Economic Background
After the freeing up of world capital markets in the 1970s and the repeal of the Glass–Steagall Act in 1999, the banking practices (mostly Greenspan inspired "self-regulation") along with subprime mortgage crisis sold as no risk investments, reached a critical stage during September 2008, characterized by severely contracted liquidity in the global credit markets and insolvency threats to investment banks and other institutions. In response, the U.S. government announced a series of comprehensive steps to address the problems, following a series of "one-off" or "case-by-case" decisions to intervene or not, such as the $85 billion liquidity facility for American International Group on September 16, the federal takeover of Fannie Mae and Freddie Mac, and the bankruptcy of Lehman Brothers.
On Monday, October 6, the Dow Jones Industrial Average dropped more than 700 points and fell below 10,000 for the first time in four years. The same day, CNN reported these worldwide stock market events:
- Britain's FTSE 100 Index was down 7.9%
- Germany's DAX down 7.1%
- France's CAC 40 dropping 9%
- In Russia, trading in shares was suspended after the RTS stock index fell more than 20%.
- Iceland halted trading in six bank stocks while the government drafted a crisis plan.
Read more about this topic: Emergency Economic Stabilization Act Of 2008
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