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Frontline Breaking The Bank Summary

476 Words2 Pages

Benjamin Errickson

Dr. Neuhauser

Principles of Microeconomics

10/26/15

Frontline’s Breaking the Bank

In Breaking the Bank by Frontline, Ken Lewis, the CEO of Bank of America and Merrill Lynch CEO John Thain show the story of these two CEOs, their banks at the heart of the financial crisis during 2008 while merging their two banks, and the government's new role in taking over the American banking system. In September 2008 when the American economy was on the verge of being broken. Secretary of the Treasury Henry Paulson, John Thain, Paulson’s former protégé, and Ken Lewis, one of the most powerful bankers in the country, secretly cut a deal to merge Bank of America and Merrill Lynch. The merging of Bank of America, the nation's largest bank and Merrill Lynch, the nation's fourth-largest bank that is going bankrupt. The plan was to merge Merrill Lynch and Bank of America and eliminate the …show more content…

Unfortunately, it clear that this plan would not work. Due to this outcome, Paulson was willing to pull millions of dollars from the government to help support the banking system and plunge the nation into a depression. The top bank CEOs summoned an emergency meeting at the Treasury Department where Paulson told the group they had to accept the $125 billion from capital American taxpayers do that the financial system could be saved. At the beginning of this process, Bank of America's CEO Ken Lewis was supportive of the plan but not long after.It was said that the “injection of public capital” was the beginning of unprecedented government involvement in the nation's banking system, with consequences few understood. "I think we nationalized the banks in the U.S. on that day," said Simon Johnson, the International Monetary Fund chief economist. Shortly after, Lewis has discovered the hard truth of what it means to have the government as a partial owner.

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He promoted assumption of the states debt, which in turn, chained the states to the federal government and shifted the attachment of wealthy creditors. Though despite southern states protest, that it was unfair that some states received a free pass, since many of them had already paid their debt off, Hamilton’s plan was still approved. Hamilton went on to propose and create the Bank of the United Sates, The federal government ended up owning one-fifth of the bank, allowing them to control large sums of money, with little room for opposition on how and where it went. Despite Jefferson argument that there was no authorization in the constitution for such an economic octopus, Hamilton argued that the bank was not only necessary but also proper. This is turn evolved the theory of loose construction by invoking the elastic clause of the constitution- a model for enormous federal

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In Addition to maldistribution stood the credit structure of the economy, some farmers were in deep land mortgage debt, so they lowered their crop prices in order to regain credit, and because the farmers were no longer accountable for what they owed banks. Across the nation the banking system found themselves in constant trouble. In America both small and large bankers were concerned for their survival, so they began investing recklessly in stock markets and granting unwise loans. These unconscious decisions would lead a large consequence, such as families losing their life savings and their deposits became uninsured. “ More than 9,000 American banks either went bankrupt or closed their doors to avoid bankruptcy between 1930 and 1933.”Although

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Jackson’s battle with the Bank created an economic crisis for the nation by causing inflation and, consequently, unemployment. To begin, in 1832 President Andrew Jackson transferred funds from the Bank of the United States to state banks because his party disagreed with the existence of a national bank. One of the reasons Democrats disliked that the Bank of the United States was that they thought it did not give out many loans, to purposely keep the value of money low. However, they were mistaken. When state banks gained the funds, they began giving out a lot of loans.

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He successfully argued for the assumption of state debts by the federal government and the establishment of the first national bank – a private, but partially government-owned institution. He firmly established the principles of financial trading. Due to his efforts, the creditworthiness of the United States was restored. Hamilton’s accomplishments as Treasury Secretary were not achieved without a struggle. His congressional opponents tried to exhaust him by demanding detailed reports on the workings of the treasury department with incredibly short delivery dates.

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