As we “celebrate” the five year anniversary of the global financial meltdown of September 2008, Equities takes a look back at some of the most important financial stories that came out that month. The timeline provide a glimpse into a unique moment in American financial history when investor’s uncertainty, fear, and then ultimate outright panic gripped the nation – and the world.
Scrambling to find a solution for their ongoing financial woes, Lehman Brothers floats the idea of splitting the bank into two: one comprised of their healthy, safe holdings, and onje designed specifically to handle the toxic real estate and mortgage-backed securities they had accumulated during the lead up to the meltdown. Investors begin fleeing in droves.
Facing certain failure, the government places mortgage giants Fannie Mae and Freddie Mac under a conservatorship, essentially nationalizing the two former privately-held companies. The Federal Reserve voices strong support for this move. Treasury Secretary Henry Paulson explains the move as essential by saying, “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.”
After Lehman Brother’s stock plunged 52 percent in two days, the bank takes drastic measures to try to save the company. The company has already lost $7 billion in the last two quarters, and must unload its toxic assets for pennies on the dollar to try to stay solvent.
Lehman Brothers is allowed by the US government to fail, marking the largest failure of a securities firm since Drexel Burnham collapsed 18 years prior. On the same day, American International Group ($AIG) threatens to go under as well as a result of their risky insurance activities, and Merrill Lynch is forced to sell themselves to Bank of America Corp (BAC) for $50 billion.
Credit markets cease working properly as investors scramble frantically to move their money into safer investments. Typical for financial calamities, gold has its largest one-day gain in ten years as investors seek refuge in the precious metal.
As analysts finally begin to take stock of the severity of the crisis, it becomes clear that the after-effects will linger for quite some time. To stop the hemorrhaging, financial institutions need to unload their debt, and the government is going to have to bail out the biggest losers.
While investors the world over panic and it appears America is on the brink of a second Great Depression, a look at the numbers shows that isn’t the case. While the calamity is certainly severe, it still pales in comparison to the catastrophe of the 1929 crash and the resulting economic malaise.
Capitol Hill weighs in with what to do with Wall Street following intervention by the Federal Reserve to rescue the American economy. Conservatives decry the government intervention, calling it a “slippery slope to socialism,” while majority leader Steny Hoyer says simply, “Trust us.”
Following one of the most momentous weeks in Wall Street history, analysts begin to take stock of the meltdown that had taken place – and wonder what the government can do to stop it from getting worst. President Bush begins floating an unprecedented $500 billion bailout of the most troubled financial institutions, as the alternative is complete financial chaos.
The previously bandied-about amount of the governmental bailout of Wall Street is revealed in a bill submitted to Congress to actually be $700 billion, $200 billion more than previously estimated. Acknowledging the pressing nature of the crisis, Congressional members vow to vote on the bill within 10 days.
The stock market loses $1.2 trillion in value in a single day, or 6.98 percent, as the market experiences its worst blow since 1987’s Black Friday. Lawmakers begin voting on the $700 billion rescue fund that will become known as TARP.