Home News Feeds Galt Products Log-In Past Results Privacy Diversions Investor Glossary Legal FAQ's


  Print This Page

  Add To Favorites

Timeline of the Economic Collapse
Research for Online Investors

l2007 THE BEGINNING OF THE END By summer '07 the housing market is in trouble -- prices falling, inventories and foreclosures rising.  
lJune 2007 THE FIRST SEISMIC SHOCK Two Bear Stearns hedge funds are forced into bankruptcy -- they had invested in AAA-rated mortgage-backed securities whose value had plummeted. 
lAugust 2007 THE FEAR METER RISES The TED spread shoots up and stays high, indicating an "unprecedented" level of fear in the global economy. 
lMarch 10th, 2008 RUMORS: BEAR'S IN TROUBLE Bear Stearns' stock starts falling around 11 a.m. on Monday on rumors the company may be running out of cash. By afternoon the stock -- which traded as high as $171 per share in 2007 -- hovers around $60. 
lMarch 11th, 2007 BEAR'S CRISIS GROWS Some hedge funds pull money amid swelling rumors of liquidity problems. The rumors are also fueled by a flurry of novation requests, in which Bear's trading partners ask a third party to purchase their contracts with Bear for a fee. 
lInside Bear, Ace Greenberg tries to keep up spirits. According to The Wall Street Journal, Greenberg performed magic tricks and at the request of his colleagues, "he also reprised a scene from company lore: He practiced a golf swing on the trading floor, just as he had on Black Monday 1987, when world markets crashed. Mr. Greenberg, who doesn't play the game, had famously pretended to swing a club and loudly announced he was taking the next day off."  
lIn mid-afternoon, Bear -- which has nearly $18 billion in cash reserves at the time -- decides to put former CEO and current board member Alan "Ace" Greenberg on CNBC to reassure the market. Greenberg says the rumors are "ridiculous." 
lMarch 12th, 2008 BEAR'S CEO GOES ON TV After internal debate, a decision is made to offer an interview with Bear CEO Alan Schwartz to CNBC's David Faber. Right up front, Faber raises the specter that Goldman Sachs, Bear's most important client, might be beginning to desert the firm. On Wed. afternoon, some repo lenders start to suggest they might not renew Bear's loans the next morning. 
lThat night, Bear's senior management and advisers huddle to discuss their strategic options.  Despite the falling stock price, Schwartz tells his executives at lunch, "This is a whole lot of noise." By end of day, Bear's cash reserves are down to $3.5 billion. 
lMarch 13th, 2008 THE RACE TO FIND A BUYER FOR BEAR That night, JP Morgan CEO Jamie Dimon is celebrating his birthday at a family dinner when his cell phone rings. It's Schwartz asking for an infusion of up to $30 billion, or for JP Morgan to buy Bear outright. Dimon tells Schwartz to ask the Fed or Treasury Department for help, but sends over a team to start examining Bear's books. Geithner also sends a Fed team over. 
lMarch 14th, 2008 A DEAL WITH THE FED After examining its books, JP Morgan and the Fed realize the extent of Bear's toxic assets, including sub prime mortgages and credit default swaps, and its frightening interconnectedness with other banks. At 4 a.m. Geithner calls his boss, Fed chief Ben Bernanke. 
lProhibited from lending directly to Bear, Fed officials work out a plan to loan money to JP Morgan, which, in turn, will provide funding "as necessary" to Bear for 28 days. 
lBear executives are relieved to have a month to resolve their problems. But the company is hammered again in the market and on his way home, Schwartz gets a call from Paulson and Geithner, telling him they want a deal in place by the time Asian markets open Sun. night. 
lMarch 16th, 2008 THE DEAL THAT RESCUES BEAR Spooked by Bear's books -- as well as a New York Times article that morning that asked "Why save Bear Stearns?", -- JP Morgan executives have second thoughts. They abruptly withdraw the offer Sunday morning. 
lWith the Asian markets set to open at 6 p.m. EST, Bernanke pushes back and the Fed agrees to sweeten the deal with $30 billion to guarantee Bear's toxic loans. JP Morgan is prepared to offer $4 per share for Bear, but worried about moral hazard, Treasury Secretary Henry Paulson insists JP Morgan drive down the price to $2 per share. Bear board members are outraged but realize they have no other options and approve the deal. 
lMarch 24th, 2008 BEAR/JP MORGAN DEAL REVISED In order to get the deal through the Bear shareholder vote, JP Morgan raises the purchase price from $2 to $10 per share. 
lJuly 2nd, 2008  PAULSON:  FINANCIAL INSTITUTIONS MUST BE ALLOWED TO FAIL   In a London speech, Treasury Secretary Henry Paulson outlines key challenges to U.S. and global capital markets and calls for improvements in regulatory structures. He warns: "For market discipline to be effective, it is imperative that market participants not have the expectation that lending from the Fed, or any other government support, is readily available. ... For market discipline to constrain risk effectively, financial institutions must be allowed to fail." 
lJuly 13th, 2008 PAULSON SEEKS POWER FOR POTENTIAL FANNIE / FREDDIE TAKEOVER The world's largest mortgage lenders are hammered by losses related to the housing crisis. In mid-July, their stocks fall more than 60 percent. Testifying before Congress, Treasury Secretary Paulson asks for authority to take them over, but he hopes never to have to use it: "If you've got a bazooka and people know you've got it, you may not have to take it out," he explains. 
lSeptember 7th, 2008 FEDS TAKE OVER FANNIE / FREDDIE On Friday Sept. 5, the heads of Fannie and Freddie are called into separate meetings with Secretary Paulson and James Lockhart, director of the Federal Housing Finance Agency, the companies' chief regulator. They are told the government is taking 80 percent ownership in each and giving them access to up to $200 billion in capital. Both executives will be replaced.  
September 10th, 2008 LEHMAN SCRAMBLES To assuage the market, Lehman holds an analyst/investor conference call to announce its $3.9 billion third-quarter loss a week early. It unveils a new restructuring plan. But executives don't mention a need for more capital, despite internal calculations that the firm will need an additional $3-5 billion by early 2009. (Prosecutors later open up an investigation on whether Lehman misled investors on this call.) 
lSeptember 11th, 2008 HUGE MONEY OUTFLOW AT LEHMAN Lehman's computerized trading system freezes when JP Morgan demands another $5 billion in collateral on short notice. Rising numbers of hedge funds and other customers continue pulling their business from Lehman.  
Sept. 12-14th, 2008   Friday night, after markets close, Paulson and Bernanke summon the heads of Wall Street's largest firms to the Federal Reserve Bank in New York. Concerned about moral hazard, Paulson makes clear there will be no bailout for Lehman. Fed officials insist they don't have authority for a rescue because the bank doesn't have enough collateral. Geithner says somebody needs to buy Lehman. 
l  September 12th-14th, 2008: AN EXTRAORDINARY WEEKEND Competitors examine Lehman's books and Bank of America and Barclay's emerge as the main suitors. But Bank of America decides to buy brokerage firm Merrill Lynch instead; Barclay's drops out on Sunday. Lehman is forced to file for bankruptcy protection. 
lSeptember 16th, 2008   GLOBAL PANIC   After Lehman goes under, the stock market nosedives and global credit markets freeze. Shares of the Primary Reserve Fund -- a conservative money market fund widely viewed as being nearly as safe as cash -- fall below $1. The fund holds nearly $800 million in commercial paper -- a form of short-term debt -- issued by Lehman. Hedge funds that used Lehman's London office to trade have billions of dollars frozen in Lehman's bankruptcy. The LIBOR rate, which reflects the rate at which banks are willing to loan to each other, shoots up overnight from 3.11 percent to 6.44 percent -- the largest spike ever. But banks still are unwilling to loan to each other. 
lSeptember 16th, 2008  AIG IS NATIONALIZED   Shares of the world's largest insurance company fall 61 percent because AIG had poured billions into unregulated credit default swaps -- insurance policies on companies like Lehman -- betting they'd never go bankrupt. AIG needs cash, but credit markets are frozen. The Fed agrees to a two-year $85 billion loan; the government takes an 80 percent ownership stake in AIG.  
September 17th, 2008 BERNANKE TO PAULSON: "WE NEED A BAILOUT" On Wed., the Dow closes down 449. But that's not the worst of it: The credit markets have nearly frozen up. Investors are moving money from stocks, bonds and money market funds to Treasury bills, seen as the safest investments in the world. 
lWed. night, Bernanke calls Paulson and tells him it's time to start thinking about a full-scale bailout of the nation's entire financial system. "We can't keep doing this," he says, "Both because we at the Fed don't have the necessary resources and for reasons of democratic legitimacy, it's important that the Congress come in and take control of the situation." 
lSeptember 18th, 2008 WE MAY NOT HAVE AN ECONOMY MONDAY Paulson and Bernanke go to Congress to present a rescue plan to congressional leadership. "If we don't do this, we may not have an economy on Monday," warns Bernanke. 
lSeptember 20th, 2008 PAULSON SENDS 3-PAGE BILL TO CONGRESS The emergency plan asks for $700 billion to buy up toxic mortgage securities from the banks, and does not allow for an oversight mechanism from Congress or the courts. The congressional reaction -- particularly from conservative Republicans -- is full revolt. 
lSeptember 21st, 2008 THE END OF WALL STREET AS WE KNOW IT Wall Street's last two investment banks -- Goldman Sachs and Morgan Stanley -- announce they're turning themselves into bank holding companies, regulated by the Federal Reserve. 
lSeptember 22nd, 2008 A BIZARRE MEETING AT THE WHITE HOUSE On the day Washington Mutual becomes the largest bank failure ever, congressional leaders, President Bush and the two presidential candidates meet at the White House on the proposed bailout plan. 
lSeptember 29th, 2008 HOUSE REJECTS BAILOUT PLAN In addition to many Republicans, 95 Democrats vote against the bailout measure. The Dow plunges 778 points -- the greatest single-day point loss ever. Paulson would later tell The New York Times, "I never felt worse than when the House voted no." 
lOctober 3rd, 2008 CONGRESS PASSES BAILOUT BILL In the wake of the bill's failure there is a debate over whether purchasing the banks' toxic mortgage assets is really the way to go or whether the plan should focus on injecting capital directly into the banks. 
lThe bill gives the Treasury secretary "broad authority" to purchase $700 billion in mortgage assets from the banks. But six lines of text buried deep within the bill authorize Treasury to provide capital injections. Soon after the bill's passage, Paulson abandons the idea of buying the toxic assets. 
lOctober 13th, 2008 A DRAMATIC MEETING WITH BANKERS Paulson calls the CEOs of the nation's nine largest banks to his office -- Jamie Dimon (JP Morgan), Robert Kelly (Bank of New York/Mellon), John Thain (Merrill Lynch), Ronald Logue (State Street), John Mack (Morgan Stanley), Lloyd Blankenfein (Goldman Sachs), Ken Lewis (Bank of America), Vikram Pandit (Citigroup) and Richard Kovacevich (Wells Fargo). He tells them they each must accept billions in direct cash infusions.  
It was serious. It was somber. And the government did most of the talking. I was there to explain our liquidity guarantee program. We did not really weigh in on the capital infusion. That discussion was really led by Treasury and the Fed. 
lI think some of the banks were surprised. Some were immediately supportive. Others really pushed back: "We don't need this money. We don't want the money. We don't want all the conditions." And I think Treasury was very firm that … they wanted them all to take it, because they needed to have a healthy understanding of the challenges that may be coming ahead. And everybody needed to bolster their balance sheet. 
lBut the bottom line was, this was not a request. This was a demand.  
It was very clearly expressed expectation, yes. I think that's right. …  
Did you ever imagine that you'd be sitting in a meeting where $250 billion of bank stocks would be purchased by the government? 
lThat was $125 billion for those [nine banks], and the rest was for the smaller institutions 
lYes, it's truly extraordinary. And there are obviously tradeoffs on that with government ownership. … 
lMy view is, we supported it as an initiative to stabilize banks, to bolster their balance sheet. Those are very positive things. But there needs to be an exit strategy. And if banks can, down the road, demonstrate that they're really in a position to get the government out, then I think that's something that should be facilitated. We need an exit strategy for all of this, because we don't want government support to become a crutch. And then we'll have larger problems with our economy for a much longer period of time if that is the case. 
lSecretary Paulson called it objectionable but unavoidable. Do you agree? 
lYeah, that's a good quote. … Surreal maybe... 

Investor Resources Home Page

Back to Top

Portfolio Managment 
Long-Term Portfolio
Buy, Sell, Hold

Retirement Planning Guide
MarketView Archive
World We Are Leaving
World in Chaos
2013 MarketView
2012 MarketToday
2011 MarketToday
2010 MarketToday
2009 MarketToday
2008 MarketToday

Visit our sister site for
fixed-term investors: