Business News
CHRONOLOGY: US financial crisis
Oct 4, 2008, 1:48 GMT
Washington - The crisis in world financial markets began when prices started declining in the US real estate market in late 2006. So far, it is estimated that banks worldwide have had to writedown more than 550 billion dollars in assets.
Here is a chronology of major events:
- March/April 2007: New Century Financial corporation stops making new loans as the practice of giving high risk mortgage loans to people with bad credit histories becomes a problem.
The International Monetary Fund (IMF) warns of risks to global financial markets from weakened US home mortgage market.
- June 2007: Alarm bells ring on Wall Street as two hedge funds of New York investment bank Bear Stearns lurch to the brink of collapse because of their extensive investments in mortgage-backed securities.
- July/August 2007: German banks with bad investments in the US real estate market are caught up in the crisis, including IKB Deutsche Industriebank, Sachsen LB (Saxony State Bank) and BayernLB (Bavaria State Bank).
US President George W Bush rejects government intervention to ease the crisis in the home mortgage market and says he wants the market to work. He later pledges help for struggling homeowners to help ease the mortgage crisis.
Foreclosures of US homes in July were up 93 per cent from a year earlier, to 180,000 owners.
- September 2007: British bank Northern Rock is besieged by worried savers; British government and Bank of England guarantee the deposits; the bank is nationalised. US Federal Reserve (Fed) starts series of interest rate drops to ease impact of housing slump and mortgage crisis.
- October 2007: Profits at US financial giant Citigroup drop sharply. IMF lowers 2008 growth forecast for the euro area to 2.1 per cent from 2.5 per cent, in part because of spillover from the US subprime mortgage crisis and credit market crunch.
- December 2007: Bush unveils plan to help up to 1.2 million homeowners pay their loans.
- January 2008: Swiss banking giant UBS reports more than 18 billion dollars in writedowns due to exposure to US real estate market. In the US, Bank of America acquires Countrywide Financial, the country's biggest mortgage lender. Fed slashes interest rate by three quarters of a percentage point to 3.5 per cent following selloff on global markets. Another cut at month's end lowers it to 3 per cent.
- February 2008: Fannie Mae, the largest source of money for US home loans, reports a 3.55-billion-dollar loss for the fourth quarter of 2007, three times what had been expected.
- March 2008: On the verge of collapse and under pressure by the Fed, Bear Stearns is forced to accept a buyout by US investment bank JP Morgan Chase. The deal is backed by Fed loans of 30 billion dollars.
In Germany, Deutsche Bank reports a loss of 141 million euros for the first quarter of 2008, its first quarterly loss in five years. Fed spearheads coordinated push by world central banks to bolster global economic confidence by announcing moves to pump 200-billion- dollar liquidity into markets.
Carlyle Capital falls victim to US credit crisis as it defaults on 16.6 billion dollars of indebtedness. US frees up another 200 billion dollars to back troubled Fannie Mae and Freddie Mac.
- April 2008: IMF projects 945-billion-dollar losses from financial crisis. G7 ministers agree to new wave of financial regulation to combat protracted financial crisis.
- June 2008: Home repossessions more than double as US housing crisis deepens. Bear Stearns execs join 400 charged with mortgage fraud.
- July 2008: California mortgage lender IndyMac collapses. Troubles for Fannie Mae and Freddie Mac continue to grow. US Treasury, Fed move to guarantee debts of Fannie, Freddie. Bush defends move, telling Americans to take a 'deep breath' and have 'confidence in the mortgage markets.' US Congress gives final passage to multi-billion-dollar programme to address mortgage and foreclosure crisis.
Spain's largest property developer, Martinsa-Fadesa, declares insolvency.
- September 7: US government seizes control of Fannie, Freddie in 200-billion-dollar bail-out.
- September 15: Lehman Brothers investment bank declares 600- billion-dollar bankruptcy. Merrill Lynch acquired by Bank of America.
- September 17: US bails out AIG insurance giant for 85 billion dollars.
- September 19: White House requests 700-billion-dollar bail-out plan from Congress for all financial firms with bad mortgage securities to free up tightening credit flow.
- September 22: Last two standing investment banks, Morgan Stanley and Goldman Sachs, convert to bank holding companies.
- September 26: Feds seize Washington Mutual in largest-ever US bank failure.
- September 29: US House of Representatives rejects mammoth 700- billion-dollar bail-out plan.
- September 29: Governmental bail-outs announced for key banks in Britain, the Benelux and Germany as well as a state takeover of a bank in Iceland. British government intervenes to save major mortgage lender Bradford & Bingley. Netherlands, Belgium and Luxembourg to take over substantial parts of Belgian-Dutch banking and insurance company Fortis. German Finance Ministry announces that government and top banks were moving to inject billions of euros into troubled mortgage lender Hypo Real Estate. Iceland government and Glitnir bank announce state takeover of 75-per-cent stake in Glitnir.
- September 30: Wachovia Bank teeters on collapse, starts negotiating with Citigroup for takeover deal.
- October 1, 2008: US Senate adopts massive bail-out plan, adding sweeteners to get House acceptance.
- October 3: Wells Fargo bank and the fourth-largest US bank Wachovia Corp announce merger.
- October 3: The largest government intervention in capital markets in US history clears the US House of Representatives, becoming law with signature by President Bush.
COMMENT
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Older Talkback
page: 1
James is of course ignorant of the problem as he does not understand the mechanisms .Why would banks hand out mortgage contracts to people who can not afford it ?And why would investment banks buy those rotten loans from mortgage banks and turn them into investment opportunities ?
These two questions are crucial to understanding the nature of the crisi.
Question no 1 is easy to answer :as long as the prices of real esrare are rising rapidly ,the more rotten the mortgage deal is for the borrower,the better it is for the bank.When the owner of the house defaults his payment ,the foreclosure brings in a hefty profit for the bank .Tis is also the scandalous reason for which investment banks bought these rotten loans from the mortgage banks...in the hope of being able to evict the house owner and take the profit.
How is it possible that the misery of the average joe became a business opportunity for the banks ?This is more than a simple ethical question that exposes the sordid mechanisms of financial capitalism,it reveals the mechanism how money is transferred from the poor to the rich.
The deregulation of the financial market started with Reagan and nobody else .Thye lobby of the Wall Street bankers and the corporate tycoons simply took over your country ,replaced the buying power of your working class with hollow patriotism .
As long as the real estate was raising this mechanism of selling debts was allowed to continue .Banks started to fraud the average joe ,luring him into accepting loans from which the banks knew they could not possibly be paid .One of the mechanisms for that is the variable rate of interest.Give Joe sixpack a loan he can pay fr a few years and pump up the interest rate after that ,making sure he can not afford to pay,saize the house and cash in .There was never any lack of ingenuity from the banks to invent new mechanisms and legal loopholes in the contracts .Now some in the GOP claim all this mess is caused by poor people not being able to pay their debts because the took high risks.THis horrible accusation is aimed ate getting the banks out of the accusation box ,no less .But I guess everybody is able to understand that the average joes is no match for the legal departments and the sale representatives of the banks when it comes to creating a sugar coated poisonous contract.
To blame this on the democrats is a scandal as nobody else but Reagan started it all,the consecutive presidents did nothing to cure these problems .The lobby of Wall Street bankers is more powerful than all the voters of the USA combined.Tey still are ,that can be proven by the unwillingness of the White House to reveal the mechanisms of this crisis.Bush and Paulson told you to hand over your money and told you in the same sentence that 'now is not the time to look for responsibilities,there will be plenty time for that later'...meaning never of course.
Every now and then a simpleton from the GOP tries to recreate history by telling you all this problem was caused by the democrats ,Bush or McCain trying to prevent it from happening in 2003.A shameless affirmation ,as a brief glance on the balance of forces between GOP and democrats revails the GOP held the majority of seats in Congress in 2003.
So now the GOP is trying to divert the necessary analysis of this crisis to gutter politics against Obama,through the mouth of Palin.
There used to be times in a not so distant past when people making such scandalous slander were ridden out of Washington covered wit pitch and feathers on the back of a donkey.No more as this practice as become the standard procedure of the GOP for a while now .It has cost Kerry a lot when the swift boat campaign was launched against him by Rove and his friends .
Continuing on this disastrous road is in fact destroying the foundations of democracy itself as it does not allow the voter to make rational choices regarding education,foreign policies,health care ,those that use these methods must have a low opinion of you all.
record for George. Largest bail-out in history; he's got to be proud of THAT sales job.
tonny from belgium suffer from convenient ignorance.
In a rising market, a homeowner in trouble can sell his home to pay back the load. Yes, now everyone will escape but most will and so hardly represents great a money-making strategy for lenders.
Only when the market sputters and starts to fall do the lenders end up with houses. Then they are #*&6@ed because they cannot recoup their money - and end up in bankruptcy as so many did.
The reason the banks wrote so many bad loans was because they sold them to investment banks etc., who borrowed money at dirt cheap prices making the returns even greater.
Now they and we are reaping the reward of their greed and we are suffering even more.
None of this would have been possible without cheap money from Federal Reserve policies and the dereliction of duty by regulators who were, stupid, lax and/or in the pockets of those who they were supposed to regulate.
It started with Clinton, flourished under Bush and the rest is our unfortunate history.
Forgive the typos in my previous piece. It was a long day!
page: 1
JamesOct 6th, 2008 - 06:08:17
Start a few years earlier and you'll get a much better picture of how this is the fault of the democrats enabling deadbeats to get huge loans.
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