Timeline of US Financial Crisis

Sept. 7:   Fannie Mae, Freddie Mac Seized By Government

Sept. 14: Bank of America Buys Merrill Lynch

Sept. 15: Lehman Brothers Files Bankruptcy

Sept. 16: Government Gives AIG Emergency Loan

Sept. 17: Barclays Makes Deal with Lehman

Sept. 19: Bush Announces Bailout Plan

Sept. 21: Goldman Sachs, Morgan Stanley Change Status

Sept. 29: Citigroup Agrees To Buy Wachovia's Banking Operations

House Rejects Bailout Package

Dow Suffers Largest Ever One-Day Drop -
Dow falls 777.68 points to mark its largest one-day point loss in history

Oct. 1:    Senate Passes Bailout

Oct. 3:    Wells Fargo Tries To Acquire Wachovia

House approves Bailout, Bush Signs Bill

Oct. 6:    Dow drops below 10,000 for the first time since 2004

Secretary Paulsen announces that 35 year old former Rocket Scientist and Goldman Sachs VP Neel Kashkari will oversee the government's $700 billion bailout program.  Just six years out of business school, Kashkari is described by colleges as someone who works like a slave, is wise behind his years, disciplined, intense, and very analytical.  He will have four months to rid the rid the financial system of bad home loans -- and get money flowing so that banks can start lending again.

Henry Paulsen is also a former Goldman official.

Oct 7:   The Federal Reserve Board announces the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility.

Oct. 8:    AIG Gets another Loan from Feds

Oct. 9:    Down falls below 9,000 for the first time in five years

Oct. 10:  Wells Fargo Wins Battle for Wachovia

Oct 13:  Dow has biggest one-day rally since 1933 -

936 points in anticipation of US plan to aid private banks

Oct 14:  Treasury Dept announces plans to spend $250 billion (of the total $700B) to buy capital in nation's banks - Limited to $25 million per qualifying financial institution

Several of the initial nine participating banks were pressured into the deal by Secretary Paulson, despite not necessarily needing capital from the government, as a means of removing the market stigma possibly associated with accepting a bailout package.

Oct 15:  Dow plunges.  All but 127 points of yesterday's gain are wiped away upon news from the Commerce Department that September retail sales were down 1.2% -- the biggest decline in three years.

The Federal Reserve confirmed and added that prior to the big market collapse, consumers were already cutting down on spending in a big way - business owners expressed grave pessimism about the future.

Fed chairman Bernake predicted further drops in the market throughout the end of 2008 and first quarter of 2009.

President Bush urged all Americans to remain patient.

Meanwhile, the European Union, who recently injected $3Trillion into its markets earlier this week, met to develop a unified approach to the world financial crisis.  On behalf of the EU, French President Nicolas Sarkozy announced "We are unanimous in calling for more than emergency measures to address this crisis.  We Europeans also call for the making of a new world financial order.  Let it be clear, we are adamant:  Europe will not let this crisis go by without major consequence to the world monetary and and finance system.  We must now remake capitalism."

Washington announced plans to meet with G7 nations to remake the Bretton Woods
system of monetary management put into place after WWII.  Europeans see this system as being totally dominated by American finance and American capitalism gone wild - based on speculation rather than the real economy.

Oct 16:    World Food Day:    "The media have highlighted the financial crisis at the expense of the food crisis," said Jacques Diouf, head of the U.N.'s Food and Agriculture Organization in Rome. The World Bank predicts that high food and fuel prices will increase the number of malnourished people in the world by 44 million this year to reach a total of 967 million.

Pope Benedict made a statement blaming hunger, in part, on "boundless speculation" in the markets and the "selfishness" of the world's rich.

Mental Health professionals in the United States are reporting large increases in the number of people requiring counseling and committing suicide.

Dow jumps 400 points to 8,979- attributed to bargain hunting.

Federal Deposit Insurance Corp. Chairwoman Sheila Bair, says some of the $700 billion rescue package can and should be spent to give lenders financial incentives to rework loans.  Deferring payments, which is what often happens now, is no fix. She advocates resetting troubled mortgages at no more than 38 percent of the borrower's income and insuring banks if a reworked loan defaults a second time. She Bair says she recognizes these -- and other possible measures -- might not be popular with lenders, politicians or to people who have responsibly paid their mortgages. But, in effect, she says: Life's not fair.

Karen Weaver, global head of Deutsche Bank's securitization research:  "I think the basic issue of fairness here is going to be a big problem.  If Uncle Sam steps in to reduce one homeowner's mortgage payment, what's to prevent a neighbor from skipping payments in hopes of getting the same deal?"

Bair says any way out is going to be imperfect. Yes, her solution may end up helping those who perhaps should have known better, she says. "But at the end of the day, it's in our collective economic interest to get those mortgages fixed and keep those people in their homes," she says.

"Let's have some compassion, too. We all make mistakes."

Before becoming chairman in 2006, Bair taught at the University of Massachusetts at Amherst. She is a former assistant secretary of finance for the Treasury Department and a former commissioner of the Commodity Futures Trading Commission and worked for former Kansas Republican Sen. Bob Dole, whom she calls a mentor.

Another perspective:

Guy Cecala publisher, Inside Mortgage Finance speaks out about the mortgage bailout proposals currently under consideration and explains that most of the suggested programs are aimed at keeping homeowners in their homes - loan modifications, reduced payments, theoretically so that the homeowner has less financial stress, and fewer homes are placed on an already over-stocked housing market.

"If you take a huge hunk of the housing stock off-line for a while, how will that help us establish a bottom in the housing market?" he asks.  He suggests the concept is operating under the premise that our economy will "wake-up in 5 years" or so and housing prices will be normal.

He suggests that it would be better to "get this over as quickly as possible."  Foreclosing, having a glut of houses temporarily - enables investors to come in and establish a "floor" in the market.

"Many of these people have no money saved to maintain their homes.  In most foreclosed houses we see unbelievable damage due to neglect because people can't afford to maintain them."

"Homeownership had risen to 70% - I don't think it's good for US to have 70% ownership; 60 - 65% is more reasonable and more economically viable" he adds.

Why is 70% too high?  He concludes:  "There was change in mentality that real estate was the smartest investment anyone could make.  One third of home sales in 2005 and 2006 were investment properties.  Housing is not a great 2-3 year investment.  We need to get back to the mentality that living in a home is the primary goal."

 

Oct 17:   The NY Times reports bank executives are quietly saying they aren't likely to act swiftly with the bailout money despite knowing that holding onto it could keep credit frozen and the economy stalled.  Banks are having trouble getting money for their normal day-to-day operations because no one is sure about what lies on a bank's balance sheets.

The Federal Reserve reports that industrial production at the nation's factories, mines, and utilities fell 2.8 percent last month -- almost triple the drop economists had been forecasting.

President Bush meets with French President Nicholas Sarkozy and European Commissioner Jose Manual Barroso in Camp David.  The three announce plans for an international summit to discuss the world financial crisis.  No date or place was set at this time.

Prime Minister Gordon Brown comes down on the side of the European Union.

The total investors have lost since the Dow high of 14,000 is quantified at over $8.3 trillion.

Inflation seems to have stalled:  gas prices are down, the Consumer Price Index remained unchanged from the previous month, and the Labor Department announced that prices paid for common consumer goods has not changed since September. 

The Dow closed at 8,852.22, down 127.04 points

Oct 20:    Dow closes up 413.21 points, or 4.7%, to finish at 9,265.43, first close above the 9,000 level since last Tuesday.

"Look for the volatility to remain high as the markets adjust to a new owner. The good thing is this one comes with its own printing press. The bad news is that you and I are required to pay the mortgage," Kevin Giddis, head of fixed income for Morgan Keegan & Co. (cnnmoney.com)