Chronology of the Panic of 2008

1997

· The Asian Financial Crisis led to slumping currencies, devalued stock markets and other asset prices, and a rise in private debt. In response, the International Monetary Fund (“IMF”) developed country bailout programs that were conditional upon the participating country making reforms such as cutting back on government spending to reduce deficits, allowing insolvent banks and financial institutions to fail, and aggressively raising interest rates.  The rising savings rates increased cash flow to United States capital markets and in turn into funding real property markets.

1999

· September 30 – Fannie Mae eased credit requirements to increase home ownership rates for low-income consumers.

· November 12 – President Clinton signed into law the Gramm-Leach-Bliley Act, which, in part, repealed the provisions of the Glass Steagall Act that separated commercial and investment bank activities.

2000

· March 10 – The dot-com bubble numerically burst when the NASDAQ Composite index peaked at 5,048.62; more than double its value just a year before. The burst continued into 2002 and resulted in a decline of almost 80% of the NASDAQ index and about 60% in the S&P 500 index. In response, the U.S. Federal Reserve Board eased its monetary policy.

· December 21 – President Clinton signed into law the Commodities Futures Modernization Act of 2000 that changed the jurisdiction, requirements, and procedures of the Commodities Futures Trading Commission (“CFTC”).  First, the Act repealed an earlier ban on single-stock futures contracts. Second, the Act narrowed the CFTC’s jurisdiction by providing that products offered by banking institutions (including derivatives) were not to be considered futures contracts and explicitly exempted energy trades and trading on electronic energy commodity markets from the Act (also referred as the Enron loophole).

2001

· September 11 – Terrorist attacks targeted the United States. Terrorists hijacked four planes and crashed them into the World Trade Center in New York, the Pentagon in Washington D.C., and a field in Pennsylvania killing thousands and causing extensive economic and political havoc.

· Post September 11 – Concerned about economic deterioration from the terrorist attacks, the Federal Reserve Board maintained an eased monetary policy by targeting low interest rates and providing additional credit to sustain real property markets.

2004

· April 24 – The U.S. Securities and Exchange Commission (“SEC”) unanimously voted to exempt investment banks with assets over $5 billion from its net capital rules that required brokerages to hold capital reserves as a buffer against investment losses and economic trouble. The exemption allowed investment banks to release millions of dollars from reserves and to use the released funds in other investments such as credit derivatives and mortgage-backed securities.

2006 

· The U.S. housing bubble began to collapse as home prices decreased in value.

2007

· Increasingly widespread fear over the security of investments led to disturbances in American credit markets.

· February 27 – Freddie Mac announced that it would no longer buy the most risky subprime mortgages and mortgage-related securities.

· March 4 – HSBC wrote-off $11 billion to cover its escalating losses resulting from thousands of low-income families unable to repay loans.

· March 5 – New Century Financial Corp., a California lender specializing in mortgages to people with poor credit records or heavy debt burdens, filed for bankruptcy.

· July 16 – Bear Stearns disclosed its two subprime hedge funds (Bear Stearns High-Grade Structured Credit Fund and Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) that invested in collateralized debt obligations (“CDOs”) had lost most of their value due to the decline in the market for subprime mortgages.

· July 31– Bear Stearns liquidated the two hedge funds that invested in various types of mortgage-backed securities.

· August – Liquidity in the Interbank lending markets began to be decrease.

· August 8 – American Home, one of the largest independent home loan providers in the U.S., filed for bankruptcy after being unable to fund its mortgages.

· August 9 – BNP Paribas froze funds because of its loan losses.

· August 23 – The Federal Reserve loaned $2.5 billion each to Citibank, Bank of America, JP Morgan Chase & Co., and Wachovia to ease credit problems.

· September 14 – Northern Rock received liquidity support from the Bank of England due to problems in raising funds in the money market to replace maturing money market borrowings. After customers heard the news, there was a run on the bank when approximately 5% of Northern Rock’s total bank deposits were withdrawn.

· September 18 – The Federal Reserve cut interest rates 50 basis points from 5.25% to 4.75%.

· October 9 – The Dow Jones industrial average (“Dow Jones”) reached an all time high of 14,164.53.

· October 31– The Federal Reserve cut interest rates 25 basis points to 4.5%.

· December – Liquidity in the interbank lending markets continued to decrease.

· December 12 – The Federal Reserve announced the creation of a Term Auction Facility (“TAF”) in which fixed amounts of term funds would be auctioned to depository institutions against a wide variety of collateral.

2008

· January 22 – The Federal Reserve cut interest rates 75 basis points to 3.5%, its biggest cut in 25 years.

· January 30 – The Federal Reserve cut interest rates 50 basis points to 3%.

· February 13 – President Bush signed into law the Economic Stimulus Act of 2008.

· February 22 – The U.K. nationalized Northern Rock, the U.K.’s fifth-largest mortgage lender, after two unsuccessful bids by private banks.

· March 3 – U.S. Treasury Secretary Paulson proposed the broadest overhaul of U.S. financial regulation since the Great Depression.

· March 11 –The Federal Reserve, the European Central Bank, and central banks in the U.K., Canada, and Switzerland injected $200 billion of liquidity into markets.

· March 14 – J.P. Morgan Chase & Co. announced its fire-sale acquisition of Bear Stearns, as part of a bailout engineered by the Federal Reserve and aided by the U.S. Department of the Treasury (“U.S. Treasury”).

· March 18 – The Federal Reserve cut interest rates 75 basis points to 2.25%.

· April 30 – The Federal Reserve cut interest rates 25 basis points to 2%.

· May 19 – Banks and securities firms, including Citigroup, Merrill Lynch, HSBC, Deutsche Bank, Washington Mutual, and ING, failed to report $35 billion of write-downs on their income statements. 

· June 2 – Standard & Poor’s lowered Morgan Stanley, Merrill Lynch, and Lehman Brothers’ credit ratings because of continued weakness in the investment banking business and the potential for more write-offs of devalued assets.

· June 25 – California and Illinois sued Countrywide Financial Company for deceptive trade practices and claimed the mortgage lender misled borrowers into taking risky loans that they could not afford. 

· July 11 – U.S. regulators seized IndyMac Bancorp Inc. after a run by depositors had left the California mortgage lender short on cash.

· July 15 – The SEC issued an emergency order that temporarily prohibited short selling in the securities of Fannie Mae, Freddie Mac, and primary dealers at commercial and investment banks.

· July 30 – President Bush signed into law the Housing and Economic Recovery Act (“HERA”).

· August 8 – In settlements related to auction-rate securities, Citigroup, Merrill Lynch, and UBS bought back auction-rate securities from clients valued at $7.3 billion, $10 billion, and $19.4 billion respectively. Citigroup also agreed to pay a $100 million fine to settle charges it fraudulently misled investors about the debt's risk.

· September 7 –The U.S. Federal Housing Finance Agency (“FHFA”), which was created by HERA, seized control of Fannie Mae and Freddie Mac when it placed the two government-sponsored enterprises into an FHFA conservatorship that replaced chief executives, eliminated dividends, and allowed the U.S. Treasury to purchase up to $100 billion of stock in each.

· September 15 –

o Lehman Brothers filed for bankruptcy after the U.S. Treasury and the Federal Reserve refused to provide financing for a rescue plan.

o Bank of America announced its acquisition of Merrill Lynch.

· September 16 – To save AIG from insolvency, the U.S. Treasury agreed to loan up to $85 billion to AIG in exchange for a 79.9 % equity interest and the right to suspend dividends.

· September 19 –

o The U.S. Treasury offered temporary insurance to money market funds.

o The SEC issued a temporary emergency ban on short sales of financial stocks. 

· September 21 – Goldman Sachs and Morgan Stanley converted into bank holding companies.

· September 25 – U.S. Federal Deposit Insurance Co (“FDIC”) seized Washington Mutual and sold its branches and assets to JPMorgan Chase & Co.

· September 29 –

o Following Congress’ failure to pass the first version of the Bush administration’s bailout plan, the Dow Jones had its largest single day point loss when it dropped 777 points to 10,365.45.

o The U.K. took control of Bradford & Bingley and its £50 billion ($100 billion) worth of mortgages and loans. 

o The Icelandic government took control of the country’s third-largest bank when it bought a 75% stake in the bank for €600 million ($860 million).  

· September 30 –

o The London Interbank Offered Rate (Libor) overnight rate, which reflects the rate at which banks lend to each other, increased from 2.58% to 6.88%.

o The Irish government announced a two-year guarantee arrangement to safeguard all deposits, covered bonds, senior debt, and subordinated debt of six Irish banks.

· October 3 –

o President Bush signed the Emergency Economic Stabilization Act. The Act created the Troubled Asset Relief Program (“TARP”) that authorized the Treasury Secretary to spend $700 billion to purchase distressed assets and to inject capital into banks. The Act also expanded bank deposit guarantees, included $100 billion in tax breaks, and allowed the Federal Reserve to pay the interest on the excess reserve balances from banks.

o The governments of Holland, Belgium, and Luxembourg each bought a stake in Fortis for a total of €11.2billion ($16 billion). 

· October 6 –

o The SEC terminated the exemptions for investment banks from their net capital rules.

o The Dow Jones dropped more than 700 points and fell below 10,000 for the first time since 2004. That week the Dow Jones closed lower at each session and had its worst weekly decline ever with an 18% drop and falling over 1,784 points.

o Markets around the world also dropped, Britain's FTSE 100 Index dropped 7.9%, Germany’s DAX dropped 7.1%, France's CAC 40 dropped 9%, and Russia’s RTS stock index dropped more than 20%. In Iceland, trading in six banks stocks was halted to allow the government time to draft a crisis plan.

· October 7 –

o The Federal Reserve announced the formation of a Commercial Paper Funding Facility to facilitate the issuance of term commercial paper.

o The U.K. announced a rescue plan for banks to put up to £250 billion ($500 billion) into the banking system.

· October 8 –

o The Federal Reserve cut interest rates 50 basis points to 1.5%.

o The European Central Bank, Bank of England, Bank of Canada, Swedish Riksbank, and Swiss National Bank announced interest rate cuts of 50 basis points simultaneously with the Federal Reserve.

o The Federal Reserve loaned AIG an additional $37.8 billion.

· October 9 – One year after reaching an all time high, the Dow Jones fell below 9,000 for the first time since 2003.

· October 10 –

o Within an hour of trading, and again when Wall Street opened, London, Paris, and Frankfurt stock markets all dropped 10%.

o Within minutes of opening, the Dow Jones dropped 697 points when it fell below 7,900. The Dow Jones finished the day only down 128 points and closed at 8,451. The Dow Jones finished the week down 1,874 points, or 18%, and 40% down from the record high on October 9, 2007. 

o The Federal Reserve decided to lend directly to corporations.

· October 11-12 – The G7 nations met in Washington and pledged to support financial institutions and prevent their failure.

· October 11 – The U.S. Treasury announced its rescue efforts would focus on the recapitalization of banks in exchange for preferred equity instead of the purchase of illiquid assets.

· October 12 – European countries announced a rescue plan for Europe’s Banks totaling €1 trillion.

· October 13 – The Dow Jones closed at 9,387, an 11% increase.

· October 14 – The U.S. government announced that it planned to purchase $250 billion of preferred stock in Goldman Sachs, Morgan Stanley, J.P. Morgan, Bank of America, Merrill Lynch, Citigroup, Wells Fargo, Bank of New York Mellon, and State Street.

· October 15 – The Dow Jones fell 733 points.

· Week of October 19 – The Dow Jones experienced extreme volatility with violent price swings.

· October 27 –

o The U.S. Treasury purchased $38 billion of preferred stock in 22 banks, including BB&T, Capital One, SunTrust Banks, City National Bank, Comerica, First Niagara Bank, Huntington Bancshares, Northern Trust, State Street Corporation, UCBH Holdings, First Horizon National Corporation, PNC Financial Services, Regions Financial Corporation, Valley National Bancorp KeyBank, and Washington Federal Savings.

o The Hong Kong stock market crashed losing more than 12%.

· October 28 – In anticipation of rate cuts, the Dow Jones rose 10.8% and closed at over 9000.

· October 29 –

o The IMF announced the creation of a short-term liquidity facility for market-access countries.

o The Federal Reserve cut interest rates 50 basis point to 1%.

· October 31 –

o The Dow Jones closed up for the week.

o Citigroup announced losses of $1.4 billion on securitizations.

· November 6 – Wells Fargo sold $11 billion of common stock to fund its purchase of Wachovia.

· November 7 – The U.S. Labor Department released employment reports that showed about 500,000 jobs were lost in the U.S. during September and October 2008 with unemployment reaching 6.5%. 

· November 10 –

o The Federal Reserve granted American Express’ request to become a bank holding company.

o Fannie Mae lost $29 billion on write-downs.

o The U.S. Treasury announced another investment of $40 billion in preferred stock of AIG.

· November 12 –

o U.S. Treasury Secretary Paulson announced the remaining portion of the TARP budget would be used to relieve pressure on consumer credit and would not be used to purchase illiquid mortgage-related assets from financial institutions.

o General Electric secured the temporary backing of the FDIC for up to $139 billion of the debt of its finance arm.

o American Express sought $3.5 billion from the U.S. Treasury.

o ING posted its first-ever quarterly loss.

· November 15 – Washington D.C. hosted the initial session of the Summit on Financial Markets and the World Economy with the leaders of the G-20.

· November 18 – Executives of Ford, General Motors, and Chrysler testified before Congress, requesting access to the TARP for federal loans.

· November 23 – The U.S. Treasury, Federal Reserve, and FDIC announced a rescue plan for Citigroup, which provided for an additional purchase of $20 billion of Citigroup’s preferred stock and an arrangement to limit Citigroup’s exposure to losses on loans and securities in exchange for Citigroup’s agreement to suspend dividend payments.

· November 24 – The Dow Jones had its biggest two-session gain of 891.10 points, or 11.8%, since 1987.

· November 25 – The Federal Reserve Board announced the creation of the Term Asset-Backed Securities Lending Facility (“TALF”), under which the Federal Reserve Bank of New York would lend up to $200 billion on a non-recourse basis to holders of AAA-rated asset-backed securities and recently originated consumer and small business loans. The U.S. Treasury also provided $20 billion of TARP money for credit protection.

· November 28 – Goldman Sachs received approval for a New York State banking license that allowed it to transform into a bank holding company and take deposits.

· December 1 –

o The National Bureau of Economic Research officially declared that the U.S. economy had entered a recession.

o The U.S. Labor Department announced 533,000 jobs were lost in November 2008, raising the unemployment rate from 6.5% to 6.7%.

· December 3 –

o The U.S. Government Accountability Office announced TARP lacked oversight.

o The SEC approved measures to increase transparency and accountability at credit rating agencies and thereby ensure that firms provide more meaningful ratings and greater disclosure to investors.

· December 11 – The FBI announced the arrest of Bernard Madoff for his involvement in a Ponzi scheme totaling about $50 billion and affecting American and European banks, individuals, and charities.

· December 16 – AIG sold $39.3 billion of assets to a fund established by the Federal Reserve Bank of New York.

· December 19 – The U.S. Treasury authorized loans of up to $13.4 billion for General Motors and $4.0 billion for Chrysler from the TARP budget.

· December 24 – GMAC, the financing arm of General Motors, became a bank holding company.

· December 30 – GMAC received a $5 billion cash infusion from the U.S. Treasury in exchange for shares of preferred stock.

2009

· January 5 – The Federal Reserve Bank of New York began to purchase fixed-rate mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

· January 9 – The Congressional Oversight Panel issued its second monthly report on the expenditures of the TARP.

· January 12 –

o The FDIC issued a letter to FDIC-supervised institutions calling on them to implement a process to monitor their use of capital injections, liquidity support, and/or financing guarantees obtained through Treasury, FDIC, and Federal Reserve financial stability programs.

o At the request of President-Elect Obama, President Bush submitted a request to Congress for the remaining $350 billion in TARP funding for use by the incoming administration.

· January 16 –

o The U.S. Treasury, Federal Reserve, and FDIC announced a package of guarantees, liquidity access, and capital for Bank of America. The Treasury and the FDIC planned to enter a loss-sharing arrangement with Bank of America on a $118 billion portfolio of loans, securities, and other assets in exchange for preferred shares. In addition, and if necessary, the Federal Reserve agreed to provide a non-recourse loan to back-stop residual risk in the portfolio. Seperately, the Treasury arranged to invest $20 billion in Bank of American from the TARP in exchange for preferred stock.

o The U.S. Treasury, Federal Reserve, and FDIC finalized terms of their guarantee agreement with Citigroup.

o The U.S. Treasury announced that it would lend $1.5 billion from the TARP to a special purpose entity created by Chrysler Financial to finance the extension of new consumer auto loans.

· January 20 –

o President Obama was inaugurated as the 44th President of the United States.

o The Italian automaker Fiat agreed to take a 35% stake in the American auto company Chrysler.

· January 28 –

o The National Credit Union Administration (NCUA) Board announced that the NCUA would guarantee uninsured shares at all corporate credit unions through February 2009 and established a voluntary guarantee program for uninsured shares of credit unions through December 2010.

o The Board also approved a $1 billion capital purchase in the U.S. Central Corporate Federal Credit Union that provides financing, check clearing, and other services to retail credit unions.

o The IMF announced world economic growth would likely fall to 0.5% in 2009, its lowest rate since World War II.

· January 30 – The Federal Reserve Board announced a policy to avoid preventable foreclosures on certain residential mortgage assets held, controlled, or owned by the Federal Reserve Bank. The policy was developed pursuant to section 110 of the Emergency Economic Stabilization Act.

· February 3 – The Federal Reserve announced the extension, through October 20, 2009, of the liquidity programs scheduled to expire on April 30, 2009. 

· February 6 –

o The Federal Reserve Board released additional terms and conditions of the TALF. Under the TALF, the Federal Reserve planned to lend up to $200 billion to eligible owners of certain AAA-rated asset-backed securities backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans.

o The Congressional Oversight Panel announced the government overpaid for distressed financial assets and shares in 2008.

· February 10 –

o U.S. Treasury Secretary Timothy Geithner announced a Financial Stability Plan that included Treasury purchases of convertible preferred stock in eligible banks, the creation of a Public-Private Investment Fund to acquire troubled loans and other assets from financial institutions, expansion of the TALF, and new initiatives to stem residential mortgage foreclosures and to support small business lending.

o The Federal Reserve announced that it was prepared to expand the TALF to as much as $1 trillion and broaden the eligible collateral to include AAA-rated commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities. An expansion of the TALF would be supported by $100 billion from the TARP.

· February 17 – President Obama signed into law the American Recovery and Reinvestment Act of 2009, which provided for a $787 billion stimulus package.

· February 18 –

o President Obama announced The Homeowner Affordability and Stability Plan. The plan included a program to permit the refinancing of conforming home mortgages owned or guaranteed by Fannie Mae or Freddie Mac that currently exceed 80% of the value of the underlying home. The plan also created a $75 billion Homeowner Stability Initiative to modify the terms of eligible home loans to reduce monthly loan payments.

o The U.S. Treasury announced plans to increase its preferred stock agreements with Fannie Mae and Freddie Mac to $200 billion and to increase the limits on the size of Fannie Mae and Freddie Mac’s portfolios to $900 billion.

o The U.S. carmakers GM and Chrysler asked the U.S. government for another $21.6 billion in support.

· February 19 – The Dow Jones closed at 7,466, its lowest level since October 9, 2002.
February 23 – The Dow Jones and the S&P indexes fell to their lowest level since 1997.

· February 25 – The Federal Reserve, FDIC, Office of the Comptroller of the Currency, and Office of Thrift Supervision announced that they would conduct forward-looking economic assessments or “stress tests” of eligible U.S. bank holding companies with assets exceeding $100 billion. Supervisors would work with the firms to estimate the range of possible future losses and the resources to absorb such losses over a two-year period. The assessment process was projected to continue through the end of April 2009.

Prepared by Adele P. Maloney,
George Washington University Law School,
JD candidate 2010


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