NYU Alumni Magazine Spring 2008

Crisis Timeline

2007

01.07 - 03.07
More than 25 U.S. subprime mortgage lenders go bankrupt.

04.07
New Century Financial Corp., the nation’s second-largest subprime mortgage lender, fails. Most believe it is just an isolated incident.

06.07
Two highly leveraged Bear Stearns hedge funds invested in subprime asset-backed securities plunge in value, then shut.

Merrill Lynch, a creditor, can’t find buyers for the funds’ assets, revealing their worthlessness. The crisis begins to spread…

08.07
Hedge funds experience massive meltdowns in one week.

French bank BNP Paribas freezes the short-term lending market as popular investment vehicles are revealed to be supported by toxic subprime assets, erroneously rated triple-A.

Crisis goes global: France, China, and others report subprime-related losses.

09.07
The federal reserve starts cutting rates. Banks start hoarding, lending interbank only overnight, rather than the conventional three months.

10.07
Banks begin writing down billions of dollars in mortgage-backed derivatives.

2008

01.08
U.S. stocks fall 8% amid the largest drop in U.S. home sales in 25 years.


03.08
After a run on Bear Sterns, the government arranges JPMorgan Chase’s purchase of the investment bank by guaranteeing $29 billion in toxic securities.

07.08
FDIC seizes Indymac in one of the largest bank failures in U.S. history.


09.07.08
Fannie Mae and Freddie Mac experience huge losses in their $5.2 trillion debt portfolios, creating a systemic risk. The government puts them into conservatorship and replaces their leaders.

09.15.08
158-year-old Lehman Brothers, with $639 billion in assets, files for the largest bankruptcy in U.S. history

Merrill Lynch sells itself to Bank of America, amid fears that it’s insolvent. Prices of Morgan Stanley and Goldman Sachs stock and derivative securities reflect belief they are near failure; their creditors demand more collateral.


09.16.08
Reserve Primary Fund, one of the largest money-market mutual funds, seizes up as its $785 million of Lehman Brothers short-term paper becomes nearly worthless.

Massive uncertainty causes a run on the money-market system, the primary source of short-term funding. In the most serious event of the crisis, the Fed steps in to guarantee all money-market funds.

09.17.08
Similar collateral calls on AIG prompt the Fed to inject $85 billion into the giant insurer, fearing failure would be catastrophic.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson call for a massive bank bailout.


09.19.08
The $700 billion Troubled Asset Relief Program (TARP) is unveiled.

09.21.08
Goldman Sachs and Morgan Stanley convert to bank holding companies, ending the era of the investment bank.

09.28.08
Washington Mutual is seized by FDIC, then sold to JPMorgan Chase.

09.29.08
Wachovia enters crisis takeover talks with Citigroup and is then bought by Wells Fargo after the IRS sweetens the deal with a tax subsidy.

10.03.08
Congress passes an amended bailout bill.

10.09.08
Global powers coordinate an interest-rate cut as the crisis deepens.

10.10.08
U.S. stocks post worse week in century as DOW drops by almost one-quarter amid concern about government missteps on the crisis. The Fed announces an additional $900 billion is available to banks.

11.07.08
The U.S. announces its heaviest job losses in 14 years.


11.10.08
Government doubles funds commited to AIG.

11.24.08
The Treasury gives Citigroup $20 billion in TARP funds and guarantees $306 billion of assets in exchange for warrants and preferred stock.

2009

01.09
JPMorgan Chase announces fourth quarter 2008 profits fell 75%. A Congressional Oversight Panel questions the way TARP has spent its billions. The Treasury purchases about $7 billion in stock from troubled U.S. banks.

02.09
Congress passes a $787 billion stimulus package, mostly along party lines. Treasury Secretary Timothy F. Geithner unveils a rescue plan.


03.09
DOW drops below 7,000 for first time since 1997. Anger swells after AIG reveals that it paid $165 million in bonuses to the very employees responsible for its troubles, some of whom no longer work for the insurance giant. The Fed announces plan to buy up treasury bonds and other securities, effectively pumping $1 trillion into the economy. Geithner announces plan to drastically tighten financial industry regulations.


PHOTOS FROM TOP: ©KEVIN STURMAN; ©BRYAN ALLEN/CORBIS; ©PETER FOLEY/EPA/CORBIS;©SHAWN THEW/CORBIS; JUSTIN LANE/EPA/CORBIS; ©BRENDAN HOFFMAN/EPA/CORBIS; RON SACHS/POOL/CNP/CORBIS