Business

Last updated: 2 september, 2009 - 17:03 GMT

Aftershock timeline

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GROWING CONCERNS

9 AUGUST 2007 - Credit markets freeze

French bank PNB Paribas suspends three hedge funds for lack of liquidity. Central banks intervene.

Credit markets go into freefall after French bank PNB Paribas announces that three of its hedge funds are frozen due to "complete evaporation of liquidity" in asset backed security market, as a result of exposure to U.S. subprime mortgage lending markets. Soon after the European Central Bank injects 170bn euros into the banking market. Previously, in February, HSBC bank already revealed huge losses in its US mortgage arm Household Finance due to subprime losses.

14 SEPTEMBER 2007 - UK banking system starts to tumble

Problems in the credit markets makes sub-prime mortgage lender Northern Rock ask the Bank of England for assistance. Five months later, Northern Rock is nationalised.

In 2006, the British bank Northern Rock moved into sub-prime lending through a deal with Lehman Brothers, who underwrote the risk. By September 2007, the Bank was experiencing difficulties as a result of problems in the credit markets. Northern Rock received financial backing from the Bank of England.

The subsequent run on the bank was the first in Britain since Victorian times. The later nationalisation on 22 February 2008 was the first since the 1970s. On 18 September 2008, Lloyds TSB takes over Halifax Bank of Scotland. One month later, the UK Government comes to the rescue of the new banking giant, and also Royal Bank of Scotland.

17 MARCH 2008 - Bear Stearns Rescue

US investment bank JP Morgan Chase offers to rescue rival bank Bear Stearns. IMF warns on credit crunch.

The operation is finally completed on May 30 2008, at a higher price than originally offered (US$ 10 per share instead of US$ 2), but only after the US government provides a $30bn guarantee against Bear Stearns” mounting losses. In the meantime, the International Monetary Fund warns that potential losses from the credit crunch could reach $1 trillion.

PANIC SETS IN

7 SEPTEMBER 2008 - Fannie Mae and Freddie Mac rescue

US government rescues giant mortgage lenders Fannie Mae and Freddie Mac, preventing the collapse of the American housing market.

The US tax payers come to the rescue of two key mortgage lenders, to prevent a collapse in the US housing market. This was the start of the week which saw the real crisis in the financial markets. On this day Fannie Mae and Freddie Mac had to be rescued by the US government. The next day Lehman Brother’s shares dropped 45% and crisis talks started. It was the beginning of the financial meltdown which affected the whole world.

15 SEPTEMBER 2008 - Lehman Brothers goes bankrupt

US investment bank Lehman Brothers goes bankrupt after the US government refuses to bail it out. US Markets fall 3%. Bank of America buys Merrill Lynch.

Lehman Brothers files for Chapter 11 bankruptcy protection, citing bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion. Images of the employees removing personal belongings and items bearing the Lehman’s logo, are beamed around the world. Meanwhile, investment bank Merrill Lunch has better luck, after being bought by Bank of America in a US$50 billion all-stock transaction.

16 SEPTEMBER 2008 - AIG rescued

Insurance firm AIG, which issued credit guarantees for subprime mortgages, is rescued with an $85bn loan from the US Treasury.

The United States Federal Reserve Bank created a credit facility of US$ 85 billion (later increased to as much as US$ 180 billion), when AIG’s credit rating was downgraded below “AA”. It was deemed too big to fall, as its collapse would have been hardly felt at all levels, with 30 million US insurance policy holders, activities in 130 countries and providing insurance to 100,000 companies and other entities. Despite AIG bailout, US stocks have plunged to a three-year low amid continuing financial volatility. The Dow Jones industrial average fell more than 4% to end at 10,609.66.

19 SEPTEMBER 2008 - Call for emergency US$700 billion bailout

US Treasury Secretary Henry Paulson calls for an emergency US$700 billion bail-out package, finally approved in October.

The Troubles Asset Relief Program, or TARP, was proposed by U.S. Treasury Secretary Henry Paulson. The Emergency Economic Stabilization Act of 2008, commonly referred to as the bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis authorizing the United States Secretary of the Treasury to spend up to US$700 billion to purchase distressed assets, especially mortgage-backed securities, and make capital injections into banks. The TARP is finally approved by the House of Representatives on 3 October 2008 after a gruelling debate in Congress. - AFP

21 SEPTEMBER 2008 - End of investment banking model

Goldman Sachs and Morgan Stanley abandon their status as investment banks. Washington Mutual closed down.

The two investment houses receive regulatory approval to transform themselves from investment banks into traditional bank holding companies in a move that marks the end of an era on Wall Street.Four days later, in the largest bank failure yet in the United States, Washington Mutual, the giant mortgage lender, which had assets valued at $307bn, is closed down by regulators and sold to JPMorgan Chase.

12 OCTOBER 2008 - Europe presents plan for rescuing banking system

Major European economies announce multi-billion euro rescue schemes to shore up their banks.

Germany approves a package worth up to 500bn euros ($683bn), France commits about 350bn euros and Spain has set aside 100bn euros. The bulk of this money is to be used to guarantee lending between banks - part of a plan agreed by the 15 nations that use the euro, as panicked European leaders met to try to ward off more financial meltdown. Meanwhile, the world's major central banks said they would offer financial institutions an unlimited amount of short-term dollar loans to help stem the crisis, and share trading in the Icelandic stock exchange remains suspended due to continuing "unusual market conditions".

ATTEMPTS AT RECOVERY

15 NOVEMBER 2008 - G20 summit in Washington

Leaders of the G20 nations pledge to work together at tighter financial regulation in the future.

Global leaders meet in Washington in the midst of the worst financial crisis in 60 years, and pledge to work together to tighten financial regulation in the future. China announces a US$585 billion rescue plan. In December, the US central bank cuts its interest rate to 0 - 0.25% in an attempt to stem the deepening recession. On 16 December 2008, the Fed cuts the key interest rate to near zero.

14 FEBRUARY 2009 - US Recovery plan brings protectionism fears

US Congress passes US$787 billion recovery plan and G7 pledges to avoid protectionism.

The US Congress approved an $787bn economic recovery plan promoted by president Barack Obama that includes a 'Buy American' clause, raising fears that protectionism could be growing in the world's largest economy. Finance ministers at a G7 meeting in Italy said raising barriers to free trade would make the downturn worse, as they battle the global economic crisis. The US dismissed such concerns. Ministers also called for urgent reform to the International Monetary Fund, saying the crisis had shown weaknesses in the world financial system.

9 MARCH 2009

Dow Jones bounces back

The Industrial Average index reaches a minimum of 6,547.05, and starts to strengthen.

The Dow Jones reaches its lowest point since 14 April 1997, and after its historical peak of 14,164.53 points reached on 9 October 2007. During the period, the Dow Jones lost more than 500 points in various single day operations, like on 15 September 2008 when Lehman Brothers collapsed.

2 APRIL 2009

G20 Summit in London

World leaders pledge an additional $1.1 trillion for the IMF to help emerging market countries.

The G20 agrees to increase the resources available to the International Monetary Fund, the organisation that oversees the global financial system, by US$750bn. It also contributes $250bn to help counteract the contraction of world trade and fight protectionism. And it agrees tough new measures to regulate financial institutions, including sanctions against tax havens that do not disclose information. Soon after. the UK Chancellor Alistair Darling reveals that the credit crunch will lead to the largest budget deficit in UK financial history of £175bn, with total government debt set to double to £1,000bn by 2014.

13 AUGUST 2009

France and Germany “out of recession”

Promising news as both European countries report economic growth. However, the Euro zone as a whole is still in recession.

The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe's largest economies. Stronger exports and consumer spending, as well as government stimulus packages, contributed to the surprise recovery. But economic activity in the eurozone fell by 0.1%, showing the region as a whole is still in recession. It was the fifth consecutive quarter of economic contraction in the eurozone, but was a marked improvement on the 2.5% drop recorded in the first three months of the year. Meanwhile, the economy of Hong Kong has emerged from recession, posting growth of 3.3% in the three months from April to June. And on Monday 17 Japan announced that it has come out of recession after its economy grew by 0.9% in the April-to-June quarter.

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