With the global slowdown settling in, in the second half of 2007, many analysts expected 2008 to be a challenging year. The subprime crises and the severity of the liquidity crunch has added to their woes. After experiencing bouts of crashes in the first half of this year, there was a feeling that the worst probably might have been over, but it is the second half of 2008 which is bringing to light the extent of the damage caused by the subprime tsunami.
Many financial services, including insurance companies have gone bankrupt and the status of some of the big ones is still hanging in balance. A few lucky ones have been bailed out, thanks to the Federal Reserve and the US Treasury who had provided the crucial lifeline for the bailouts. In fact, the second half of 2008 would be more remembered for the bailouts. First was the JP Morgan Chase acquisition of Bear Stearns, which was sponsored by a $29 bn credit lifeline provided by the Federal Reserve, and arranged by the US Treasury. Then came the conservatorship of Freddie Mac and Fannie Mae, the government-sponsored enterprises with the infusion of $200 bn fund as against a $4.5 tn liability. Close on the heels came the quick marriage of the Bank of America with Merrill Lynch for $50 bn. The Federal Reserve as well as the US Treasury were increasingly being criticized by one and all for using taxpayer's money to bailout private companies whose shareholders had earlier reaped heavy profits from the risky ventures.
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