[Infowarrior] - PBS Frontline: Inside the Meltdown

[Richard Forno]

press release

FRONTLINE INVESTIGATES HOW THE ECONOMY WENT SO BAD SO FAST

FRONTLINE Presents
Inside the Meltdown
Tuesday, February 17, 2009, at 9 P.M. ET on PBS

www.pbs.org/frontline/meltdown

On Thursday, Sept. 18, 2008, the astonished leadership of the U.S.  
Congress was told in a private session by the chairman of the Federal  
Reserve that the American economy was in grave danger of a complete  
meltdown within a matter of days. “There was literally a pause in that  
room where the oxygen left,” says Sen. Christopher Dodd (D-Conn.).

FRONTLINE producer Michael Kirk goes behind closed doors in Washington  
and on Wall Street to investigate how the economy went so bad so fast  
and why emergency actions by Federal Reserve Chairman Ben Bernanke and  
Secretary of the Treasury Henry Paulson failed to prevent the worst  
economic crisis in a generation on Inside the Meltdown, airing  
Tuesday, Feb. 17, 2009, at 9 P.M. ET on PBS (check local listings).

As the housing bubble burst and trillions of dollars’ worth of toxic  
mortgages began to go bad in 2007, fear spread through the massive  
firms that form the heart of Wall Street. By the spring of 2008,  
burdened by billions of dollars of bad mortgages, the investment bank  
Bear Stearns was the subject of rumors that it would soon fail.

“Rumors are such that they can just plain put you out of business,”  
Bear Stearns’ former CEO Alan “Ace” Greenberg tells FRONTLINE.

The company’s stock had dropped from $171 to $57 a share, and it was  
hours from declaring bankruptcy. Ben Bernanke acted. “It was clear  
that this had to be contained. There was no doubt in his mind,” says  
Bernanke’s colleague economist Mark Gertler.

Bernanke, a former economics professor from Princeton, specialized in  
studying the Great Depression. “He more than anybody else appreciated  
what would happen if it got out of control,” Gertler explains.

To stabilize the markets, Bernanke engineered a shotgun marriage  
between Bear Sterns and the commercial bank JPMorgan, with a promise  
that the federal government would use $30 billion to cover Bear  
Stearns’ questionable assets tied to toxic mortgages. It was an  
unprecedented effort to stop the contagion of fear that seemed to be  
threatening the rest of Wall Street.

While publicly supportive of the deal, Secretary Paulson, a former  
Wall Street executive with Goldman Sachs, was uncomfortable with  
government interference in the markets. That summer, he issued a  
warning to his former colleagues not to expect future government  
bailouts, saying he was concerned about a legal concept known as moral  
hazard.

Within months, however, Paulson would witness the virtual collapse of  
the giant mortgage companies Fannie Mae and Freddie Mac and preside  
over their takeover by the federal government.

The episode sent shockwaves through the economy as confidence in Wall  
Street began to evaporate. Within days, in September 2008, another  
investment bank, Lehman Brothers, was on the brink of collapse. Once  
again, there were calls for Bernanke and Paulson to bail out the Wall  
Street giant. But Paulson was under intense political pressure from  
conservative Republicans in Washington to invoke moral hazard and let  
the company fail.

“You had a conservative secretary of the Treasury and conservative  
administration. There was right-wing criticism over Bear Stearns,”  
says Congressman Barney Frank (D-Mass.), chairman of the House  
Financial Services Committee.

Paulson pushed Lehman’s CEO Dick Fuld to find a buyer for his ailing  
company. But no company would buy Lehman unless the government offered  
a deal similar to the one Bear Stearns had received. Paulson refused,  
and Lehman Brothers declared bankruptcy.

FRONTLINE then chronicles the disaster that followed. Within 24 hours,  
the stock market crashed, and credit markets around the world froze.  
“We’re no longer talking about mortgages,” says economist Gertler.  
“We’re talking about car loans, loans to small businesses, commercial  
paper borrowing by large banks. This is like a disease spreading.”

“I think that the secretary of the Treasury could not fully comprehend  
what that linkage was and the extent to which this would materialize  
into problems,” says former Lehman board member Henry Kaufman.

Paulson was thunderstruck. “This is the utter nightmare of an economic  
policy-maker,” Nobel Prize-winning economist Paul Krugman tells  
FRONTLINE. “You may have just made the decision that destroyed the  
world. Absolutely terrifying moment.”

In response, Paulson and Bernanke would propose—and Congress would  
eventually pass—a $700 billion bailout plan. FRONTLINE goes inside the  
deliberations surrounding the passage of the legislation and examines  
its unsuccessful implementation.

“Many Americans still don’t understand what has happened to the  
economy,” FRONTLINE producer/director Michael Kirk says. “How did it  
all go so bad so quickly? Who is responsible? How effective has the  
response from Washington and Wall Street been? Those are the questions  
at the heart of Inside the Meltdown.”

Inside the Meltdown is a FRONTLINE co-production with Kirk Documentary  
Group, Ltd. The writer, producer and director is Michael Kirk. The  
producer and reporter is Jim Gilmore. FRONTLINE is produced by WGBH  
Boston and is broadcast nationwide on PBS. Funding for FRONTLINE is  
provided through the support of PBS viewers. Major funding for  
FRONTLINE is provided by The John D. and Catherine T. MacArthur  
Foundation. Additional funding is provided by the Park Foundation.  
FRONTLINE is closed-captioned for deaf and hard-of-hearing viewers and  
described for people who are blind or visually impaired by the Media  
Access Group at WGBH. FRONTLINE is a registered trademark of WGBH  
Educational Foundation. The executive producer of FRONTLINE is David  
Fanning.

pbs.org/pressroom
Promotional photography can be downloaded from the PBS pressroom.

Press contacts
Diane Buxton
(617) 300-5375
diane_buxton at wgbh.org

Alissa Rooney
(617) 300-5314
alissa_rooney at wgbh.org