henry Paulson told reporters he was drawing a line in the sand.
HENRY PAULSON, former U.S. treasury secretary: I never once considered that it was appropriate to put taxpayer money on the line with — in resolving Lehman Brothers.
RAY SUAREZ: The decision helped trigger a credit and liquidity crisis, fueled by deep doubts about the health of financial institutions.
WOMAN: The motion is adopted.
RAY SUAREZ: Weeks later, Congress and President Bush passed the $700 billion Troubled Asset Relief Program, or TARP. Through TARP, the government disbursed money to hundreds of banks, and propped up firms like Citigroup and Bank of America. Money also went to General Motors and Chrysler.
The program, along with the Federal Reserve, also provided new help to insurer American International Group. AIG was exposed to risky securities and provided insurance on credit swaps around the world. If it went down, the fear was other firms would follow.
In October 2008, I asked Edward Liddy, who was the newest head of AIG, whether the lifeline would save the company.
Do you think that’s going to be enough, though, the $120 or so billion, or might you need more?