we all know the 2008 financial crash brought down the whole world economy but if you ever wondered what exactly the US government was doing when the 2008 crash was happening there are many movies made about the 2008 crash these movies cover different perspectives on the crash for example movies like The Big Short cover the Investor's perspective and the movie Margin Call covers the investment Banks perspective another movie about the 2008 crash is too big to fail this movie particularly focuses on the efforts made by the government to prevent the collapse of major American financial institutions we have already covered the big short and Margin Call in our previous videos it is recommended that you watch those videos first too big to fail is a movie that takes place in 2008 in the other two movies the names of most characters were changed too big to fail is a mixture of the actual events that happened during the CR crash period and the movie uses the real names of each and every character basically this is the most realistic movie you will watch about the 2008 crash during the 2008 crash Banks got greedy and gave out lots of Home Loans to everyone when we say everyone it means even the people who were not even able to pay it back the idea behind giving out these loans to everyone was that these Banks believed that the housing market would never crash and home prices would keep keep Rising when commercial Banks gave these loans these loans were eventually sold to investment Banks investment Banks bundled these loans together and created a financial product known as mortgage-backed Securities this product was then sold to investors on Wall Street as the US is considered great for investment opportunities investors worldwide have invested billions of dollars in the MBS products sold by these investment Banks but all these MBS products products were backed by the bad Home Loans given by the Banks to anyone and everyone so when people started defaulting on their loans the mortgage-backed Securities started to lose their value ultimately risking investors money who bought these MBS products these investment Banks knew that the loans added to these MBS products were risky so to prevent their loss they bought Insurance on these MBS products these insurances were mainly provided by a company named American International Group or in short AIG this insurance was known as credit default swaps the idea was that if the mortgage backed Securities failed then AIG would cover the cost as they ensured them but the problem was that when all the MPS products started to fail AIG had to pay for every single failing MBS if an insurance company sells 100 insurance policies and collects a premium amount from all 00 buyers then they can cover the cost of 10 to 15 buyers when they claim insurance but if all 100 buyers claim the insurance at the same time then it is almost impossible for an insurance company to pay them this is exactly what happened with AIG all the MBS products were failing at the same time so AIG had to pay for everything which made it impossible for them to pay back on top of that all the investment Banks had borrowed huge amounts of money to buy these home loans and sell them on Wall Street so they were also losing money so basically all banks were in trouble some banks were in more trouble than others initially in March 2008 Bear Sterns was on the brink of collapse due to its exposure to subprime mortgages and the loss of confidence among investors the US government had saved Bear Sterns to prevent the collapse of Bear Sterns the Federal Reserve provided financial support to JP Morgan Chase which then purchased Bear Sterns at a highly reduced price so when other Banks like Layman brothers were facing the problem they were expecting that the government would save them as well but the government refused to bail them out there were many reasons why the government did not help the Layman Brothers one of the main reasons was the moral hazard the government had already saved the bare Sterns so they were already facing criticism from the people so the government thought that if they bailed out Layman Brothers then it would send a message to other investment banks that they could engage in excessively risky behavior and if they failed then the government would always come to their rescue you did it forbear we are not bailing out Layman Wall Street has a gambling problem the government keeps covering their losses they never learn anything so the government let the Layman Brothers fail and it was seen as a signal that investment Banks would not always be bailed out by the government Layman Brothers was the fourth largest Investment Bank in the US when it failed it sent shockwaves through the finance world the bankruptcy of layman Brothers shattered confidence in the stability of financial institutions leading to concerns about the health of other Banks Layman Brothers was highly interconnected with other financial institutions through various Financial transactions these connections included lending and borrowing in the interbank market derivatives contracts and repurchase agreements many financial institutions had invested in Layman Brothers in one form or another when Layman Brothers filed for bankruptcy it created a situation of significant counterparty risk for other financial institutions counterparty risk is the type of risk that one party in a financial transaction will not fulfill its obligations in layman's case its bankruptcy meant that other institutions faced potential losses on contracts with layan and they were uncertain about whether they would be able to recover the full value of their investment outside of lending money to people in the form of different types of loans these Banks also lend money to other Banks this is known as The interbank Lending markets because of Layman's bankruptcy other Banks and financial institutions became hesitant to lend to each other the interbank lending Market froze which is essential for banks to obtain short-term funding Banks were concerned that they might not get their money back if they extended loans to institutions that had exposure to Layman when this happened these Banks also asked Warren Buffett to help them with capital which he initially refused so these Banks tried to get money from the big investment banks in other countries like the UK they asked Barclays the big Bank in the UK Barclays was interested in acquiring Layman Brothers however the Regulatory and legal obstacles in the UK made it difficult to complete a transaction and the deal did not materialize in the US the bank of America was in talks with Layman Brothers in terms of acquiring them but this deal also failed and Bank of America acquired meril Lynch in a separate transaction the collapse of layman Brothers was not limited to the financial sector it rippled through the entire US economy as Banks had no money and were not borrowing this ultimately had an effect on non-banking businesses such as consumer product manufacturing companies non-banking businesses found it challenging to access as loans lines of credit and other forms of financing which hindered their ability to operate expand or invest the financial crisis disrupted Supply chains and impacted businesses that relied on the timely delivery of goods and services financial stress on the banking system made it harder for businesses to obtain the necessary working capital to pay suppliers leading to supply chain disruptions because of this businesses became more cautious about making new Investments or hiring additional employees to solve this chaos the US government needed to do something really quickly otherwise the US economy would have collapsed including whether to buy risky assets or Provide Capital injections to troubled financial institutions the primary approach of the government was the troubled asset relief program which initially aimed to buy all troubled assets these Banks held but later evolved to include Capital injections the original plan was to use tarp funds to purchase troubled mortgage-backed Securities and other illiquid assets from financial institutions this was the government's preferred method for addressing the toxic assets clogging the financial system the tarp proposal required approval from Congress and there were also questions about how to value and price these troubled assets accurately and it would have taken a long time for the government to buy all these troubled assets so in instead of exclusively purchasing troubled assets the government began to provide Capital injections directly to financial institutions this helped stabilize the balance sheets of these Banks and increase Capital buffers which ultimately unfroze interbank lending and non-banking businesses started to run smoothly under our proposal the federal government would put up to 700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system in the short term this will free up Banks to resume the flow of credit to American families and businesses and this will help our economy grow the decision to provide Capital injections was because of the urgency of the financial crisis capital injections were seen as a quicker and more direct way to infuse Capital into the banks and restore confidence in the system each Investment Bank was given a different amount depending on their balance sheets for example Goldman and Morgan Stanley each got a a $10 billion Capital injection initially $125 billion was given to nine Banks and later this amount reached $700 billion the government also gave $85 billion to AIG to save it from collapse the struggle of the US government is what is shown in the movie too big to fail even though all this chaos was caused by all the investment Banks the US government had to bail them out to keep the economy running the influence of the big investment Banks is so great on the government that even after injecting billions of dollars of capital into these Banks the US government was not sure that these Banks would use this capital for the right purpose the 2008 financial crash was caused by the ignorance and greed of the government and big Banks the government did not keep an eye on the bad loans given by the Banks and they didn't do anything until the last moment the people were unaware of what exactly was going on on but some people were aware of what was going on and they made huge profits by shorting the housing market to know how these people figured out potential crashes you should watch these videos on the channel