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10 DAYS THAT SHOOK 2008 AND CHANGE THE WORLD

Remember 9/11 ?

Yes, all Americans will remember this fateful day….
on Tuesday September 11, 2001 United States was attacked !!

In the worst terrorist attacks on U.S. soil, 19 terrorists hijacked four American commercial jetliners on Sept. 11, 2001, flying two of them into the World Trade Center in New York City and one into the Pentagon in Washington, D.C. The fourth went down in a field in Shanksville, Pa.

The hijackers intentionally crashed two of the airlines into the Twin Towers of the World Trade Centre, and caused the total collapse of the two towers to Ground Zero in a dramatic inferno meltdown.

America was shocked ! All Americans responded to the atrocities with shock and panic. The whole world was shocked and could not believe that such destructive attack of terrorism could ever be launched against the United States on its home-ground ! Billions around the globe looked in disbelief , most of them were terrified & angered but some were amused…

After this 9/11 attack , America had changed. The whole world had changed..The whole world is now on the war path on terrorism. Security is the password in every nation and Terrorism is the passport against the       Al-Qaeda….

But seven years later another form of “terrorism” would again terrorize the whole global financial system - the Great Financial Crisis 2008 !

On Wall Street they call it 9/15 - a financial version of 9/11. It was the day Lehman Brothers collapsed on 15/9/2008 and turned Rich Dads to Poor Dads!

Now Remember 9/15 !

The immediate cause or trigger of this Financial Crisis was the bursting of the United States housing bubble now fatefully known as the sub-prime mortgage crisis, which probably started in late 2006

When the US investment bank, Lehman Brothers, went bankrupt last Sept. 15 , all hell broke loose. It set off a chain of events that brought the global financial system to the brink of collapse to Ground Zero . The global financial system went into cardiac arrest and triggered a recession around the world.

Since then after 24 months of mayhem and never-ending crises that shredded nerves, destroyed wealth and shook the business and financial sectors unlike anything since the Great Depression of the 1930s, many disturbed investors and central governments alike are still “astounded” that the US government did not step in to halt the collapse of Lehman Brothers, as they had done with Bear Stearns. How did the 10 days in 2008 shook the world and changed the global financial arena.

Below is recount of the 10 eventful days in 2008 that brought about the global financial meltdown, which we won’t forget but never want to remember…..

Jan 2, 2008 - Asian market meltdown

After the New Year holidays celebrations, Asian stock markets opened and were battered, with Hongkong’s Hang Seng Index suffering its biggest fall since the Sept 11, 2001 terror attacks. Similar carnage struck the region with the Singapore ST Index plunging 187.1 points, or 6 per cent, its worst one-day fall since October 1987. Intensifying fears of a US economic recession , the Dow Jones fell 256 points which led the US Federal Reserve slashed interest rates a day later, to try to stop the global rout. It worked, as Asia’s stock rallied sharply in reaction, with the Hang Seng Index soaring 10.7 per cent in its biggest one-day point gain ever. Nine days later on Jan. 11, Bank of America announced that it would purchase Countrywide Financial in an all-stock transaction worth approximately $4 billion.

The impacts on the financial institutions globally were fierce and swift. One of the first victim was Northern Rock, a medium-size British bank. On Feb 17, 2008 Northern Rock was taken into state ownership by the Treasury of the United Kingdom. Northern Rock’s problems proved to be an early indication of the troubles that would soon befall other banks and financial institutions with such devastating domino effect.

March 16, 2008 - Bear Stearns bailout

Wall Street and the rest of the world felt the year’s first major financial tremor when Bear Sterns, the fifth-largest investment bank , faced near-collapse. It survived - sort of - when the US Federal Reserve stepped in and provided term financing to facilitate JP Morgan Chase & Co.’s acquisition of Bear Stearns . In late May, Bear Stearns vanished into Wall Street history when it was sold to JP Morgan Chase at US$10 a share. A year earlier it was trading as high as US$170 a share.

The crisis also sparked fears and rumours that Lehman Brothers might also be in financial trouble sent stock markets down sharply. Both Bear Stearns and Lehman Brothers had invested heavily in the US sub-prime mortgage instruments and other mortgage-backed securities (MBS) , which have fallen sharply in value.

Two and a half months later, on Jun 5, 2008 , Bank of America announced its notice to acquire Countrywide Financial Corporation with the US Federal Reserves approval.

July 3, 2008 - Oil hits almost US$150

The price of black gold soared to a record US$147 a barrel that day, fueled by a larger-than-expected fall in US stockpiles and the threat of conflict with Iran. But fears of shrinking demand caused by a global recession have sent oil plunging to near US$30 earlier this month- its lowest level in five years. However, the Organisation of Petroleum Exporting Countries (OPEC) has promised sharp supply cuts to push oil back to US$75. Fears return to haunt the financial analysts.

Then on July 11, another bank was nationalized. IndyMac Bank, F.S.B. were transferred to a new incorporated national entity - the IndyMac Federal Bank, FSB.

Sept 7, 2008 - Fannie Mae, Freddie Mac rescued

US mortgage giants Fannie Mae and Freddie Mac having failed to get funding from private investors, were handed a lifeline by the US government , which committed up to US$200 billion to boost the much-needed capital. The failure of Fannie and Freddie was not an option, as they own or guarantee almost half of the country’s US$12 trillion home mortgage debt.

Asian financial institutions and central banks - especially in Japan and China - hold billions of dollars worth of debt securities issued by both institutions. So the bailout brought lots of confidence & cheers to the region, with investors propelling markets from Tokyo to Hongkong to their best showing in months.

As US Treasury Secretary Henry Paulson said then that both firms were “so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the glob”.

Sept 15, 2008 - Lehman Brothers goes under, Merrill Lynch sold

A financial inferno, was sparked when Lehman Brothers - a 158-year-old Wall Street stalwart and the fourth-largest US investment bank - was brought to its knees by the sub-prime mortgage crisis. Unable to repay its mountain of debts, Lehman Brothers filed for bankruptcy protection- making it the biggest such filing in history.

Hours later, the third-largest investment ban, Merrill Lynch, a venerable 94-year-old Wall institution, sought refuge in a US$50 billion takeover by Bank of America, shocking analyst worldwide. It’s shares were sold to Bank of America for US$29 a share in an all-stock deal. This financial inferno has thus engulfed the oldest financial institutions and brought along the worst financial meltdown the world has ever experienced since the Great Depression !

These events also created shock waves , creating a financial tsunami , around the world and sent stock markets into free fall as investors fled to the safety of government bonds and gold. Spot gold, on Sept.17, rose by nearly US$90 an ounce, a record one-day gain !

The Dow Jones industrial average lost 777.68 points, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks.

Sept 16, 2008 - AIG nearly collapses

Another institution meltdown in this financial inferno came when the troubled US insurer AIG American, heavily exposed to the property sector, came to the brink of bankruptcy after ratings agencies cut its debt ratings. But disaster was averted, when the US government intervened with a US$85 billion           rescue loan.

Stock markets plunge worldwide and Central banks rush to pump in enormous amount liquidity into the economy as a severe credit crunch          sets in.

JP Morgan Chase acquires the banking operations of Washington Mutual in a transaction facilitated by the Federal Deposit Insurance Corporation (FDIC).

Oct 26, 2008 - Bloody October

The Dow Jones tumbled 514.45 to close at 8519.21, its 7th biggest point drop in history, as investors believed that the global economy is heading into a deep recession.

Stock markets, especially those in Asia, were savaged in late October. The carnage was especially bad on Oct.27, when investors dumped regional stocks on fears that government action would not be enough to stave off a deep global recession.

According to financial information provider Standard & Poor’s Index Service , world equity markets registered their worst month in history, as investors lost an estimated US$5.79 trillion in that time.

Dec 1, 2008 - US officially in recession

Arguably the US is officially in recession and has been in recession since December 2007. The US joined other economies officially in recession, including Hongkong, Japan, New Zealand , Ireland, Italy, Germany , Singapore and Britain. Yes, the world is in recession, the worst of its kind in recent memories.

In the aftermath, the U.S. Treasury Department authorized loans of up to $13.4 billion for General Motors and $4.0 billion for Chrysler from the Troubled Asset Relief Program (TARP) .The US government just could not let these two auto giants to fail as they combine employed almost 3 million employees.

Dec 11, 2008 - Madoff scandal

Investors big and small were rocked when top Wall Street broker Bernard Madoff was arrested and charged with fraud in one of the biggest-ever Ponzi scheme. Big names caught in this “giant Ponzi scheme” scam included Britain’s Royal Bank of Scotland, HSBC Holdings and Man Group, France’s BNP Paribas, Spain’s Grupo Santander and Switzerland’s Union Bancaire Privee and Benbassat & Cie.

Many millionaires became paupers overnight ! Rich Dads became Poor Dads !

Dec 16,2008 - Fed cuts interest rate to near zero

The US Federal Reserve slashed its overnight loan rates from 1 per cent to a target range of zero to 0.25 per cent.

With no room to cut rates further, the spotlight has now shifted to stimulus packages, particularly the ambitious one drawn up by US President Barack Obama.

Economists expect the Fed to expand its purchases of assets to enlarge its balance sheet. This could include buying corporate debt of state municipal bonds to ease the credit squeeze in those markets.

In the month of December only, the US Treasury Department purchases a total of US$55.16 billion in preferred stock in 162 banks under the Capital Purchase Program. The US might not recover the US$6.9 million jobs and the US$13.9 trillion in wealth lost during the recession in the near future, but surely America has changed. That was what President Barack Obama, during his election campaign, had promised : “Change We Can Believe In”…..

Interestingly, this financial crisis has been called by so many names. Initially it was plainly called the “US sub-prime mortgage crisis”. However when it got worst and the shock waves swept across Europe, the financial czars coup it as the “financial tsunami “. When the flames of the financial disaster spread to the whole of Asia, the burnt-out investors cursed it as the “global financial inferno”, but to the die-hards on Wall Street, it’s just 9/15….

How would you call it ?

 

 

Tags: Wealth //