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The Financial Crisis: A Timeline

This overview details the key events that transformed the financial landscape leading up to the 2008 financial crisis. Beginning with the bursting of the housing bubble in October 2007, the timeline chronicles significant occurrences such as the failure of Bear Stearns, the government takeover of Fannie Mae and Freddie Mac, the collapse of Lehman Brothers, and the subsequent market panic. It outlines the significant interventions by the Federal Reserve, the $700 billion bailout plan, and the broader implications for global economies amidst a crisis affecting millions.

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The Financial Crisis: A Timeline

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  1. An overview of the events that forever changed the financial system Wednesday, February 25, 2009 The Financial Crisis: A Timeline

  2. October 2007 • Housing bubble “bursts” • Problems originate with subprime mortgages • Wall St – banks begin writing down assets from CDOs & MBSs

  3. Bear Stearns • March 2007 • First Investment Bank to go under • JPMorgan buys Bear for $1B in government arranged sale – Fed funnels JPM the other $29B • Question: Did speculators “murder” Bear? • Result: Credit crisis accelerates as investors begin to worry

  4. Fannie Mae & Freddie Mac • The government seizes the two largest mortgage companies • No exact price tag on the deal – commits up to $100B to each • Fannie & Freddie own ~1/2 of $12 trillion US mortgage market • Implications: originations grind to a near stand still, investor confidence hurt

  5. Lehman Brothers • 9/11 – states they are actively looking for a buyer • BofA expresses interest and walks away • 9/15 – files for bankruptcy (largest bankruptcy filing in US history) • 9/17 – Barclays buys NA investment banking division • Implications: market panic ensues, Lehman’s creditors hurt, insurance protection (swaps) market goes crazy

  6. Merrill Lynch • Merrill has experienced second highest losses of any financial institution in 2008 and to avoid Lehman’s fate, looks for buyer • Sold to BofA for $29/share ($50B deal) • Government encouraged deal • Result: BofA still dealing with souring Countrywide acquisition now faces speculation that B/S is too big and filled with too many toxic assets

  7. American International Group (AIG) • Speculation on inability to honor swap insurance contracts cause downward spiral in a matter of days • Fed afraid that insurance giant failure will cripple US & international markets • Receive $85B initial emergency loan – this amount goes up to $150B in later months • Government now has 70% equity stake in largest global insurance company

  8. Goldman Sachs & Morgan Stanley • 9/21 - announce they will convert to bank holding companies • Ends the traditional investment banking model that held strong for nearly the last century • The last 2 of the “Big 5” investment banks • Now subject to increased Fed oversight and have to deleverage

  9. Washington Mutual • Nation’s largest savings and loan seized • Government organizes fire sale to JPM • Biggest bank failure in American history • Puts bailout plan talks on hold

  10. Bush Bailout • 9/29: Initial plan rejected – Dow plunges 777.68 points – the largest one-day plunge in history • S&P suffers largest point drop ever and 2nd biggest in history • 10/1: After heated debate and much opposition, Congress approves $700B bailout plan • TARP program provision

  11. Wachovia • 9/29 – Citi agrees to buy banking operations for $2.1B • 10/3: Wells Fargo stuns Citi and agrees to buy Wachovia for $11.8B

  12. Global Markets Plummet • UK banks reeling from losses: Govt forced to intervene • Spain, China, Germany, France – only a few of countries that are forced to step in and assist failing financial institutions • Central banks coordinate rate cuts • Iceland financial crisis: hit hardest by crisis, entire country goes into bankruptcy

  13. Bailout Plans • Financial crisis stems to overall economy – affecting consumers, homeowners, auto industry • Global leaders are struggling with jumpstarting economies and thawing credit markets • Lending grinds to virtual standstill

  14. Resources • http://www.nytimes.com/interactive/2008/09/27/business/economy/20080927_WEEKS_TIMELINE.html?scp=1&sq=financial%20crisis%20timeline&st=cse • http://www.foxbusiness.com/story/markets/economy/timeline-financial-crisis/ • http://online.wsj.com/article/SB123086026582748035.html • http://online.wsj.com/article/SB123086065400648051.html • http://online.wsj.com/article/SB123086102331648101.html

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