Explain to me: Federal Bank Bailout

[asterroc]

Oh wise LJ-friends, explain to me this Feds bailing out / buying out the banks thing. Preferably in 3 sentences or less (so as to boil it down to what's most important).

I really do appreciate y'all's ability to boil down these topics I find remarkably complex and filled with too many details for me to grasp, into simple "here's what's important about the thing, and here's what you can ignore" sort of summaries. And I've a tag for them too.

So. Fannie May, Freddie Mac (what's with the names anyway?), and AIG. Three sentences. Go!

Comments

[zandperl.livejournal.com]

It sounds like you're saying "failure of a few banks due to housing loans" inevitably turns into "failure of all retirement plans". I'm not getting that.

[marquiswildbill.livejournal.com]

No I actually said 401k will remain safe because it is a long enough term investment for young people that it will recover from this.
What I was saying was that the chain collapse of large financial institutions would create a panic among investors, leading to a loss of market confidence, and a downward spiral of the stock market in general. That is why the government had to step in, to halt a chain reaction. Some major players have already been brought down. And more would follow w/o a government intervention. Hopefully the SEC will make new rules to keep this from happening.
I personally blame out of control oil speculation for being a major part of this starting, it shifted the economic balance further than it could go.