POLS 112 Week 4 Day 1 NOTES
POLS 112 Week 4 Day 1 NOTES 112
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This 2 page Class Notes was uploaded by Shelby Kolb on Monday April 18, 2016. The Class Notes belongs to 112 at California Polytechnic State University San Luis Obispo taught by Kathryn Logan in Spring 2016. Since its upload, it has received 17 views. For similar materials see Political Science 112 in Political Science at California Polytechnic State University San Luis Obispo.
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Date Created: 04/18/16
POLS NOTES DAY 6 : Discussion of “Inside the Meltdown” Subprime loans = difficult to pay back because people taking out loans don’t have a lot of income. No favorable interest rates. Putting less than 10% down. Variable interest rate that fluctuates. Securities = bundled subprime mortgages sold to investors. Securities become known as “toxic assets” Defaults (doesn’t pay) on subprime loans Henry Paulson= US treasury secretary Systemic risk = risk to the entire system True capitalist = very limited government role. Conservative. Paulson Housing market crashes & rumors of Bear Stearns running out of cash spreads CNBC spreads rumors. Stock in free fall people lose confidence in company. Ace Greenberg calls CNBC and denies rumors. Bear Stearns had been buying mortgages, bundling them into securities, and selling to investors. Housing bubble pops. Bear Sterns = smallest investment bank on Wall St. brings out CEO to reassure public (Schwartz) Reserve almost gone as stock keeps falling Credit default swaps worth hundreds of billions of dollars… Fed discovers this and realizes if they fail, it will affect everyone else and ruin the entire economy Federal Reserve = prohibited from loaning $ to Bear Stearns, so they indirectly loaned money thru another bank, JP Morgan By doing this, Fed singled out Bear Sterns which proved their serious failure (Fed never took this kind of action towards another bank) Paulson wants to punish Bear Sterns and refuses to pay any more than $2/per share. Show other banks that there is NO government safety net. Fannie Mae / Freddie Mac = provide affordable housing Government fires management of Fannie Mae/Freddie Mac and takes over Lehman Brothers = next large company to fail. Paulson tells Folt to try to find a buyer of L.B. Government refuses to help Lehman Brothers People stop giving out loans completely. Market freezes AIG= biggest insurance company Congress was aware of very few specifics Bernanke initiate full scale bailout of banking system. Turns to Congress for help. Paulson agrees. Paulson buy toxic assets from banks (around $700 billion) HOR approves stimulus bill after revising and secretly adding capital injections Capital injections= unfreeze credit. Allow capital government to directly insert capital into major banks. Paulson and Bernanke offer millions of dollars to banks Role of government in economy increases after this crisis. (more government intervention) Elite theory prevails ? THE MASSES : American culture norms, beliefs, institutions, and behavioral practices distinct to our way of life. American national identity (your tie to the nation) = American exceptionalism, the American dream, influences on both domestic and foreign policy American Exceptionalism= ideology that America is unique in the world. The American Dream= belief that all can achieve success via hard work and individual initiative. o Assumptions of the dream everyone can participate, have to want it, resources/opportunities unlimited, success is within an individual’s control, worth obtaining (virtuos) o Influence on both domestic and foreign policy. o Myth or reality? o Social, economic, and political trends elite gains, mass losses o Growing inequalities in income and wealth o Rise in capital mobility o Increased outsourcing of production and labor o Deunionization o Lack of a comprehensive national immigration policy
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