The Financial Crisis: A Timeline

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