Financial Crisis Timeline*

Page 2: January-June 2008

The university of Iowa center for international finance & Development

Prepared by Jason Cox and Laurie Glapa

Last updated: July 1, 2009

 

 

January 4, 2008:

• President, George w. Bush, meets with the Working Group on Financial Markets (WGFM) chaired by Secretary of the Treasury, Henry Paulson.

• Even though the job creation increased for the last year, the longest streak since 2003, the WGFM warned the president of bad signals in the economy such as inflation and consumer spending.

• The President responded by stressing that cooperation with Congress was necessary to keep taxes low and increasing oil supply from the refineries in the US.

  http://www.whitehouse.gov/news/releases/2008/01/20080104-4.html

January 8, 2008:

• CEO of Bear Stearns, Jimmy Cayne, retires at age 73 amid the subprime problems at Bear Stearns.

• Cayne started work at Bear Stearns in 1969 and become CEO in 1993.

• Alan Schwartz, Bear Stearn’s president, takes over as CEO.

  http://www.usatoday.com/money/industries/banking/2008-01-08-cayne-bear-stearns_N.htm

January 9, 2008:

• The Global Economic Prospects study released by the World Bank predicts the worldwide economy will grow at 3.3% (in dollar terms) in 2008.

• The bank estimates that the US will grow at 2.2% and emerging markets’ strong growth will help dampen the downturn effects of the credit crisis on the worldwide economy.

  http://www.ft.com/cms/s/0/18b13260-be43-11dc-8bc9-0000779fd2ac.html

• In an effort to retain its AAA rating and stave off liquidity concerns, MBIA slashes its dividend and announces plans to raise $1 billion in debt.

• The bond insurer said that the dividend cut of more than 60% would save the company around $80 million a year.

  http://www.ft.com/cms/s/0/7bba566c-bedd-11dc-8c61-0000779fd2ac.html

January 11, 2008:

• Merrill Lynch and Citigroup announce plans to seek additional capital from sovereign wealth funds.

• This is just weeks ahead of the fourth quarter earning reports.

• Citigroup is expected to go back to the Abu Dhabi Investment Authority while Merrill is looking into the Kuwait Investment Authority.

  http://www.ft.com/cms/s/0/da20ea54-bfe6-11dc-8052-0000779fd2ac.html

January 15, 2008:

• Citigroup, the largest bank in the US, reports a $9.83 billion loss in the fourth quarter.

• This is mainly from an $18.1 billion write down on its subprime mortgage-related exposure.

• Citigroup also announced it would raise $12.5 billion in new capital to shore up its balance sheet.

• The largest part of this new capital, $6.88 billion, will come from the Government of Singapore Investment Corporation.

  http://www.ft.com/cms/s/0/c962677e-c360-11dc-b083-0000779fd2ac.html

January 16, 2008:

• JP Morgan Chase says it has cut the value of its investments in the US subprime market by $1.3 billion.

• On the same day, Wells Fargo reported a 37% loss in net income for the fourth quarter.

  http://news.bbc.co.uk/2/hi/business/7191795.stm

January 17, 2008:

• Lehman Brothers announces plans to cut 1,300 jobs in its domestic mortgage division.

• The investment bank has already lost 2,500 jobs from the subprime lending problems.

  http://www.bankingtimes.co.uk/17012008-lehman-brothers-lay-off-1300/

• Shares in large bond insurers crash as Moody’s Investor Services hints that they could lose their AAA rating.

• Ambac fell 52% and MBIA fell 31%. They are the two largest bond insurers.

• If these bond insurers were downgraded, the result could lead to $2,400 billion in downgrades for the bonds they insure.

  http://www.ft.com/cms/s/0/665b9482-c52e-11dc-811a-0000779fd2ac.html

• Merrill Lynch reveals a net loss of $7.8 billion for 2007 compared to a $7.5 billion net profit in 2006.

• This loss is blamed on the $14.1 billion write down on Merrill’s investments related to subprime mortgages.

  http://news.bbc.co.uk/2/hi/business/7193915.stm

January 18, 2008:

• After a run on assets, Aegon announces that investors may have to wait up to a year to get back their money in Scottish Equitable property funds after a severe drop in liquidity.

• The fund’s total liquid assets drop to 5% after the run that Aegon blames the subprime credit worries.

• This is the second fund forced to freeze withdrawals since the subprime credit crunch has led investors to pull their money out.

  http://cachef.ft.com/cms/s/0/4e1e9842-c560-11dc-811a-0000779fd2ac.html

January 19, 2008:

• Fitch ratings downgrades Ambac, the world’s second largest bond insurer, from AAA to AA.

• The downgrade could undermine Ambac’s ability to add new business and will also affect the ratings of the billions of dollars in securities it has guaranteed.

• The downgrades of the bonds that Ambac insures could force banks to come up with more capital to cover the increased risks.

  http://www.ft.com/cms/s/0/c7edb82c-c634-11dc-8378-0000779fd2ac.html

January 21, 2008:

• Trading partners with ACA Capital agree to give the troubled bond insurer until February 19 to come up with a permanent solution to the S&P downgrade.

• The trading partners, which include some of the world’s largest banks, entered into a “forbearance agreement” in which they agreed to waive all collateral requirements, policy claims, and termination rights until February 19.

• ACA wrote insurance on $69 billion in corporate and mortgage debt securities but announced that its claims paying base is only about $425 million.

• ACA faces collapse if it can not come up with at least $1.7 billion to pay claims.

  http://www.ft.com/cms/s/0/ca246b0a-c82c-11dc-94a6-0000779fd2ac.html

• Global stock markets in London and Europe suffer the biggest one day loss since September 11, 2001.

• The FTSE 100 index falls 5.5% wiping out £76 billion in market value as investors sell off equity for the safety of government bonds.

• Analysts say this is a response to the start of a US recession, fears of a deepening credit crisis, and Ambac being downgraded from AAA by the Fitch credit rating agency.

  http://www.ft.com/cms/s/0/b67403a6-c88e-11dc-94a6-0000779fd2ac.html

• WestLB, the third largest regional German bank, expects to take a net loss of $1.45 billion on exposure to the US subprime mortgage market.

• The bank also announced it is planning to cut 2,000 jobs.

  http://news.bbc.co.uk/2/hi/business/7199723.stm

January 22, 2008:

• A new panic in the global credit market leads the Fed to cut interest rates by 75 basis points.

• This is the largest cut in over two decades.

• The emergency cut is the first inter-meeting cut since September 11, 2001.

  http://www.ft.com/cms/s/1/8c4b7b6a-c8f5-11dc-b14b-0000779fd2ac.html

  http://www.ft.com/cms/s/0/66b4868a-c954-11dc-9807-000077b07658.html

• Ambac Financial reports a record loss of $3.26 billion.

• The loss comes in large part from the write downs of $5.21 billion on its guarantees of subprime mortgage-related bonds.

  http://www.ft.com/cms/s/0/eebaf5f4-c928-11dc-9807-000077b07658.html

January 24, 2008:

• Bush and Congress agree on a $150 billion economic stimulus plan to save the US economy from slipping into a recession.

• The package included sending tax refund checks from $300 to $1,200 to over 117 million American families.

• Also included was a lifting of the mortgage purchase limit of Fannie Mae and Freddie Mac from $417,000 to $625,000.

  http://www.ft.com/cms/s/0/c86f0524-cae6-11dc-a960-000077b07658.html

• Barclays Capital voices concerns about the monoline insurers losing their AAA rating and said it may need to raise up to $143 billion.

• Analysts at Barclays say banks own $820 billion of securities guaranteed by bond insurers.

  http://news.bbc.co.uk/2/hi/business/7209839.stm

January 26, 2008:

• Malcolm Knight, the chief executive of the Bank of International Settlements, called for the integration of world financial regulation.

• In a meeting at the World Economic Forum in Davos, Mr. Knight said that the fragmented financial regulation was partly to blame for the current financial crisis.

  http://www.ft.com/cms/s/0/cba56a7e-cbb0-11dc-97ff-000077b07658.html

• Financial Times announces that Bank of America (BofA) and Countrywide are in merger talks which would create the largest mortgage lending group in the US.

• Analysts say the acquisition of Countrywide could cost BofA $30 billion in addition to the $2 billion BofA invested in preferred shares of Countrywide in August.

  http://www.ft.com/cms/s/0/23058d9e-ad71-11db-8709-0000779e2340.html

January 29, 2008:

• New York state regulators appoint investment bankers to advise on a rescue plan to help bond guarantors keep their AAA ratings.

• Eric Dinallo, the N.Y. state insurance superintendent, is spearheading the plan.

• The discussions are proceeding on two tracks: 1) having banks provide back-up credit lines for bond insurers, and 2) having private equity firms and billionaire investors provide fresh equity capital.

  http://www.ft.com/cms/s/0/3c204e50-ce0d-11dc-9e4e-000077b07658.html

• The FBI announces a crackdown in the subprime lending market.

• There are fourteen companies involved in the investigation of lenders and investment banks.

• FBI agents are looking for any accounting fraud and insider trading in a joint investigation with the SEC.

  http://news.bbc.co.uk/2/hi/business/7216602.stm

January 30, 2008:

• The leaders of Europe’s biggest economies meet in London for a credit crunch summit.

• The leaders warned credit rating agencies that they needed to address conflicts of interest and provide better information to the markets or they would face new stricter regulation.

• Gordon Brown, the British prime minister, said that confidence in the credit rating agencies and big audit firms was vital to rebuilding confidence in the financial markets.

  http://www.ft.com/cms/s/0/d0ab3b4e-ced4-11dc-877a-000077b07658.html

February 2, 2008:

• US and EU regulators agree the first system of mutual recognition between countries where both sides would recognize many of each other’s rules.

• The agreement was approved between SEC chairman, Christopher Cox, and EU internal markets commissioner, Charlie McCreevy.

  http://www.ft.com/cms/s/0/5ce64b1c-d132-11dc-953a-0000779fd2ac.html

February 3, 2008:

• Financial regulators from the world’s leading economies meet in Amsterdam to address the deficiencies of the credit rating agencies during the current credit crisis.

• The meeting was organized by The International Orginisation of Securities Regulators.

• Along with more regulation, the meeting also focused on ways that everyone could become less dependant on credit ratings.

• Agency ratings are widely used in Basel II capital requirements and by central banks in their assessment of acceptable collateral in liquidity operations.

• Another issue being explored is the need to level the regulation playing field between heavily regulated areas such as bank balance sheets and less regulated non-banking activities.

  http://www.ft.com/cms/s/0/5d6ff934-d281-11dc-8636-0000779fd2ac.html

February 5, 2008:

• The German government said the industrial nations need to agree on a concentrated action to address the subprime crisis.

• Peer Steinbrück, finance minister of Germany, will outline proposals to give the Group of Seven Finance Ministers and also Parliament.

• A ministry official did not think the world need Basel III but rather better, faster and more universal enforcement of Basel II.

  http://www.ft.com/cms/s/0/1aa28d4c-d407-11dc-a8c6-0000779fd2ac.html

• GMAC reports a loss of $724 million in the fourth quarter of 2007, bringing the total loss for the year to $2.3 billion compared to an income of $2.1 billion in 2006.

• GMAC blamed the loss on their struggling home lending unit, Residential Capital, who totaled a $4.3 billion loss.

  http://news.bbc.co.uk/2/hi/business/7228510.stm

February 7, 2008:

• S&P releases detailed reform proposals to address internal processes in response to regulator pressure and investor anger.

• The detailed reform plan had 27 action points focused on four main areas: 1) reforms in the governance procedures to address any conflicts of interest, 2) increased efforts to examine the accuracy of its credit ratings, 3) increase the transparency of the ratings by adding identifier marks and what if scenarios, and 4) try to improve investor education.

  http://www.ft.com/cms/s/0/bcdc17e8-d4e5-11dc-9af1-0000779fd2ac.html

February 8, 2008:

• Deutsche Bank reports profits of $9.4 billion for 2007 and seems to have dodged the worse of the subprime crisis.

• The bank’s chief executive, Josef Ackermann, said that if leveraged loans were included, Deutsche wrote down €2.2 billion in the third quarter of 2007 followed by an insignificant amount in the fourth quarter.

• Mr. Ackermann also said that he did not expect any more write downs from subprime portfolios but the bank still had exposure to leveraged loans.

  http://news.bbc.co.uk/2/hi/business/7234292.stm

February 11, 2008:

• The Group of Seven Finance Ministers meet in Tokyo and project that the write off losses on US subprime mortgages could reach $400 billion.

• The finance ministers stressed the need for banks to provide full and prompt disclosure of the losses so confidence in the financial system could be restored.

  http://www.ft.com/cms/s/0/43d644aa-d845-11dc-98f7-0000779fd2ac.html

February 12, 2008:

• Billionaire Warren Buffett offers to take more than $800 billion of municipal bonds backed by three monolines: Ambac, MBIA, and FGIC.

• The idea would be to prop up the municipal bond markets in response to a possible credit rating downgrade of the monolines that insure them.

• Ambac declined the offer and MBIA did not comment.

  http://www.ft.com/cms/s/0/7ea3b5f4-d971-11dc-bd4d-0000779fd2ac.html

• Credit Suisse announces that write downs on the subprime mortgage exposure only totaled 2 billion Swiss francs for 2007, less than analysts expected.

  http://news.bbc.co.uk/2/hi/business/7240279.stm

February 13, 2008:

• Data from the Financial Services Agency (FSA), the Japanese financial watchdog, shows that losses from the Japanese exposure to the subprime crisis reached $5.6 billion in 2007.

• Of the $5.6 billion in write downs, more than half came from the last three months of 2007.

  http://news.bbc.co.uk/2/hi/business/7242892.stm

February 14, 2008:

• Germany’s second largest bank, Commerzbank, announces record profits in 2007 despite $1.1 billion in write downs linked to the US subprime mortgage crisis.

  http://news.bbc.co.uk/2/hi/business/7244384.stm

• Swiss bank, UBS, confirms a 2007 loss of $4 billion on $18.4 billion in write downs associated with the subprime crisis.

• The bank also unveiled another $26.6 billion in exposure to risky mortgages.

  http://news.bbc.co.uk/2/hi/business/7244212.stm

February 15, 2008:

• New York governor, Elliot Spitzer, gives monolines three to five business days to raise capital or face a break-up by state regulators to safeguard the municipal bond market.

• This warning came right before Moody’s pulled its AAA rating from Financial Guarantee Insurance Company.

• Spitzer proposed splitting the insurers into two separate divisions: 1) municipal bond business, and 2) riskier activities such as guaranteeing complex structured securities.

  http://www.ft.com/cms/s/0/48d56d8e-db68-11dc-9fdd-0000779fd2ac.html

February 16, 2008:

• Bangladesh’s Grameen Bank loans $50,000 to the US poor.

• The Grameen Bank specializes in loaning money to poor women who do not have bank accounts.

• Because of the credit crisis, Muhammad Yunus (the bank’s founder), stated that this is the perfect time to enter the US market to provide loans to the people who could not otherwise obtain them.

• Grameen plans to loan $176 million, over the next five years, to the needy in New York who do not have access to financial institutions.

  http://www.ft.com/cms/s/0/d05bb6d2-dc30-11dc-bc82-0000779fd2ac.html

February 17, 2008:

• Britain announces the nationalization of Northern Rock.

• Northern Rock owed the Bank of England £25 billion in loans after a run on the bank last September.

• Alistair Darling, the UK Chancellor, said the two private offers to buy out the bank were not enough to ensure that the loans would be paid back.

  http://www.ft.com/cms/s/0/9ba3c422-dd6e-11dc-ad7e-0000779fd2ac.html

February 18, 2008:

• Loans given by the Fed through the Term Auction Facility reach $50 billion in one-month funds.

• Analysts fear that the garbage collateral given for these loans is increasing the Fed exposure to the credit crisis.

• The TAF is seen as a way to channel liquidity into the credit crisis instead of using the discount window which could trigger investor concern.

  http://www.ft.com/cms/s/0/66db756a-de5d-11dc-9de3-0000779fd2ac.html

February 20, 2008:

• ACA Capital secures another 30-day extension from trading partners to come up with $1.7 billion to pay claims on CDOs that it insured.

  http://www.ft.com/cms/s/0/c8306b54-dfde-11dc-8073-0000779fd2ac.html

February 23, 2008:

• A group of banks agree to inject $2 to $3 billion into the bond insurer Ambac to avoid a ratings downgrade.

• The banks involved include Citigroup, Wachovia, Barclays, Royal Bank of Scotland, Societe Generale, BNP Paribas, UBS, and Dresdner.

• A fall from the AAA rating for Ambac could mean billions of dollars worth of write downs for banks holding the Ambac guaranteed instruments.

  http://www.ft.com/cms/s/0/73450cf8-e187-11dc-a302-0000779fd2ac.html

• The European Commission asks sovereign wealth funds to accept a voluntary code of conduct.

• Peter Mandelson, the European trade commissioner, said the code would set out basic standards of governance and transparency for the funds.

• The International Monetary Fund, who estimates the state owned funds control about $1,900 to $2,900 billion in global funds, is also preparing voluntary guidelines.

• The concern arose because of the large investments the sovereign wealth funds have made into large banks during the credit crisis.

• Mr. Mandelson said it is important for the funds to have emphasis on commercial motivations instead of national or strategic considerations.

  http://www.ft.com/cms/s/0/f431c8d4-e1b3-11dc-a302-0000779fd2ac.html

February 27, 2008:

• The Eurozone appears to have avoided the worst of the credit crunch as numbers for January show that borrowing by businesses grew at a record rate.

  http://www.ft.com/cms/s/0/604ce6c6-e564-11dc-9334-0000779fd2ac.html

• The chief executive of the Financial Services Authority, Hector Sants, warns that the current restructuring of banks’ business models will lead to higher borrowing costs.

• Mr. Sants said that when regulators step in and require banks to keep more loans on their balance sheets, instead of repackaging and selling them, the loans become more expensive for the banks who will pass on the costs to consumers.

• The FSA had just announced that banks might be required to maintain higher reserves than before, also raising the costs of loans.

• Mr. Sants said that easy credit is not necessarily a good thing for consumers or the economy in the long term as can be seen by the current credit crunch.

  http://www.ft.com/cms/s/0/558687c0-e59f-11dc-9334-0000779fd2ac.html

February 28, 2008:

• AIG announces a $5.2 billion loss for the fourth quarter of 2007, the second consecutive quarter of losses.

• The largest portion of losses came from AIG writedowns of $11.12 billion (pretax) concerning their revaluation of a large credit default swap portfolio.

• AIG has written $78 billion in credit default swaps which may be trouble if the housing market continues its downturn.

  http://www.marketintelligencecenter.com/articles/544978

  http://www.ft.com/cms/s/0/d586ccaa-e667-11dc-8398-0000779fd2ac.html

• Fed chairman, Ben Bernanke, warns of increasing bank failures in a speech to the Senate Banking Committee.

• Mr. Bernanke said the banks that were most in danger are the small US banks that are heavily invested in local real estate where the prices are plummeting.

• Mr. Bernanke also stressed that the US was in a weaker position to respond to the credit crisis than in 2001 because of inflation concerns and the weak dollar.

  http://www.ft.com/cms/s/0/f966fc3c-e647-11dc-8398-0000779fd2ac.html

February 29, 2008:

• George W. Bush attacks a Democrat-sponsored housing bill to ease the credit crunch and threatens to veto the bill if it makes it through Congress in the current form.

• Major features of the bill include: 1) changes in the bankruptcy code that makes it easier for individuals to keep their homes, 2) $200 million in funds for foreclosure counseling, and 3) a proposed $4 billion fund to purchase and redevelop foreclosed homes.

• Bush opposed this bill because it would give judges the power to rewrite mortgage contracts, leading to higher interest rates because of the higher risk to lenders and the bill “would be unfair to the millions of homeowners who make hard choices every month to pay their mortgage on time and it would be unfair to future homebuyers.”

  http://www.ft.com/cms/s/0/1bdfdd86-e668-11dc-8398-0000779fd2ac.html

March 3, 2008:

• UK’s largest bank, HSBC, reports a $17.2 billion loss on write downs of its US mortgage portfolio.

  http://news.bbc.co.uk/2/hi/business/7274385.stm

March 5, 2008:

• The Institute for International Finance (IIF), a Washington-based association of global banks, starts a week-long meeting in Rio.

• One of the key topics discussed will be a “best practice” code to address bank shortcomings.

• This code will address issues such as risk management, liquidity operations, and improving underwriting standards.

• Some believe that this meeting is being driven by the fear that regulators will come down hard on the banks unless the banks can prove they can preemptively cleanup their own acts.

• The meeting will also include proposals for investment banks to curb top executive bonuses which have come under political backlash because of their risk taking incentives.

  http://www.ft.com/cms/s/0/cb5fa1a0-ea3d-11dc-b3c9-0000779fd2ac.html

  http://www.ft.com/cms/s/0/d41d10bc-ea55-11dc-b3c9-0000779fd2ac.html

• France’s largest retail bank, Credit Agricole, announces a €857 million loss after write downs of €3.3 billion on its exposure to the credit crisis.

• This loss was worse than what the bank forecasted in December 2007.

  http://news.bbc.co.uk/2/hi/business/7278702.stm

March 6, 2008:

• A £1 billion hedge fund controlled by Peloton Partners collapses.

• The ABS Master Fund returned an 87% growth rate last year but was unable to meet interest payments on loans taken out as a result of the credit crunch.

  http://news.bbc.co.uk/2/hi/business/7280977.stm

March 10, 2008:

• Rumors start to appear on Wall Street that Bear Stearns could have liquidity problems.

• Investors believe rumors as financial stocks drop in value.

  http://www.ft.com/cms/s/0/82fc3642-eecc-11dc-97ec-0000779fd2ac.html

• Lehman Brothers cuts 5% of its workforce across all lines of business.

• The 1,425 people are added to the almost 4,000 jobs already lost at Lehman in the last year.

  http://www.cnbc.com/id/23558853

• Ambac, a troubled bond insurer, announces plans to issue $1.25 billion of new shares and $250 million of equity-linked instruments.

• This was in response to the possible downgrade of its AAA ratings from Moody’s and S&P.

• A consortium of large banks will purchase most of these shares.

  http://www.ft.com/cms/s/0/6e0d2c7a-eed9-11dc-97ec-0000779fd2ac.html

  http://www.ft.com/cms/s/0/03ba9478-ecb5-11dc-86be-0000779fd2ac.html

• The Financial Guarantee Insurance Company (FGIC), a monoline based in New York, sues German bank IKB for fraud.

• The complaint charges IKB with providing false and misleading information that convinced the bond insurer to provide insurance and exposed it to $1.9 billion of potential liabilities.

• FGIC says this fraud contributed to its recent ratings downgrade.

  http://www.ft.com/cms/s/0/160244d6-eee1-11dc-97ec-0000779fd2ac.html

March 11, 2008:

• The Fed offers primary dealers up to $200 billion in treasury securities for 28 days and accepts AAA-rated private mortgage backed securities as collateral.

• The move exposes the Fed to possible default and credit risk on the MBS securities that will ultimately end up being paid by the taxpayers.

• The plan is to boost liquidity in the troubled MBS market.

• The loans will be implemented by a new Term Securities Lending Facility that will be available to investment banks.

  http://www.ft.com/cms/s/0/62008f04-efd7-11dc-8a17-0000779fd2ac.html

  http://www.ft.com/cms/s/0/ffbfafc8-efd6-11dc-8a17-0000779fd2ac.html

March 12, 2008:

• Bear Stearns CEO, Alan Schwartz, appears on an interview broadcast by CNBC.

• Mr. Schwartz assures investors that there is no reason to worry and Bear Stearns has an adequate liquidity cushion. He stresses there has been no change in Bear Stearn’s liquidity position.

• He claims the stock variability in the last few days has been caused by speculation on rumors that are not true.

  http://www.cnbc.com/id/23590249/

• In his first budget speech Chancellor Alistair Darling reveals plans to get the mortgage market back on track in the UK.

• These plans include focusing on long term mortgages (up to 25 years) to create more stability and grading mortgages according to risk with the safest mortgages being labeled the “gold standard.”:

• Mr. Darling said the aim of these changes is to increase home building in the UK.

  http://www.forbes.com/markets/feeds/afx/2008/03/12/afx4763667.html

March 13, 2008:

• The Working Group on Financial Markets (WGFM) released a statement with recommendations to President Bush on how to improve both the US economy along with the global economy.

• The objectives of the recommendations were to: 1) improve transparency and disclosure, 2) better risk awareness and management, and 3) stronger oversight to help mitigate systematic risk, restore investor confidence, and facilitate economic growth.

• The WGFM made over thirty specific recommendations which addressed: 1) mortgage origination, 2) improving investor contributions to market discipline, 3) reforming credit rating agencies, 4) strengthen global financial institutions’ risk management practices, 5) enhance prudential regulatory policies, and 6) enhance the OTC derivative market infrastructure.

  http://www.ustreas.gov/press/releases/hp871.htm

  http://www.ustreas.gov/press/releases/reports/pwgpolicystatemktturmoil_03122008.pdf

• Bear Stearns reports that liquid assets have dropped to $2 billion caused largely by loss of investor confidence in the swirling rumors of illiquidity.

• This reflects a loss of $15 billion in cash and cash equivalents in two days (as reported by the SEC on March 11, 2008).

  http://online.wsj.com/article/SB120580201721743861.html?mod=hpp_us_inside_today

• A $22 billion mortgage-backed hedge fund run by Carlyle Capital Corporation collapses with the remaining assets to be taken by banks for repayment of debts.

• The fund was slightly leveraged with $31 in debt per every $1 in equity.

• Co-founder of the Carlyle Group, David Rubenstein, pledged to get investors their money back.

  http://www.ft.com/cms/s/0/66b143c4-f0cf-11dc-a91a-0000779fd2ac.html

  http://news.bbc.co.uk/2/hi/business/7295778.stm

March 14, 2008:

• Bear Stearns sets up an emergency funding agreement with JP Morgan Chase (JPMC) to access liquidity if needed.

• The Federal Reserve Bank of N.Y. openly supported this agreement and provided JPMC with a non-recourse discount window.

• Talks about permanent financing were discussed between Bear Stearns and JPMC.

  http://www.ft.com/cms/s/0/2814f4d0-f1fb-11dc-9b45-0000779fd2ac.html

  http://www.ft.com/cms/s/0/43697fa6-f1cb-11dc-9b45-0000779fd2ac.html

• Treasury Secretary, Henry Paulson, gives policy recommendations to avoid a repeat of the credit crisis.

• The six specific recommendations are: 1) tougher disclosure requirements for banks and Wall Street firms, 2) introduction of a nationwide licensing system for mortgage brokers, 3) new rules for credit rating agencies, 4) strengthening state and federal oversight of mortgage originators and brokers, 5) revisiting Basel II capital requirements to ensure banks are able to manage liquidity and hold enough capital to cover the risks, and 6) financial institutions need to raise more capital and lower dividends to shore up their balance sheets.

  http://www.ft.com/cms/s/0/5741144c-f169-11dc-a91a-0000779fd2ac.html

• Barney Frank, chairman of the House of Representatives Financial Services Committee, proposes new legislation that will allow the Federal Housing Administration to provide $300 billion to help troubled borrowers refinance their mortgages to avoid foreclosure.

  http://www.ft.com/cms/s/0/5741144c-f169-11dc-a91a-0000779fd2ac.html

March 16, 2008:

• JPMC announces they will acquire Bear Stearns for $2 per share.

• The Federal Reserve Bank agreed to fund up to $30 billion of Bear’s long-term assets to alleviate the need for a fire sale.

• The share price of Bear Stearns was traded at $30 on March 14, 2008.

  http://www.ft.com/cms/s/0/e2206ed2-f380-11dc-b6bc-0000779fd2ac.html

March 17, 2008:

• An article in Time points out that the Credit Default Swaps (CDS) market could become unstable after the Bear Stearns bailout.

• A CDS is like an insurance contract where a company promises to cover certain securities in the event of a default.

• In mid-2007, the CDS market was at $45 trillion, more than twice the size of the US stock market.

• Commercial banks are the most active in the CDS market with the top 25 banks holding more than $13 trillion.

  http://www.time.com/time/business/article/0,8599,1723152,00.html

• UBS reduces its balance sheet by $520 billion after adjusting the Bear Stearns sale price.

• This is a 20% reduction over the amount at the end of 2007.

  http://articles.moneycentral.msn.com/Investing/Extra/BanksBraceForGlobalFinancialCrisis.aspx

March 18, 2008:

• The Bear Stearn’s collapse highlights the SEC’s inability to react to the crisis.

• The SEC was the main regulator that was in charge of the oversight of Bear Sterns but did not have the authority to inject the much needed cash to stem the crisis.

  http://online.wsj.com/article/SB120580201721743861.html?mod=hpp_us_inside_today

• Lehman Brothers and Goldman Sachs announce profits for the first quarter were better than analysts expected but, because of the credit crunch, half of what they were last year.

  http://news.bbc.co.uk/2/hi/business/7302622.stm

March 24, 2008:

• JPMC raises its price on Bear Stearns to $10 per share after the original merger at $2 per share fell through because of legal errors and opposition by Bear shareholders.

  http://www.ft.com/cms/s/0/35054692-f9a6-11dc-9b7c-000077b07658.html

March 26, 2008:

• The Bank of China (BoC) backs increased growth in securitization holdings despite a $1.3 billion write down because of US subprime mortgage losses.

• The BoC had the largest exposure to US subprime mortgages out of any Asian banks.

• The BoC’s executive bank president, Wang Yongli, stressed that there is a strong demand for asset-backed securities but they needed better transparency, infrastructure, and regulation to be as effective as they could be.

  http://www.ft.com/cms/s/0/3005263a-fad7-11dc-aa46-000077b07658.html

March 27, 2008:

• Moody’s proposes measures to help ensure mortgage lenders provide more transparency on borrower information.

• If the lenders do not meet the transparency requirements, Moody’s said it would hold back the best rating or decline to rate the instrument altogether.

• The new requirements would require issuers of mortgage-linked securities to conduct more thorough checks on underlying loans such as property value, borrower income, employment, and occupancy.

  http://www.ft.com/cms/s/0/b10d4894-fb9e-11dc-8c3e-000077b07658.html

• The Financial Services Authority, the UK watchdog, releases an internal report showing many regulation failures in their oversight of Northern Rock, the failed UK bank that had to be nationalized because of lack of liquidity.

• The main errors highlighted in the report were: 1) extraordinarily high turnover of FSA staff directly supervising Northern Rock, 2) inadequate numbers of staff assigned to Northern Rock, and 3) very limited direct contact with Rock executives.

• Since January 2005, Northern Rock only had eight meetings with the FSA while its peers averaged around seventy-four.

• In response, the FSA has committed to hiring more staff and specialists to oversee the complex financial models that banks use in assessing risk.

  http://www.ft.com/cms/s/0/605ff6ac-fb9f-11dc-8c3e-000077b07658.html

March 31, 2008:

• Secretary of the Treasury, Henry Paulson, announces Blueprint on Regulatory Reform.

• The Blueprint contained objectives of creating a regulatory model that would have three regulators: 1) one focused solely on market stability across the entire financial sector, 2) one focused on safety and soundness of the institutions supported by a federal guarantee, and 3) one focused on protecting consumers and investors.

• Along with the long term model, Mr. Paulson also announced near term recommendations which included an executive order clarifying the role of the President’s Working Group on Financial Markets and state-level regulation of the mortgage origination regulation supplemented by a federal commission called the Mortgage Origination Commission.

• Paulson also gave four immediate term recommendations which included: 1) better payment and settlement systems oversight, 2) merging the SEC and CFTC into one regulatory structure, 3) allowing an optional federal charter for insurance, and 4) revocation of the Federal Thrift Charter.

  http://www.ustreas.gov/press/releases/hp897.htm

• Gordon Brown, British Prime Minister, and George W. Bush announce plans for cooperation plans with the establishment of a bank watchdog.

• The UK-US working group will be composed of senior treasury and regulatory figures from London and Washington.

• The goal is to establish a common approach on how to respond to the credit crisis before the spring meetings of the G7, IMF, and Worldbank.

• The group will 1) examine the role of credit rating agencies in evaluating risk, 2) look into improving transparency in the valuation of financial products, and 3) improve day-to-day cooperation between US and UK regulators.

  http://www.ft.com/cms/s/0/51c5a268-feba-11dc-9e04-000077b07658.html

• Northern Rock, a month after being nationalized by the British government, announces plans to repay £23 billion in loans owed to the Bank of England.

• The plans include cutting 1/3 of its staff, halving the balance sheet, and shedding 60% of its mortgage holders.

  http://www.ft.com/cms/s/0/583668e6-ff0d-11dc-b556-000077b07658,dwp_uuid=74d73d92-650f-11dc-bf89-0000779fd2ac.html

April 1, 2008:

• UBS announces it will write down $19 billion in the first quarter on its US holdings.

• Marcel Ospel, Chairman of the Board, says he will not seek reelection under pressure to step down because of failure to identify exposure to the credit crisis.

• UBS shares have fallen 83% in the previous year.

• This is following $18 billion in write downs during 2007.

• UBS announces a rights offering of $13.1 billion to help offset the write downs

  http://www.ft.com/cms/s/0/38198c72-ffae-11dc-825a-000077b07658,dwp_uuid=1b36efb2-ffc9-11dc-825a-000077b07658.html

• Deutsche Bank announces it will write down $3.9 billion in the 1^st quarter.

• The write downs were linked the German bank’s leveraged loan portfolio which included exposure to commercial real estate, half of which was in the US.

• Chief executive, Josef Ackerman, said the write downs in the 1^st  quarter totaled more than all of 2007 when the credit crisis started.

  http://www.ft.com/cms/s/0/db1cb9ae-ffc1-11dc-825a-000077b07658.html

April 2, 2008:

• Charlie McCreevy, the internal markets commissioner in the EU, pleaded for various European institutions to reach an agreement on changes to Basel II capital requirements.

• Proposed changes include rules to limit the risk stemming from large bank exposures, harmonization of definitions of hybrid capital, capital requirements for default risks in banks’ trading books, and technical changes to the securitization framework.

• McCreevy also backed changes to the Lamfalussy process which would give clearer responsibility to “level three” committees.

  http://www.ft.com/cms/s/0/7c2bf464-005c-11dd-825a-000077b07658.html

• A confidential option paper is leaked from the Financial Stability Forum made up of central bank and finance ministers from around the world:

• While yet to agree on analysis, the paper encourages delegates to have banks improve disclosure and replenish capital.

• The paper addresses improvements in banking regulation by providing suggestions: 1) greater transparency over who owns the asset-backed securities and how they are valued, 2) disclosure by the largest banks to a common template including common methodologies for on and off balance sheet exposure, 3) allowing changes to accounting rules to provide breathing space for the banks and purchases of assets by authorities to put a floor on prices, and 4) forcing banks that have a significant amount of bad assets on their books to raise capital.

  http://www.ft.com/cms/s/0/9c02c24a-005c-11dd-825a-000077b07658.html

  http://www.ft.com/cms/s/0/9f0777ec-ff85-11dc-b556-000077b07658.html

• The Bank for International Settlements releases a report stating that the complex debt securities used to repackage asset-backed bonds will likely disappear as a result of the credit crisis.

• The report said that issuances of collateralized debt obligations of asset-backed securities had been running at $70-$100 billion a quarter from the final quarter of 2005 until the 2^nd quarter of 2007.

• Almost $150 billion of CDOs have defaulted and over 2,500 ratings downgrades have been issued.

  http://www.ft.com/cms/s/0/b8a75cd8-0059-11dd-825a-000077b07658.html

• A report released by Morgan Stanley says that investment banking is in the midst of the worse crisis in 30 years.

• The report warns that investment banking revenues will fall 20% this year excluding the expected $75 billion in further write downs.

  http://www.ft.com/cms/s/0/ca22152e-005a-11dd-825a-000077b07658.html

April 3, 2008:

• The credit crisis forces some hedge funds to restrict withdrawals.

• The combination of banks unexpectedly pulling credit lines and demanding more security against loans combined with investors abandoning them has lead to liquidity problems and the hedge funds are incurring heavy losses by holding fire sales to meet withdrawals.

• Some of the troubled funds have responded by limiting investor withdrawals.

  http://www.ft.com/cms/s/0/ee9153a0-01bf-11dd-a323-000077b07658.html

• Moneyfacts, a UK financial information group, releases data showing that the number of mortgages available in the UK has dropped 8% in just the last week and 40% in the last month.

• Lenders First Direct and Halifax have both pulled several mortgage products recently.

  http://www.ft.com/cms/s/0/a0121bd6-0117-11dd-a0c5-000077b07658.html

April 6, 2008:

• No deposit mortgages disappear from the UK housing market as Abbey, the last lender to offer 100% loans, pulls the product.

• More than 20 lenders in the UK offered no deposit mortgages at the beginning of March.

• This will make it much more difficult for first-time homebuyers to obtain financing.

• Abbey stated the reason they withdrew the product was market conditions surrounding the default rate on subprime mortgages.

  http://www.ft.com/cms/s/0/723fe682-0506-11dd-a2f0-000077b07658.html

April 7, 2008:

• Chief executive of KfW, Ingrid Matthäus-Maier, resigns because of health reasons.

• KfW bailed out troubled German bank IKB in August 2007 and the original bailout of €1 billion had turned into €7.2 billion as new losses from IKB’s exposure to the US subprime market were realized.

• Mrs. Matthäus-Maier said that she realized she did not have the full health required to continue dealing with the IKB turmoil.

  http://www.ft.com/cms/s/0/201a6478-04c9-11dd-a2f0-000077b07658.html

• The Concise Oxford English Dictionary (OED) announces that subprime and credit crunch will be among the new words included in the next edition.

• The OED defines credit crunch as “a severe shortage of money or credit.”:

• The OED defines subprime as “a credit or loan arrangement for borrowers with a poor credit history, typically having unfavourable conditions such as high interest rates.”

  http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/04/bcnoed104.xml

April 8, 2008:

• The International Monetary Fund releases its Global Stability Report.

• The new estimate on credit crunch losses is projected upwards to $945 billion.

• This $945 billion estimate assumes that the worse of the credit crunch is over and this estimate could go much higher if new developments like the Bear Stearns bailout materialize.

  http://www.ft.com/cms/s/0/61c7e85a-0596-11dd-a9e0-0000779fd2ac.html

• The Financial Times reports that Citigroup is in negotiations with private equity firms to sell $12 billion in loans to shrink their balance sheet and exposure to the subprime crisis.

• People familiar with the deal said that three private equity firms were involved:

• Apollo Management, the Blackstone Group, and TPG.

• Estimates say that the private equity firms will buy the distressed debt at 90 cents on the dollar.

  http://www.ft.com/cms/s/0/314ec50a-05a4-11dd-a9e0-0000779fd2ac.html

April 9, 2008:

• Washington Mutual, the largest savings and loans bank in the US, announces it will raise $7 billion from outside investors to cover losses arising from its subprime mortgages.

• The investors are led by a private equity group, TPG, which will provide $2 billion.

• The investment will come in the form of an additional 176 million of new shares of stock.

  http://www.ft.com/cms/s/0/131908be-0579-11dd-a9e0-0000779fd2ac.html

April 11, 2008:

• The Council for Mortgage Lenders (CML) warns that mortgage lending in the UK could go down by 50% if fresh liquidity is not injected into the market.

• Steven Crawshaw, CML’s chairman, stated that without new funding sources, lenders would continue to decrease demand by tightening criteria, increasing prices, or just withdrawing more products from the market.

  http://www.ft.com/cms/s/0/b6365efa-080f-11dd-a922-0000779fd2ac.html

April 14, 2008:

• Wachovia announces plans to raise $7 billion in capital after reporting a first quarter loss of $393 million.

• The $7 billion will come from an offering of common stock and convertible preferred shares.

• In addition to the offering, in an attempt to save $4 billion over the next four years, Wachovia also announced it would slash its dividend by 41% and cut 500 jobs in its investment bank.

  http://www.ft.com/cms/s/0/a1e5c66e-0a46-11dd-b5b1-0000779fd2ac.html

April 17, 2008:

• Merrill Lynch reveals first quarter losses of $1.96 billion compared to a profit of $2.1 billion last year.

• The bank said it plans to cut 4,000 jobs worldwide.

• The results included $4.5 billion in write downs in the first quarter mostly from subprime mortgages to add to its $24 billion in write downs from last year.

  http://news.bbc.co.uk/2/hi/business/7352402.stm

April 18, 2008:

• Citigroup reports a $5.11 billion loss in the first quarter of 2008 off of a $12 billion write down on subprime mortgage loans and other risky assets.

• The largest US bank also announced it would cut 9,000 more jobs in addition to the 4,200 lay-offs announced in January.

  http://news.bbc.co.uk/2/hi/business/7354266.stm

April 22, 2008:

• Bank of England offers to acquire UK banks’ mortgage-backed securities for up to three years in return for Treasury bills.

• Facility to be open for 6 months.

• Central bank believes this will remove fear that solvent banks won’t be able to settle their debts.  This should unblock interbank lending.

  http://www.ft.com/cms/s/0/7a259586-1005-11dd-8871-0000779fd2ac.html

• The Royal Bank of Scotland announces a deeply discounted £12 billion rights issue in attempt to raise capital to cover £5.9 billion in write downs on its April-June investments.

• The rights issue is the largest in UK corporate history and the write downs are the largest yet for a British bank.

  http://www.ft.com/cms/s/0/18290fbc-1036-11dd-b8d6-0000779fd2ac.html

April 23, 2008:

• US bank failures could rise above historic norms, says OCC.

• Banks are increasing their loan loss reserves.

• OCC especially worried about smaller banks lending to commercial real estate developers.

• Write downs across financial system from subprime related assets exceed $200 billion and are set to rise.

• So far the 20 largest banks have raised in excess of $80 billion in capital since October.

  http://www.ft.com/cms/s/0/a547eb54-10cf-11dd-b8d6-0000779fd2ac.html

• SEC draws up rules to govern credit rating agencies, who some say contributed to the credit crisis.

  http://www.ft.com/cms/s/0/f2986582-10cf-11dd-b8d6-0000779fd2ac.html

• Big US financial groups have raised more than $28 billion in capital markets in recent days.

• Wall Street bankers say the worst of the crisis is over.

• Regulators are pleased that investment banks are raising capital and pushing commercial banks to do the same.

  http://www.ft.com/cms/s/0/1e873040-10d2-11dd-b8d6-0000779fd2ac.html

April 24, 2008:

• Deutsche Bank prepares another multibillion dollar sale of leveraged loans.

• Banks are trying to sell a backlog of about $100 billion in leveraged loans they’re holding.

• DB sale would be the third big sale in April.  Citigroup led way with $12 billion sale, :

• The DB sale followed with $5 billion of US leveraged loans.

  http://www.ft.com/cms/s/0/4c537af2-1199-11dd-a93b-0000779fd2ac.html

• The UK’s largest homebuilder, Persimmon, announces sales in the past three weeks are down more than 33% from last year.

• Persimmon also said that it was abandoning plans to develop new sites until the housing market improved.

• Chief Executive of Persimmon, Mike Farley, said one of the causes is the lack of mortgage funds available to build new houses.

  http://www.ft.com/cms/s/0/0e6833a8-1235-11dd-9b49-0000779fd2ac.html

April 30, 2008:

• Banks improve balance sheets by selling off leveraged loans.  US overhang of highly leveraged granted for buy-out deals at the height of the credit bubble in first half of 2007 has been cut from almost $250 billion to about 90 billion.  European banks are not selling loans as aggressively.

• Banks are starting to rid themselves of mortgage-linked securities (e.g., UBS).

• Banks are finding it hard to relaunch the securitization business.

  http://www.ft.com/cms/s/0/e5c5dff2-1583-11dd-996c-0000779fd2ac.html

May 1, 2008:

• Citigroup raises $4.5 billion in equity offering.  The Article lists capital raisings.

  http://www.ft.com/cms/s/0/77157910-1717-11dd-bbfc-0000779fd2ac.html

May 6, 2008:

• Swiss Reinsurance Co., the world’s biggest reinsurer, announces write downs of $782 million when restructuring credit default swaps.

• This brings the total write downs for Swiss to total over 2 billion francs over the last six months.

  http://www.bloomberg.com/apps/news?pid=20601085&sid=amxJWcUVMoFo&refer=europe

• UBS unloads $15 billion of subprime mortgage debt to the US asset manager, BlackRock.

• The debt is being sold at a 25% discount from its face value of $20 billion.

• The bank retained a minority interest in the debt allowing it to participate in any potential upside.

• BlackRock, which is currently 49.8% owned by Merrill Lynch, manages about $1,360 billion in assets including $29 billion from the Bear Stearns bailout. :

• This deal is significant because it shows that private investors are willing to place bets that the cost of the subprime debt is lower than the gains they will receive once the market turns around.

  http://www.ft.com/cms/s/0/45c01eb0-1afa-11dd-aa67-0000779fd2ac.html

May 8, 2008:

• US Treasury chief, Henry Paulson, believes we are closer to the end of the credit crisis than the beginning.

• Mr. Paulson says that there is still a ways to go in the process of deleveraging the financial system but believes the credit crisis is entering its later stages.

• One of the better signs is the capital that has recently been infused into the banking system through private equity and the purchases of leveraged loans from the balance sheet of the banks.

  http://www.ft.com/cms/s/0/05c68978-1c96-11dd-8bfc-000077b07658.html

• SEC chairman, Christopher Cox, warns Wall Street banks to be more open and transparent with the market.

• Mr. Cox said that US regulators will soon require banks to make public more details about capital and liquidity positions, likely starting after the second quarter.

• Mr. Cox also made a plea to Congress to pass legislation to give regulators an explicit mandate to supervise investment banks.

  http://www.ft.com/cms/s/0/a8b0e0c0-1c96-11dd-8bfc-000077b07658.html

May 9, 2008:

• AIG reports 1^st quarter earnings results as a net loss of $7.81 billion.

• One of the principle factors of this loss was a 1^st quarter write down of $9.11 billion on the revaluation of their credit default swap portfolio.

• AIG also announced they will raise $12.5 billion in capital through a stock offering to help alleviate any liquidity concerns.

• Two major rating agencies downgraded the AIG Holding Company to AA- after hearing the news of the losses but left the insurance company subsidiaries at AA+.

  http://seekingalpha.com/article/76590-american-international-group-inc-q1-2008-earnings-call-transcript

May 11, 2008:

• Eighty private equity firms have started raising money in the past ten months to buy bad mortgage debt at deeply discounted rates.

• Some of these groups have been active in the market such as Apollo, Blackstone, and TPG. Others raising money include Marathon Asset Management, GSC Group, Pimco, and Fortress Investment Group.

• These investors are betting that the valuation techniques are valuing the debt below what it is worth because of the complexity associated with it.

  http://www.ft.com/cms/s/0/636228e6-1f6e-11dd-9216-000077b07658.html

May 12, 2008:

• HSBC, Europe’s largest bank, reports that it has written off $3.2 billion in the first three months of 2008 from its exposure to the US subprime market.

• This put HSBC fourth among total write downs behind Citibank, UBS, and Merrill Lynch.

  http://news.bbc.co.uk/2/hi/business/7395425.stm

May 13, 2008:

• The Financial Times releases a write downs table showing the worldwide bank write off totaling almost $450 billion since January 2007.

• The table also breaks down the total for each of the world’s major banks.

  http://www.ft.com/cms/s/0/e75aedae-20fe-11dd-a0e6-000077b07658,dwp_uuid=ffa475a0-f3ff-11dc-aaad-0000779fd2ac.html

• MBIA, the world’s largest bond insurer, announces a $2.4 billion loss as a result of write downs on derivative contracts (credit default swaps) caused by the deteriorating credit market.

• The loss was more than twice analysts estimates.

• MBIA’s stock has lost more than 80% of its value in the past year.

  http://www.ft.com/cms/s/0/01fd4dc8-2087-11dd-80b4-000077b07658.html

• A survey by NTC Economics showed confidence among the European Sector has tumbled to the lowest levels since the survey began in 2006.

• The main reason for the pessimism given by the survey participants was the increase in the cost of credit caused by the credit crunch which would make carrying on business more expensive.

  http://www.ft.com/cms/s/0/8e6ef13a-210e-11dd-a0e6-000077b07658.html

May 14, 2008:

• The Office of Federal Housing Enterprise Oversight announced it would lower surcharges on Freddie Mac’s regulatory capital requirements after Freddie’s announcement that it will raise $5.5 billion in capital.

• This was the governments first offer of help to Freddy Mac and Fannie Mae which as the Senate Banking Committee put it were “thinly capitalized, highly leveraged, and pose a systemic risk to taxpayers.”:

• Freddy Macs shares rose 9% with the announcement.

  http://www.ft.com/cms/s/0/adb1dbdc-21ab-11dd-a50a-000077b07658.html

  http://www.ft.com/cms/s/0/8fc077fe-2215-11dd-a50a-000077b07658.html

• A report by Fitch Ratings says that banks have written off 80% of their subprime losses.

• Fitch estimates that total losses on subprime mortgages and CDOs could reach $400 billion.

  http://www.ft.com/cms/s/0/783b044a-21e4-11dd-a50a-000077b07658.html

May 15, 2008:

• Barclays announces a £1 billion credit write down.
• The UK bank also confirmed profits in the first quarter would be below last year’s but did not disclose the numbers.

  http://news.bbc.co.uk/2/hi/business/7402085.stm

May 16, 2008:

• The Federal Reserve Bank is planning on revisiting its hand-off monetary policy approach to asset bubbles after the housing market crash.

• The Fed has consistently argued that central banks have little power to stop asset bubbles from inflating and then bursting through monetary policy.

• Ben Bernanke, the current Fed chairman, believes that asset bubbles can be controlled much better through regulation than monetary policy.

• There are two criticisms of the Fed’s laissez faire approach to asset bubbles: 1) this approach results in a bias in monetary policy that will ultimately result in higher inflation, and 2) besides creating misleading price signals, bubbles also can cause extreme macroeconomic volatility and therefore central banks should do anything in their power to prevent them.

• In defense of the wait and see approach are two problems set out by Alan Greenspan and Mr. Bernanke in 2002: 1) bubbles in practice are almost impossible to identify until they burst, and 2) even if central banks were capable of identifying bubbles, monetary policy is too blunt to prevent the bubble from inflating without negative effects on the whole economy.

  http://www.ft.com/cms/s/0/5c7129e6-22a8-11dd-93a9-000077b07658.html

• One of the Fed’s governors, Frederic Miskin, believes the Fed should use its regulatory powers aggressively and proactively to prevent asset bubbles in the future.

• Ben Bernanke is currently re-evaluating all the evidence of the last two major asset bubbles to see if there is a better way the Fed could have reacted to prevent the devastation that occurred after the bubbles burst.

  http://www.ft.com/cms/s/0/f6f328d8-22e0-11dd-93a9-000077b07658.html

• The University of Michigan’s consumer confidence index plummets to its lowest level in twenty-eight years.

• The drop is blamed on higher food and energy costs combined with the loss of confidence in the financial markets.

  http://www.ft.com/cms/s/0/ac1d4cf0-2347-11dd-b214-000077b07658.html

May 21, 2008:

• A Financial Times investigation uncovered that Moody’s awarded an incorrect AAA rating to billions of dollars of complex debt products.

• This was caused by a computer coding error and top executives knew about the problem in early 2007 but it was not fixed (ratings downgraded) until January 2008. :

• Moody’s has said that they are investigating the matter.

  http://www.ft.com/cms/s/0/f5ac406a-26d0-11dd-9c95-000077b07658.html

• The glitch was significant because most high powered investors require 2 AAA ratings before investing and Moody’s provided the second rating after Standard and Poors. :

• The numbers showed that the CPDOs should have never received a AAA rating and the corrected rating could drop them up to four rating notches.

  http://www.ft.com/cms/s/0/245bf02e-264d-11dd-9c95-000077b07658.html

• Moody’s Investors Service cuts a French bond insurer, CIFG, from A1 to Ba2 amid worries of its increased write downs on CDOs backed by risky mortgages.

• This downgrade could possibly put CIFG in violation of its regulatory capital requirements potentially leading to insolvency.

  http://www.ft.com/cms/s/0/69defbd6-277f-11dd-b7cb-000077b07658.html

May 22, 2008:

• Moody’s announces investigation and declares that up to $4 billion of complex debt products were incorrectly rated AAA because of faulty computer models.

• New York Senator, Charles Schumer, calls the SEC to investigate the matter:

• Moody’s stock price falls 16% since the previous day’s announcement.

  http://www.ft.com/cms/s/0/721b66de-279a-11dd-b7cb-000077b07658.html

• The Institute of International Finance (an alliance of 300-plus companies including banks) propose accounting rules that allow banks who have not written off their bad debt to cushion the blow by using historical rather than market prices.

• The Proposal also allows banks to sell assets after 2 years instead of holding until maturity.

• Bank of America analysts say that financial companies have been hit with over $300 billion in write downs and had to raise more than $260 billion from outside investors.

• The Financial Accounting Standards Board and the International Accounting Standards Board did not support the proposal and said it would be dangerous to change the rules at a time when transparency was imperative.

  http://www.ft.com/cms/s/0/f03237ba-2799-11dd-b7cb-000077b07658.html

• The Financial Services Authority, the UK regulator, said that it will factor in remuneration structures when considering the overall risk posed by a financial institution.

• The FSA’s stance was that banker pay structures cause more risk to the financial institution.

• The Basel II Accord contains mechanisms that enable regulators to impose additional capital charges for incentive structures that promote risky behavior.

• The new proposals for risk-adjusted performance targets are supported by the Institute of International Finance.

• Individual banks are hesitant to act for fear of losing top executives to the competition.

  http://www.ft.com/cms/s/0/5905b5cc-279b-11dd-b7cb-000077b07658.html

• UBS announces deeply discounted rights issue to stockholders to raise $15.5 billion to boost capital ratios.

• This capital is needed to cover the $19 billion in write downs UBS incurred in the first quarter of 2008.

  http://www.ft.com/cms/s/0/2daf964e-281e-11dd-8f1e-000077b07658.html

May 25, 2008:

• The International Accounting Standards Board sends out invitations to bankers and regulators to form a new working group to look into the problems of valuing securities in an illiquid market.

• The current model of “fair value” accounting has caused banks to write off more than $300 billion of bad debt.

• Critics of the “fair value” method believe that the debt will be written back up when the markets rebound and this swing is contributing to the lack of confidence in the financial markets.

• The first series of meetings is scheduled to be held in London on June 13 to discuss the scope of the project.

  http://www.ft.com/cms/s/0/4fbb41e6-2a82-11dd-b40b-000077b07658.html

May 29, 2008:

• The acquisition of Bear Stearns is completed by JPMC as shareholders voted to approve the acquisition.

• The final price was $10 per share paid by JPMC for Bear Stearns stock.

  http://www.ft.com/cms/s/0/e2206ed2-f380-11dc-b6bc-0000779fd2ac.html

June 4, 2008:

• Moody’s announces it will examine MBIA and Ambac, the two largest bond insurers, for a possible downgrade from their AAA rating.

• Moody’s said the ratings were likely to drop to AA.

  http://www.ft.com/cms/s/0/cf07a322-3270-11dd-9b87-0000779fd2ac,dwp_uuid=b6abe56e-d0c2-11dc-953a-0000779fd2ac.html

June 5, 2008:

• NY Attorney General, Andrew Cuomo announces rating agency reform agreements with S & P, Moody’s, and Fitch.

• The agreement contains six areas of reform: 1) Fee Reforms—establishing a fee-for-service structure instead of getting fees only if they are selected to rate the residential mortgage-backed security (RMBS), 2) Disclosure Reforms—disclose information to investors if an investment bank submitted material for rating but then decided not to go with a certain company’s rating,                 3) Loan Originator Review—rating agencies will review individual mortgage lenders as well as their loan origination process, 4) Due Diligence Reforms—agencies will create due diligence criteria and list this on their website, 5) Credit Agency Independence—agencies will review RMBS policies yearly to ensure independence, and 6) Representations and Warranties—agencies will require warranties from investment bank for loans underlying RMBS.

  http://www.oag.state.ny.us/press/2008/june/june5a_08.html

June 6, 2008:

• S&P cuts the AAA rating of the two largest bond insurers, MBIA and Ambac.

• The reason stated is that further deterioration of the US mortgage markets and the collateralized debt obligations insured by the monolines will lead to strains on capital adequacy requirements.

• The monolines were downgraded two notches from AAA to AA.

  http://www.ft.com/cms/s/0/d36c447c-33b5-11dd-869b-0000779fd2ac,dwp_uuid=b6abe56e-d0c2-11dc-953a-0000779fd2ac.html

• The Wall Street Journal reports that National City has entered into a memorandum of understanding with the Office of the Comptroller of Currency putting the bank on probation.

• The agreement is entered into with regulators and details are not publicly disclosed giving the bank an opportunity to work out financial problems without triggering concern among depositors.

  http://www.reuters.com/article/businessNews/idUSBNG8846820080606

June 10, 2008:

• Banks could face further write downs of $10 billion because of the ratings downgrade of MBIA and Ambac.

• Citigroup, Merrill Lynch, and UBS had the most exposure to the monolines.

  http://www.ft.com/cms/s/0/8051c0c4-3715-11dd-bc1c-0000779fd2ac,dwp_uuid=b6abe56e-d0c2-11dc-953a-0000779fd2ac.html

June 13, 2008:

• Following behind Moody’s last month, S&P announces errors in rating models.

• The credit rating agency said that an error was found in the computer models that rated the complex debt products but the glitch did not affect the ratings of the debt.

• The disclosure followed an inquiry by the SEC.

  http://www.ft.com/cms/s/0/3577c7e0-396f-11dd-90d7-0000779fd2ac.html

June 16, 2008:

• The SEC announces plans to overhaul the credit rating agency regulation to increase competition and remove the conflict of interests between the agencies and the investment banks.

• The plans include not allowing credit rating agencies to rate securities that they help design.

• The plans would also include increasing the disclosure of the methods used by credit rating agencies in which 9 firms now dominate the market.

• The disclosure requirements will also require the agencies to flag complex securities that could be more risky to investors than corporate bonds.

• The SEC estimates the cost could run more than $130 million a year for the agencies to comply with the disclosure requirements.

  http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080616/REG/641302622

• Lehman Brothers reports a $2.8 billion second quarter loss marking the first loss in the company’s 14 year history under public ownership.

• The bank said it had reduced its residential mortgage holdings by 31% since the first quarter to a total of $14.3 billion.

• The loss led to the removal of Lehman’s president, Joe Gregory, and the CFO, Erin Callan.

  http://www.ft.com/cms/s/0/50a84d4c-3b99-11dd-9cb2-0000779fd2ac.html

June 19, 2008:

• Former Bear Stearns hedge fund managers were arrested, bringing about the first criminal charges in the credit crisis.

• Ralph Ciofi and Matthew Tannin were the managers of two hedge funds that bet on subprime mortgages and collapsed in July 2007.

• The charges included securities fraud and insider trading.

  http://www.ft.com/cms/s/0/6d49fcf0-3da3-11dd-bbb5-0000779fd2ac.html

  http://www.ft.com/cms/s/0/99d923c6-3e62-11dd-b16d-0000779fd2ac.html

• Along with the Bear Stearns hedge fund managers, the FBI announces the crackdown on suspect mortgage practices yielded 406 defendants being charged in 144 cases.

• The FBI coined the sting as “Operation Malicious Mortgage” and targeted anyone involved in fraudulent mortgage loans that involved roughly $1 billion in losses.

  http://www.ft.com/cms/s/0/182b2ede-3e42-11dd-b16d-0000779fd2ac.html

June 22, 2008:

• Bond insurers such as Ambac and MBIA are talking to banks about wiping out $125 billion of insurance on the complex financial instruments.

• The talks center around credit default swaps (CDS) insured by the bond insurers to guarantee collateralized debt obligations and complex debt securities backed by mortgages.

• The banks with the largest exposure such as Citibank, Merrill Lynch, and UBS have already taken write downs due to the lower credit ratings of the insurers.

  http://www.ft.com/cms/s/0/836c7afc-4083-11dd-bd48-0000779fd2ac,dwp_uuid=b6abe56e-d0c2-11dc-953a-0000779fd2ac.html

June 23, 2008:

• Dexia provides a $5 million credit line for its US bond insurance division.

• This is in response to a N.Y. hedge fund betting against the insurance division’s liquidity.

• The credit line will last for five years and is unsecured by collateral.

  http://www.ft.com/cms/s/0/6ce312b6-40ef-11dd-9661-0000779fd2ac,dwp_uuid=b6abe56e-d0c2-11dc-953a-0000779fd2ac.html

June 25, 2008:

• Barclays announces a £4.5 billion shares issue to boost its capital ratios which are some of the lowest in Europe.

• The Qatar Investment Authority, a sovereign wealth fund, and Hamad bin Jassim Bin Jaber Al Thani, the chairman of Qatar Holding will finance half of the offering.

  http://www.ft.com/cms/s/0/ccc2be62-4283-11dd-81d0-0000779fd2ac.html

• Countrywide shareholders vote to approve the attempted takeover by Bank of America.

• The US Federal Reserve had already approved the deal on June 6,^, 2008.

  http://www.ft.com/cms/s/0/180eee18-4306-11dd-81d0-0000779fd2ac.html

  http://news.xinhuanet.com/english/2008-06/06/content_8319617.htm

June 26, 2008:

• The SEC announces it will attempt to reduce its own reliance on credit ratings.

• The SEC is recommending that explicit references to credit ratings be dropped from their market rules in which the SEC found 44 references to credit ratings.

• SEC chairman, Christopher Cox, stated that some of the SEC regulations implicitly assume that securities with high credit ratings are liquid and have lower price volatility which has been proved wrong by the credit crisis.

  http://www.ft.com/cms/s/0/fd5658a0-4318-11dd-81d0-0000779fd2ac.html

* The entries in this timeline are drawn directly or indirectly from press reports cited in the timeline

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