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Monday, September 29, 2008
The Financial Crisis: A Timeline
Erik Berte
FOXBusiness
The developments of the past few weeks are likely to change our financial markets as much as any short period in most of our lifetimes. Here's a rundown of recent major events.
Sept. 7: Government Seizes Fannie Mae, Freddie Mac
Government takes control of the mortgage giants, putting the liability of more than $5 trillion of mortgages onto the backs
of U.S. taxpayers.
WATCH: Fannie and Freddie Rescue
Plan
Sept. 11: Lehman Brothers Says it’s Actively Looking to be Sold
Shares of the investment bank plunge 45% as traders feared it was having a difficult time finding a suitor.
Sept. 14: Bank of America Says it Will Buy Merrill Lynch for $29 a Share
After walking away from Lehman Brothers, the bank said it would pay $50 billion for the brokerage house.
WATCH: Bank of America-Merrill
Lynch Deal
Sept. 15: Lehman Brothers Files for Bankruptcy
This is the largest bankruptcy filing in the history of the United States, at $639 billion. After a weekend of feverish negotiations,
potential buyers such as Bank of America (BAC) and Barclays (BCS) walk away, leaving Lehman and its CEO, Dick Fuld, with basically
no other options.
WATCH: Life After Lehman
Sept. 16: Government Announces $85 Billion Emergency Loan to Rescue AIG
Feds say a failure of the company could be devastating to the financial markets as well as the economy. This is in exchange
for a nearly 80% equity stake in the company.
WATCH: How Did AIG Get Into Trouble?
WATCH: How Does AIG Affect You?
Sept. 17: Barclays Makes Deal With Lehman to Buy North American Banking Division
The British bank, which had passed on buying Lehman before it filed for bankruptcy, picks up the failed firm's North American
investment banking and trading operations for $250 million.
WATCH: Barclays-Lehman Deal
Sept. 19: Bush Administration Announces Bailout Plan to Confront Crisis
Congress is asked to give the administration new powers to execute a plan that could cost taxpayers billions to buy toxic
debt and bad mortgages. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Paulson hold meetings with lawmakers
over weekend to convince them to approve the measures.
WATCH: Making Sense of Paulson’s
Plan
Sept. 21: Goldman Sachs, Morgan Stanley to Become Bank Holding Companies
The Federal Reserve approves transformation of Morgan Stanley (MS) and Goldman Sachs (GS) into bank holding companies from
investment banks in order to increase oversight and allow them to access the Fed's discount window.
Sept. 23: Bernanke and Paulson Testify on Capital Hill on Bailout
The Fed Chairman says, “If financial conditions fail to improve for a protracted period, the implications for the broader
economy could be quite adverse.”
Sept. 24-27 and Maybe Beyond: Bush Works With Legislators on Bailout Plan
The President asks Barack Obama, John McCain, and Congressional leaders to meet and discuss rescue legislation. Congress works
to hammer out legislation that's acceptable to enough interested parties to pass and, hopefully, be successful.
WATCH: How We Got to This Crisis
WATCH: What Happens Without a
Bailout
Sept. 26: Washington Mutual Becomes Largest Thrift Failure With $307 Billion in Assets
JPMorgan (JPM) agrees to pay $1.9 billion for the banking operations, but doesn't take ownership of the holding company.
WATCH: WaMu's Collapse
Sept. 29: Citigroup Acquires Wachovia's Banking Operations
The FDIC helps broker a deal allowing Citigroup (C) to buy the bulk of Wachovia's (WB) banking operations for $2.1 billion
in stock. At the same time, several European banks are nationalized or infused with huge amounts of cash to keep them running.
WATCH:
Citigroup-Wachovia Deal
WATCH:
Former Sen. D'Amato on Citigroup-Wachovia Deal
Bailout Package Put Up for House Vote Is Rejected 228-205
The $700 billion rescue bill is defeated in the House of Representatives, despite of warnings from the president, as well
as leaders in both parties, that the legislation is necessary to stave off a meltdown.
WATCH:
Rep. Barrett on Voting Against Rescue Bill
Dow Falls 777.68 Points; Largest One-Day Point Drop in History
The index sees its largest one-day point loss ever after the House votes down the rescue plan. The S&P 500 has its
largest point drop ever and second-largest percentage drop in history.
FOX Translator
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Think telemarketer. Except, it's much worse because you can't avoid this call. Instead, when you get one, it's time to pay up, because the bet you placed with borrowed money is eating itself.
Buying stocks on margin is risky because you're essentially "playing" with someone else's money. If the shares you purchased tank, your losses will likely be more than if you had bought the shares with your own cash. This is why the New York Stock Exchange and the Nasdaq impose certain restrictions on the practice.
Initially, you¿re only allowed to borrow half of the money from your broker when buying on margin. You set up a margin account and from then on must keep a maintenance balance of at least 25% of the market value of your stocks.
If the market value of your investment falls below this minimum, you're required to make up the difference by either depositing money into your account or selling some of the stock. If your broker notifies you that you've dipped below this minimum, it's called a margin call.
If you fail to adjust your account accordingly, the broker is authorized to sell shares in your account to make up the difference. The broker can even sell other stock in your margin account to make up for the loss that selling the shares didn't cover.
As an example, say you buy $8,000 in stocks of any given company. You borrow the maximum $4,000 from your broker and pay the rest yourself. Now, if and when the total value of these shares changes, you must make sure you maintain at least $2,000 (25%) in equity. In other words, if the total value were to drop below $6,000, you¿d be in trouble since you only put in $4,000 of your own money to begin with.
