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• A crisis of historic proportions struck financial institutions in the U.S. and globally in September, 2008. Major financial markets went into a free-fall after The U.S. government took over mortgage lenders Fannie Mae and Freddie Mac. As a result, several banks and investment firms were went bankrupt or were bought by other companies at well below their value.FOX Business: The Financial Crisis:A Timeline (September 30, 2008)

  The crisis came to a head in late September 2008 as the world financial markets, including the New York Stock Exchange and the NASDAQ. The Dow Jones Industrial Average is down about 20 percent since July of 2008.Yahoo Finance: Dow Jones Industrial Average The financial crisis has spread across the entire world, including markets in Europe and Asia.NY Times: House Rejects Bailout Package, 228-205; Stocks Plunge (September 29, 2008)

• Timeline

  1. June 5, 2008: More than 1 million homes in foreclosureCNN: http://money.cnn.com/2008/06/05/news/economy/foreclosure/index.htm?postversion=2008060510 Homes in foreclosure top 1 million] (June 5, 2008)
  2. September 7: U.S. Government seizes Fannie Mae and Freddie MacFOX Business: The Financial Crisis:A Timeline (September 30, 2008)
  3. September 14: Bank of America buys Merrill LynchFOX Business: The Financial Crisis:A Timeline (September 30, 2008)
  4. September 15: Lehman Brothers declares BankruptcyFOX Business: The Financial Crisis:A Timeline (September 30, 2008)
  5. September 16: U.S. Government gives 85 billion dollar loan to insurance company AIGFOX Business: The Financial Crisis:A Timeline (September 30, 2008)
  6. September 19: The Bush Administration announces bailout planFOX Business: The Financial Crisis:A Timeline (September 30, 2008)
  7. September 29: Bailout plan rejected by U.S. House of RepresentativesFOX Business: The Financial Crisis:A Timeline (September 30, 2008)
  8. September 29: Dow begins decline, drops 777.68 pointsFOX Business: The Financial Crisis:A Timeline (September 30, 2008)
  9. October 3: Emergency Economic Stabilization Act" (2008) passedFOX Business: The Financial Crisis:A Timeline (September 30, 2008)

• Causes

  An increase in high-risk mortgages caused numerous homeowners to default on their loans in record numbers. The default numbers caused a subprime mortgage crisis in which mortgage-backed securities rapidly lost value. Several mortgage lenders and banks had invested heavily in these mortgage-backed securities and could not absorb those losses. Extending of credit was sharply reduced and the global stock markets fell sharply.CBS News: House of Cards: The Mortgage Mess (May 25, 2008)

• Bailout Plans

  The United States and the European Union have proposed ambitious plans to further stabilize the world economy. The US Congress passed a 700 billion dollar mortgage bailout plan. The plan allows the U.S. Treasury Secretary to buy mortgage-backed securities, also known as toxic debt, and hold them until market conditions become more favorable.Chicago Tribune: US, bankers rework bailout plan to give financial firms more help (October 13, 2008) Meanwhile, the European Union has promised guaranteed bank refinancing for any country in the union that uses the Euro as currency but has not fully endorsed a large-scale bailout plan. As of October 13, 2008, The EU deal is pending final approval from 27 member states.CNN: European nations back banks (October 12, 2008) Wall Street Journal: EU Writes Menu of Options (October 13, 2008)

• Predictions

  On August 28, 2006, and again on August 18, 2007on Fox News Channel, economist Peter Schiff predicted that the economy was in real trouble, and that the U.S. was headed for a serious recession in either 2007 or 2008. The problem, he said, was there too much consumption and borrowing and not enough production and savings. He said that when home equity evaporated, Americans would stop consuming and the economy would collapse. He also said he thought that was a good thing, because the system would be righting itself. He was scorned by fellow panelists, including Arthur Laffer and Ben Stein.YouTube: Peter Schiff Was Right 2006 - 2007 (2nd Edition) (Time: 9:59)

  In April 2007, economist Nassim Nicholas Taleb argued in a book called The Black Swan that the consolidation of banks created a dangerous situation such that the costs of one bank failure is enormous. In a PBS interview dated October 22, 2008, Taleb and his mentor chaos theorist Benoit Mandelbrot argue that the complexity of the global community is leading toward a recession worse than it's been since the American Revolution.YouTube: The REAL Maverick: Present Economy worse than Depression (Time: 9:56)

• Related Pages on Mahalo

  Subprime Mortgage Crisis | European Bank Crisis | Mortgage Bailout Plan | Bear Stearns | High-Risk Mortgages | Housing Bubble | Subprime Mortgage Bailout | Countrywide Foreclosures | Citigroup Crisis | 2008 Recession | Emergency Economic Stabilization Act of 2008 | Office of Financial Stability | Lehman Brothers | Merrill Lynch | AIG Federal Reserve Loan | High-Risk Mortgages | Peter Schiff | Chaos Theory | Charles Nenner | Nassim Nicholas Taleb | Joshua Persky | Adolf Merckle | How to Sell a Structured Settlement | How to Survive a Financial Collapse | Charles Nenner

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