Even with the New Year revelry still ringing in our ears, one can never fully take on the challenges that lie ahead in 2009 without reflecting on the year just gone. Certainly, the year 2008 will go down in history as the start of one of the country’s worst recessions since the Great Depression in the 1940’s.
Bankruptcies plagued banks and investment houses, and many industries, most notable of which are the finance and auto industries, were now pinning their hopes of surviving more on the bailouts that the government was handing out like candy, than on the likelihood that the economy would put itself right in the near future.
Aside from the election of the country’s 44th and first African-American president Barack Obama, the grim economic conditions that the US now faces, and the financial events that were part and parcel of these times, made for some staple and at times panic-inspiring headlines.
The End of the Bear Stearns Era, JP Morgan Chase Buys at Fire-Sale Price – March 17, 2008
No one could have predicted that Fortune’s “Most Admired” securities firm in its survey of “America’s Most Admired Companies” for 2 years in 2005-2007, would be the first to succumb to the effects of the subprime mortgage crisis. And yet fold it did, ending its 85 years in the investment market after having survived a dozen recessions and even the Depression.
The Federal Reserve, after failing to save it despite the provision of an emergency loan, instead brokered its sale to JP Morgan Chase. The original price agreed upon was a rock-bottom $2 per share which angered many investors, and rightly so, considering that the company once enjoyed a 52-week high of $133 per share before the crisis.
JP Morgan later raised the offer to $1.1 billion or $10 per share and this was the price settled on when the acquisition was finalized in May.
FDIC Closes IndyMac Bank – July 13, 2008
After Bear Stearns closed its doors, another jarring indicator of tougher times ahead was the failure of IndyMac Bank of Pasadena, California.
Like most financial institutions, IndyMac was also reeling from the mortgage crisis, and it showed in the massive layoffs and the temporary halt to its lending arm, just before the closure. Because of these moves, the bank lost depositors’ confidence causing massive withdrawals and sending its share price plummeting to just 28 cents from more than $28 a year earlier and $50 in 2006.
In the end, the Feds intervened and took control of the bank’s assets, in what would become the fourth biggest bank failure in US history.
Lehman Brothers Files for Bankruptcy – September 14, 2008
It was in the third quarter that things went from bad to worse pretty fast.
After failing to find a buyer or securing a rescue package from the government, Lehman Brothers, a prominent securities firm, filed for Chapter 11 bankruptcy protection.
With its collapse, the company’s 25,000 employees were left scrambling to find work at a time where even the once so-envied white collar jobs at Wall Street were apparently not invulnerable to the ballooning crisis.
Only a week earlier, government seized control of troubled mortgage finance companies, Fannie Mae and Freddie Mac, making investors jittery about the state of other financial institutions.
Bank of America Acquires Merrill Lynch – September 14, 2008
September 14 would turn out to be a “black-letter” day for the finance industry. In a seemingly surreal turn of events, another industry giant, Merrill Lynch, also nears the brink of failure before agreeing to sell itself to Bank of America for $50 billion in an all-stock transaction.
The deal was valued at $29 per share, putting a considerable premium on Merrill’s stocks, which had closed the previous business day at $17 per share.
Federal Reserve Rescues American Insurance Group (AIG) – September 16, 2008
Wary of the repercussions of the possible failure of one of the world’s largest insurance companies, the Feds took no time in stepping in and injecting some $85 billion into AIG, when it showed signs of trouble too. This was later followed by another $37.8 billion infusion in October.
Some changes in the bailout package in November however, had the government replacing the previous two loans with a $150 million aid package, which already included a $40 billion from the government’s bailout fund.
JP Morgan Chase Takes Over WaMu – September 25, 2008
The slew of bank failures this year will unfortunately include Washington Mutual, the biggest savings and loans bank in the country, putting it at the top of the largest bank failures ever seen.
Not being one to pass up an opportunity to further strengthen its dominance in the banking industry, JP Morgan was quick to set a deal in motion to buy WaMu’s operations for $1.9 billion, an excellent deal given the fact that at that time, WaMu still boasted of assets totaling to $307 billion and a network of 2,239 branches, catapulting JP Morgan to first place in deposit base.
Congress Approves $700 Billion Bailout Plan – October 3, 2008
The country watched and waited while an undecided House of Representatives and Senate debated, voted, amended and then debated some more over Secretary Henry Paulson’s Troubled Assets Relief Program (TARP) before finally giving the green light to its implementation.
Passed as the Emergency Economic Stabilization Act of 2008, now more commonly known as the $700 billion bailout money for the US financial industry, the rescue package authorizes the US Treasury to make capital injections into banks and purchase troubled mortgage-backed securities.
To date, a good number of banks, a few insurance companies, a couple of automakers and even some US cities have applied and been given slices of the bailout money.
In hopes of getting credit moving again and stimulating consumer spending, the government made sure that the first to benefit from the bailout package were the 9 top Wall Street banks. The following month, more banks and other financial groups were given access to the funds but the positive ripple effect that is supposed to be felt in consumer activity and the economy in general, is yet to be seen.
Wachovia in Danger of Failure, Wells Fargo Triumphs over Citigroup in Closing a Deal – October 3, 2008
Following JP Morgan’s takeover of Washington Mutual, Wachovia’s plunging stock prices, its troubled mortgage portfolio, and a staggering $5 billion worth of withdrawals on a single day (Sept.26) made the bank a likely candidate for the next big bank failure.
While the Citigroup was first to get into talks with Wachovia for an acquisition bid with the endorsement of the FDIC, Wells Fargo’s higher $15.4 billion offer would not wipe out Wachovia’s shareholders, prompting the ailing bank to accept Wells Fargo’s bid, amid legal protests from Citigroup.
The Wachovia acquisition beefs up Wells Fargo as the country’s 2nd largest bank in deposits, while Citigroup’s shares have been taking a beating since then.
FDIC Increases Insurance Limit to $250,000 – October 10, 2008
In an effort to soothe the banking public’s jittery nerves, the FDIC formally gives the go signal to implement the new insurance limit of $250,000. The move was also made to prevent massive withdrawals from banks, as what contributed to the failures of IndyMac Bank and Washington Mutual.
While this is temporary and will last only until the end of 2009, it has also included provisions for the increase in limits for joint accounts, upping it up to $200,000 per co-owner of the account from the current $100,000 cap.
More Bailout Money Saves Ailing Citigroup – November 23, 2008
In a startling reversal of fortunes, the once-mighty Citigroup is now in need of more bailout money infusion from the government.
What started out as a failed Wachovia bid has caused a steady decline in Citigroup’s shares, prompting some concern as to how these circumstances might spook depositors and cause a bout of substantial withdrawals which could further erode the bank’s stability.
In response to this crisis, the government made available an additional $20 billion cash infusion into the bank (on top of the $25b initially released following the passage of the $700b bailout package) and guaranteed $306 billion worth of the bank’s potential toxic assets.
$50 Billion Allegedly Lost in Madoff Fraud – December 15, 2008
The alleged case of massive fraud by veteran fund manager and former NASDAQ stock exchange head Bernard Madoff could indeed go down in the books as the largest Ponzi scheme ever to have been operated.
If investigations find any truth to the perpetration of a $50 billion scam confessed by Madoff himself through his Madoff Investment Securities, he would have defrauded a long list of clients including banks, financial institutions, charitable foundations, and a host of private individuals who entrusted him with millions of their money.
Federal Reserve Cuts Rate to Lowest Rate Ever – December 17, 2008
When the Fed slashes key rates to near zero, or 0 to 0.25% to be exact, it is giving out the message that the government is indeed serious in its effort to do what it takes to get the near-frozen credit markets moving again.
The move brought some much-needed boost to trading, sending stocks soaring and bringing the Dow Jones industrial average up by 4.2%. While some economists criticize the Fed’s daring in implementing a risky decision as this, many also see it as the economic stimulus that may get businesses and consumers up and about again.
Government Finally Gives Automakers $17.4 Billion in Bailout Loans – December 19, 2008
The long-awaited and much-needed rescue package for two of Detroit’s Big Three, General Motors and Chrysler, has finally been given the nod by President Bush.
Taken out of the $700 billion bailout fund for the financial industry, $13.4 billion will be given out to the automakers sometime in mid-January, while the $4 billion will be added in February. Both companies however, only have until March 31 to come up with a long-term viability plan, including concessions from the unions, creditors, and suppliers to assure the government that sustainable growth and profitability is still possible for them.