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September 15, 2014

6 Years Ago: The Week that Changed the World

 Sept. 18, 2008: “we may not have an economy on Monday.”  — Ben Bernanke

 

Six years ago today, the entire United States financial system was at a tipping point, about to fall into an abyss not seen since the stock market crash of 1929 and the resulting Great Depression of the 1930’s. 

And now, 6 years after a week that began with the collapse of Lehman Brothers and ended with the biggest attempted financial power grab in the history of the U.S., many of the institutions and individuals who caused the crash continue to reap record profits and live the good life while tens of millions of American families continue to struggle and dig out of the wreckage caused by Wall Street’s too-big-to-fail banks, as compellingly illustrated by Robert Samuelson in the Washington Post this morning.

Here is the look back on that fateful week that shook the world’s financial stability and almost caused a second Great Depression, and a look forward to today where, even though Congress passed the landmark Dodd-Frank law in 2010, many of the problems that led to the crash have still not been fixed, including the systemic risks Wall Street’s too-big-to-fail banks continue to pose to the real economy.

6 years ago: The week that changed the world.

  • Sept. 12th, 2008 – Bernanke and Paulson summon heads of Wall Street’s biggest firms to an emergency meeting at Tim Geithner’s NY Fed office where they’re told there will be no bailout of Lehman Brothers.
  • Sept. 15th –  4th largest investment bank Lehman Brothers runs out of cash & files bankruptcy, Bank of America agrees to buy third largest investment bank Merrill Lynch and the Dow Jones plunges almost 500 points.
  •  Sept. 16th  – A money market mutual fund “breaks the buck” due to Lehman’s bankruptcy, starting a run on money market funds, and the Fed provides AIG, the world’s largest insurer, with its first bailout of $85 billion (on the way to a $182 billion bailout).
  • Sept. 17th – As lending locks up and banks stop lending to each other, Bernanke tells Paulson ‘We need a full-scale bailout of the entire financial system;’ the Dow drops 449 points, with investment banks Morgan Stanley and Goldman Sachs down 24% and 14% .
  • Sept. 18 – The Fed and global central banks pump $180 billion into markets to ease the cash crunch as Bernanke tells Congressional leaders that if the federal government doesn’t bail out the entire financial system “we may not have an economy on Monday;” The Dow drops another 410 points.
  • Sept. 19 – President Bush announces plan to use taxpayer money to buy toxic assets from Wall Street banks as the Treasury guarantees the entire $3.7 trillion money market fund industry; Dow gains 360 points
  • Sept. 20 – Treasury Secretary Paulson sends 3-page bill to Congress giving him $700 billion of taxpayer money to bail out Wall Street any way he wanted, but prohibiting transparency, accountability, oversight and judicial review; this shocking and unprecedented power grab caused a full scale revolt, including among Congressional Republicans.
  • Sept. 21 – As they teetered on collapse, the last two independent investment banks, Goldman Sachs and Morgan Stanley, were permitted by the Fed to convert virtually overnight to bank holding companies, enabling full access to all the Fed’s financial support, in effect, a massive unseen and unacknowledged bailout.

Other notable 2008 dates:

  • Sept. 24 – The crisis roils the presidential election as John McCain suspends his presidential campaign.
  • Sept. 29 – House rejects $700 billion bailout bill and Dow drops 778 points.
  • Oct. 3 – A heavily revised $700 billion banking bailout becomes law as President Bush signs emergency legislation creating Troubled Asset Relief Program (TARP) – this is in addition to the Treasury Department, the Fed and other banking agencies continuing to pour trillions of dollars into the financial system to prevent a financial and economic collapse.
  • Oct. 13 – “U.S. Forces Nine Major Banks To Accept Partial Nationalization”: The Washington Post.
  •  Nov. 23 – The Treasury, Fed and FDIC provide Citigroup with the first of multiple bailouts, ultimately totaling almost $500 billion.

6 years later:

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