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Chronology: Financial Crisis Spreads From US to World Markets

DPA news agency (kjb)October 4, 2008

The crisis in world financial markets began when prices started declining in the US real estate market in late 2006. So far, it is estimated that banks worldwide have had to writedown more than $550 billion in assets.

Wall St. sign
Repercussions were felt well beyond Wall St.Image: AP

Here is a chronology of major events:

March/April 2007: New Century Financial corporation stops making new loans as the practice of giving high risk mortgage loans to people with bad credit histories becomes a problem. The International Monetary Fund (IMF) warns of risks to global financial markets from weakened US home mortgage market.

June 2007: Alarm bells ring on Wall Street as two hedge funds of New York investment bank Bear Stearns lurch to the brink of collapse because of their extensive investments in mortgage-backed securities.

July/August 2007: German banks with bad investments in the US real estate market are caught up in the crisis, including IKB Deutsche Industriebank, Sachsen LB (Saxony State Bank) and BayernLB (Bavaria State Bank).

US President George W Bush rejects government intervention to ease the crisis in the home mortgage market and says he wants the market to work. He later pledges help for struggling homeowners to help ease the mortgage crisis.

Foreclosures of US homes in July were up 93 percent from a year earlier, to 180,000 owners.

September 2007: British bank Northern Rock is besieged by worried savers; British government and Bank of England guarantee the deposits; the bank is nationalized. The US Federal Reserve (Fed) starts series of interest rate drops to ease impact of housing slump and mortgage crisis.

October 2007: Profits at US financial giant Citigroup drop sharply. IMF lowers 2008 growth forecast for the euro area to 2.1 percent from 2.5 percent, in part because of spillover from the US subprime mortgage crisis and credit market crunch.

December 2007: Bush unveils plan to help up to 1.2 million homeowners pay their loans.

January 2008: Swiss banking giant UBS reports more than $18 billion in writedowns due to exposure to US real estate market. In the US, Bank of America acquires Countrywide Financial, the country's biggest mortgage lender. Fed slashes interest rate by three quarters of a percentage point to 3.5 percent following sell-off on global markets. Another cut at month's end lowers it to 3 percent.

February 2008: Fannie Mae, the largest source of money for US home loans, reports a $3.55-billion loss for the fourth quarter of 2007, three times what had been expected.

March 2008: On the verge of collapse and under pressure by the Fed, Bear Stearns is forced to accept a buyout by US investment bank JP Morgan Chase. The deal is backed by Fed loans of $30 billion.

In Germany, Deutsche Bank reports a loss of 141 million euros for the first quarter of 2008, its first quarterly loss in five years. Fed spearheads coordinated push by world central banks to bolster global economic confidence by announcing moves to pump $200-billion liquidity into markets.

Carlyle Capital falls victim to US credit crisis as it defaults on $16.6 billion of indebtedness. US frees up another $200 billion to back troubled Fannie Mae and Freddie Mac.

April 2008: IMF projects $945-billionlosses from financial crisis. G7 ministers agree to new wave of financial regulation to combat protracted financial crisis.

June 2008: Home repossessions more than double as US housing crisis deepens. Bear Stearns execs join 400 charged with mortgage fraud.

July 2008: California mortgage lender IndyMac collapses. Troubles for Fannie Mae and Freddie Mac continue to grow. US Treasury, Fed move to guarantee debts of Fannie, Freddie. Bush defends move, telling Americans to take a "deep breath" and have "confidence in the mortgage markets."

US Congress gives final passage to multi-billion-dollar program to address mortgage and foreclosure crisis. Spain's largest property developer, Martinsa-Fadesa, declares insolvency.

September 7: US government seizes control of Fannie, Freddie in $200-billion bailout.

September 15: Lehman Brothers investment bank declares $600-billion bankruptcy. Merrill Lynch acquired by Bank of America.

September 17: US bails out AIG insurance giant for $85 billion.

September 19: White House requests $700-billion bailout plan from Congress for all financial firms with bad mortgage securities to free up tightening credit flow.

September 22: Last two standing investment banks, Morgan Stanley and Goldman Sachs, convert to bank holding companies.

September 26: Feds seize Washington Mutual in largest-ever US bank failure.

September 29: US House of Representatives rejects mammoth $700-billion bailout plan.

September 29: Governmental bail-outs announced for key banks in Britain, the Benelux and Germany as well as a state takeover of a bank in Iceland. British government intervenes to save major mortgage lender Bradford & Bingley. Netherlands, Belgium and Luxembourg to take over substantial parts of Belgian-Dutch banking and insurance company Fortis.

German Finance Ministry announces that government and top banks were moving to inject billions of euros into troubled mortgage lender Hypo Real Estate. Iceland government and Glitnir bank announce state takeover of 75-percent stake in Glitnir.

September 30: Wachovia Bank teeters on collapse, starts negotiating with Citigroup for takeover deal.

October 1: US Senate adopts massive bail-out plan, adding sweeteners to get House acceptance.

October 3: Wells Fargo bank and the fourth-largest US bank Wachovia Corp announce merger.

October 3: The largest government intervention in capital markets in US history clears the US House of Representatives, becoming law with signature by President Bush.