Newsletter - Supplement 2008 / 2009
Panic of 2007 - 2009
Narrative of facts causing the Financial Crisis
2007-09 Housing bubble / Credit Market panic
2000-01 Dot.com crash / September 11 tragedy
1997-98 Asian Financial crisis
Thailand, Indonesia, Hong Kong, Malaysia, Taiwan, South Korea, Vietnam, Laos and the Philippines.
Also: Colombia, Ecuador, El Salvador
1994-95 Mexican Tequila crisis
Mexico, Argentina, Brazil, Bolivia, Ecuador, and Paraguay.
Also: Azerbaijan, Croatia, Cameroon, Lithuania and Swaziland
1990 Oil / Gulf War recession
1989-90 Japanese Bubble Economy crash
7 banks nationalized, 61 financial institutions closed and 28 institutions merged.
Also: Czech Republic, Finland, Greece, Sweden,
as well as: Algeria, Brazil, Egypt, Georgia, Hungary, Poland, Romania and Slovak Republic
1987 Stock Market crash
1982-84 U.S. Savings and Loan crisis
1400 Savings & Loan and 1300 Bank failures between 1984-91
1979-82 Latin American crisis
Argentina, Brazil, and Mexico.
Also: Chile, Colombia, Congo, Ecuador, Egypt, Ghana, the Philippines, Turkey, and Uruguay
1973-74 Arab Oil embargo recession
1929 Stock Market crash
9,100 U.S. banks failed between 1931-34
1907 U.S. Bank panic
1873 German Founding Epoch crisis
1720 British South Sea bubble
1719-20 France / Mississippi Company scheme
1637-1638 Dutch Tulipmania bubble
Average panic equity fall 56%, Average panic housing fall 35%
Sovereign Debt external default: Mar 9, 2012 Greece $141B (EU/ECB/IMF), Dec 2006 Belize $242M, Jan 2006 Iraq $11B, Apr 2005 Dominican Republic $1.622B, May 2003 Uruguay $5.744B, Jun 2002 Moldova $145M, 12/26/2001 Argentina $102.6B (IMF/Paris Club), Sep 2000 Peru $4.870B, Jan 2000 Ukraine $1.064B, Aug 1999 Ecuador $6.604B, Jul 1999 Pakistan $1.627B, Sep 1998 Ukraine $1.271B, 8/17/1998 Russia $72.709B (IMF/Paris and London Clubs) (720 banks), and Jul 1998 Venezuela $270M
SUBPRIME MORTGAGES and BANKS
1993 - Housing and Community Development Act of 1992 creates the Office of Federal Housing Enterprise Oversight (OFHEO) to supervise Fannie Mae and Freddie Mac and removes regulatory barriers to affordable housing. OFHEO eliminated (September 2008) by creation of Federal Housing Finance Agency (FHFA) when Fannie Mae and Freddie Mac failed and were placed into conservatorship.
1994 - Henry Cisneros, HUD (Department of Housing and Urban Development) Omnibus Budget Reconciliation Act of 1993 "1993 Housing Act", modifications of existing housing programs, loosened FHA mortgage restrictions thereby allowing first-time home buyers to qualify for loans they could not have previously qualified.
1994 Subprime loans rise above $35B in 1994.
1995 - Henry Cisneros HUD, Multifamily Housing Property Disposition Reform Act of 1994 changed loan guarantees, Fannie Mae and Freddie Mac begin receiving affordable housing credit for purchasing FHA mortgage-backed securities (which included loans to low-income borrowers). GSE agencies begin purchasing subprime mortgage securities.
1995-2000 - CDO issuance jumps from less than $4B (pre-1996) to $40B (1996), to $83B (1997), to $137B (1998-2000).
1997 - JP Morgan creates synthetic CDOs long / short derivatives on BISTRO CDOs.
1999 - Gramm-Leach-Bliley Act of 1999 repealed provisions in the Glass-Steagall Act (Banking Act of 1933) that prohibited bank holding companies from combinations of investment banks, commercial banks and insurance companies. Response to global banking precipitated by the Citigroup/ Salomon Brothers/ Smith Barney/ Traveler Group merger (1998-99) preceded by IDS Financial Services/ American Express merger (1984) and Wells Fargo/ Norwest merger (1986).
2000-05 Interest rates - Greenspan's Fed Funds rate rose to 6.5% (to offset the Millennium scare) then dropped to 1% (from Jun 25, '03 - Jun 30, '04) to fight the Dot.com crash and 9/11 attack. Nasdaq peaked at 5,132.52 (Mar 10, 2000) then falls to 1,253 (Mar 12, 2003) - a 77% decline.
August 17, 2007 Housing bubble pops - Bernanke's Emergency (inter-meeting) Federal Reserve cuts the 'discount rate' to 5.75% from 6.25%. September 18 - Fed Funds rate lowered 50 basis points to 4.75% from 5.25% and the 'discount rate' to 5.25% from 5.75%.
2007 Subprime loans peak at $1.9T of $12T of U.S. mortgages, 15% of U.S. Mortgages. $35B in 1994, $95B in 1996, $160B in 1999, $600B in 2006.
July 2008 failing non-prime U.S. mortgages - the Federal Reserve issues new regulations for mortgage lenders.
September 2008 FHFA (Federal Housing Finance Agency) places Fannie Mae (Herb Allison) and Freddie Mac (David Moffett) into conservatorship. Fannie Mae and Freddie Mac guarantee or hold 10.5 million non-prime loans worth $1.6T (1/3 of all subprime loans and nearly 2/3 Alt-A loans). Non-prime loans make up 1/3 of the total single-family mortgage portfolios at Fannie Mae and Freddie Mac (linking them to 8 million - 16% of future foreclosures), as of 12/08. Fannie and Freddie receive over $153B in taxpayer funds since September 2008, as of 12/31/10.
1) Countrywide Financial (January 11, 2008) fails and is purchased by Bank of America for $4.1B.
2) Bear Stearns (March 17, 2008) fails and is purchased by JP Morgan Chase for $10 (down from $172, 2007) the 5th largest U.S. investment bank - the Fed intervened with a non-recourse loan of $29B.
3) IndyMac Bancorp (July 11, 2008) fails and is seized from imminent failure by the Office of Thrift Supervision and files for bankruptcy with $33B of assets (exceeding Continental Illinois, $9.5B in 1984) costing the FDIC $10.7B.
4) Fannie Mae and Freddie Mac (September 7, 2008) fail and are placed into conservatorship by the Federal Housing Finance Agency. Interest and principal payments will continue to their companies' securitized bonds and subordinated debt. The Treasury through senior preferred stock and warrants now has 79.9% ownership of each agency. Freddie Mac receives $50.7B (as of 4/10) and Fannie Mae $99.7B (as of 3/11) from the Treasury Department and have asked banks to buy back nearly 167,000 loans valued at $34.8B. FHFA (as of 6/30/14) paid $218.7B from Fannie Mae and Freddie Mac to the U.S. Treasury - support of $188B during the crisis.
5) Merrill Lynch (September 14, 2008) fails and is purchased by Bank of America for $50B, the 3rd largest U.S. investment bank.
6) Lehman Brothers Holdings (September 15, 2008) fails and is liquidated, files largest U.S. bankruptcy, total debts of $613B against total assets of $639B passing WorldCom which filed for bankruptcy ($103.9B on September 21, 2002). Lehman's leverage rose to 44:1 and balance sheet manipulation "repo 105" (accounting firm Earnest & Young). Lehman's brokerage customers receive 100% (and about $65B to pay $300B of claims). Bankruptcy trustees payouts: commercial paper claims $0.484-0.557, special financing unit $0.39, derivatives unit $0.279-0.32, senior bondholders $0.211 cents, most unsecured creditors $0.25-0.35, and final unsecured claims $0.17. Lehman claims from 67,000 filed originally demanding about $1.2T.
7) AIG (September 16, 2008) fails and receives a $85B Federal Reserve emergency loan ($1.1T assets, 74 million clients in 130 countries) total authorized assistance of $184.6B ($60B Fed credit line, $52.5B for 2 Maiden Lane vehicles and a Treasury investment up to $69.8B) in return for relinquishing 79.9% ownership in the company. AIG's Financial Products division writes over $20B of synthetic CDOs (from Goldman Sachs) in 2005 and over $30B from other financial institutions in 2006. Treasury Department exchanges $49.1B of preferred shares for 1.655B new shares of AIG common stock raising ownership to 92%, on 1/14/2011. Treasury's holding cut to 61% in first 3 securities sales (raised more than $17B). 4th sale (8/3/12) of $5B and 5th sale (8/23/12) last batch of Maiden Lane portfolio (purchased $62.1B of CDOs). Treasury Department still owns $29B 53.4% of AIG's common stock, as of 8/24/12. U.S. Treasury (9/10/12) sells $20.7B of AIG shares reducing government's stake to 15.9%.
8) Washington Mutual (September 26, 2008) fails and is seized by Federal regulators and files largest U.S. bank bankruptcy, $327.9B sold to J.P. Morgan Chase for $1.9B, 2nd largest bankruptcy in U.S. history.
9) Wachovia (October 12, 2008) fails and is purchased by Wells Fargo (as Citigroup exits) in an $11.7B all-stock offering.
10) Hedge funds (2008) 1,471 close, 15% of the industry, the average hedge fund's performance lost 19.0%.
11) Citigroup (February 27, 2009) agrees to convert $25B of preferred stock (debt from Treasury's TARP and $301B in guarantees) into common shares, 33.6% ownership, approved on Sept. 3, 2009. Citigroup issues $20.5B of capital and debt while repaying $20B of TARP trust preferred securities (December 14, 2009) reducing the government to 27% ownership.
12) Thornburg Mortgage (May 1, 2009) fails and files for bankruptcy, 8th largest in U.S. history $36.5B.
13) Chrysler Financial Corp. (April 30, 2009) fails June 11, 2009 when the Chrysler Group, LLC files Chapter 11 bankruptcy, receives $4B of government aid.
14) GMAC Financial Services (May 21, 2009) fails and receives $16.3B of government aid - U.S. government's has 56% ownership. U.S. Treasury owns 74% stake in Ally Financial as of 9/2012.
15) CIT Group (November 1, 2009) fails and files fifth-largest bankruptcy in U.S. history $71B in assets and $64.9B in debt, one of the U.S.'s largest small-business lenders.
In 2007, 3 banks fail at a cost to the FDIC fund of $120M - and 3 Credit Unions.
In 2008, 25 banks fail at a cost to the FDIC fund of $17.6B - and 15 Credit Unions.
In 2009, 140 banks fail at a cost to the FDIC fund of $36B - and 31 Credit Unions.
In 2010, 157 banks fail at a cost to the FDIC fund of $23B - and 24 Credit Unions.
In 2011, 92 banks fail at a cost to the FDIC fund of $7.9B - and 4 Credit Unions.
In 2012, 51 banks fail at a cost to the FDIC fund of $2B - and 1 Credit Union.
In 2013, 24 banks fail (costing FDIC more than $1B).
Federal Deposit Insurance Corporation (FDIC) directly examined and supervised over 8,200 banks and savings institutions (2008) more than half of the institutions in the banking system. 7 TARP recipients have failed at a cost of $2.7 billion (as of 12/31/10) of 7,760 banks and savings institutions. FDIC sues 109 former officers of failed banks seeking $2.5B, as of 12/31/10.
National Credit Union Administration (NCUA) supervises and insures over 7,329 federal credit unions and 4,538 state-chartered credit unions.
2010 about $4.25B of Muni-Bond Defaults, of a $2.8T market (about 60,000 Muni bonds). In 2009, $6.3B. In 2008, Muni-Bond Defaults totaled $8.2B. In 1994, Orange County had a historic $110M pension fund bond default.
Treasury Secretary Timothy Geithner "At its peak, the shadow banking system financed about $8T in assets." U.S. repurchase agreements (repo) market was over $4.5T, asset-backed commercial paper (ABCP) was roughly $1.2T, financial commercial paper (CP) was roughly $800B, nonfinancial CP was roughly $220B, and securities lending was roughly $600B. Commercial banks' deposits was $7.3T in 12/2008.
Federal Reserve lending peaks at $1.5T (Mar 9, 2009). Fed lends 21,000 transactions. Morgan Stanley's one day borrowing peaks at $107.3B, Citigroup $99.5B and Bank of America $91.4B. Goldman Sachs $35.39B TSLF (10/21-22, 2008) and $69B PDCF (12/31, 2008). JPMorgan $48B TAF (Feb 2009). Royal Bank of Scotland borrows $84.5B (most of any non-U.S. lender). Zurich-based UBS borrowed $77.2B. Germany's Hypo Real Estate Holding borrowed $28.7B. Belgium's Dexia and France's Societe Generale also borrowed. Fed earns $13B in interest and fee income from the programs from August 2007 through December 2009.
Great Depression (1931-34) about 9,100 banks failed - 1/3 of U.S. banks, 1860 U.S. banks failed between Aug 1931 - Jan 1932.
- Savings & Loan crisis (1984-91) 1400 Savings & Loan and 1300 Banks failed - 5% of U.S. banks, 818 banks failed between 1988-92 (peaked at 534 banks in 1989). From 1986-95, 1,043 savings banks with over $500B in assets failed, costing taxpayers $75.6B. The Resolution Trust Corporation operated from 1989-95 and took over 747 savings institutions with $394B of assets.
FDIC insurance will charge the healthiest banks $0.12 for every $100 of insured deposits, up from $0.05. More troubled banks will pay a premiums of $0.50 per $100 of deposits up from $0.43, as of Jan 1, 2009.
March 2011 - 28% of U.S. homeowners owe more than their properties are worth up from 22% in March 2010. As of March 31, 2009, 20.4 million of 131 million U.S. houses, condos, and co-ops stood empty, including properties for sale and for rent. 23% of the 93 million single-family homes have loans higher than their properties are worth - losing over $3.4T in value.
Re-default rates according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision - 50% mortgage modifications fail within 6 months. Of 950,000 loan modifications for 2008 about 2.2 million foreclosures will have been prevented in 2008 - 3 million prevented since the program began in 2007, as of 12/08. Underwater borrowers / negative equity in Michigan (39%), Arizona (29.2%), Florida (29.2%) and California (27.4%), as of 9/08 - 3.2 million foreclosures in 2008.
A record 2.87 million properties got notices of default, auction or repossession in 2010 - more than 1 million homes repossessed 2010 - estimates of 1.2 million homes will be repossessed 2011. 2009 foreclosure filings (default notices, auction sale notices and bank repossessions) reach a record 2.82 million, up from 2.3 million in 2008 - while 2.21% of all U.S. housing units (received at least 1 foreclosure filing during the year) in 2008 1.84%, in 2007 1.03% and 0.58% in 2006. Median price of an existing single-family house fell 15.6% to $174,100, the most on record (back to 1979).
Home ownership rate through June 2011 was 65.9%, the lowest since 1998 - record high of 69.2% in 2004. 18.7 million vacant homes in the 2Q/11, including foreclosures, residences for sale and vacation homes, compared with 18.9 million 2Q/10. 4.2 million mortgage borrowers are either seriously delinquent or have had their cases referred to lawyers to pursue foreclosure auction. 4.26 million previously owned houses were sold in 2011, up from 4.19 million in 2010. Peaked at 7.1 million in 2005. 2008, 4.1 million, the least since 1995.
Real estate prices fall - S&P/Case-Shiller 20 cities high of 206.64 (April 2006) falls to 140.78 (May 2009) - down 31.8%. S&P/Case-Shiller 20 cities new lows in January 2012 136.59 down 33.9%.
U.S. real estate markets bottom, hardest hit: Las Vegas -61.7% (8/06-3/2012), Phoenix -55.9% (6/06-9/2011), Miami -51.2% (12/06-4/2011), Detroit -49.3% (12/05-4/2011), Tampa -48.0% (7/06-2/2012), San Francisco -46.1% (5/06-3/2009)...least hit...Denver -14.3% (8/06-2/2009) and Dallas -11.2% (6/07-2/2009).
Commercial real estate, 2009 - $1.8T of outstanding commercial mortgages faces higher vacancies and financing rates.
FBI mortgage related fraud reports/pending cases 17,127/534 (2004), 21,994/721 (2005), 35,617/881 (2006), 46,717/1,204 (2007), 63,713/1,644 (2008), 67,190/2,346 (2009) and 50,000/2,989 (6/2010). FBI had 822 indictments and 494 convictions (2009), in 2010 (as of 6/20) with the Justice Department, HUD (21 agencies involved) arrested more than 485 fraudsters.
U.S. GDP - US economy contracts -5.1% 4Q/2007 to 2Q/2009. Contracts -2.4% in 2009, worst since 1946. GDP grows 1.6% (3Q09) and 5.0% (4Q09). GDP -2.7% (3Q08), -8.9% (4Q08, worst since 1958), -6.4% (1Q09), -0.7% (2Q09), first time since the 1930's that the US has suffered 4 consecutive quarters of declining gdp). From 1929-2008, the average annual gdp was 3.4% and from 1997-2008, the average annual gdp was 2.8%.
U.S. Household wealth falls from $65.8 trillion (2Q/07) to $49.4T (1Q/09) a loss of about about $16.4T.
CREDIT DEFAULT SWAPS and OTC DERIVATIVES
1851 - CBOT (Chicago Board of Trade, first derivatives exchange) began trading contracts for future delivery, providing farmers the opportunity to negotiate a guaranteed price for their crops before they were harvested.
February 6, 1994, Procter & Gamble sues Bankers Trust for $195 million in damages claiming that BT's unregulated OTC derivatives deals cost P&G millions in bad investments.
1996 - CDO issuance jumps from less than $4B (pre-1996) to $40B (1996), to $83B (1997), to $137B (1998-2000).
1997 - synthetic CDOs (long / short derivatives on CDOs), JP Morgan created BISTRO (Broad Index Structured Trust Offering) in 1997 to offload $9.7 billion of credit risk from its balance sheet (during the Asian financial crisis). JP Morgan sold and realized the proceeds of BISTRO tranched bonds (promising attractive yields) - allowing JPM to reclassify their troubled assets (balance sheet arbitrage). The synthetic securitisation of BISTRO tranched bonds covered a huge notional amount (far exceeding the cash collateral raised through their sales). JPM effectively derisked a huge chunk of their bond and loan portfolio (keeping the short CDO derivative) while selling the tranched bonds and a relatively small synthetic (long) CDO debt offering. UBS created "North Street" CDOs in 2000, by 2005: Deutsche Bank, Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear Stearns, Magnetar, etc. were originating synthetic CDOs tied to mortgages - total synthetic CDOs peaked at writings on $418B of CDOs in 2007.
December 1998, Congress dissuaded by Clinton administration advisers (Robert Rubin, Larry Summers, Alan Greenspan and Arthur Levitt) rejects Brooksley Born's Commodity Futures Trading Commission's recommendation to regulate OTC derivatives.
January 19, 1999, Chairperson Brooksley Born of the CFTC resigns forced out by Clinton administration advisers Robert Rubin, Larry Summers, Alan Greenspan and Arthur Levitt after her attempts since May 1998 to regulate OTC derivative markets.
December 21, 2000, Clinton signs the Commodity Futures Modernization Act of 2000 - deregulating credit default swaps, the "Enron loophole".
2007 - synthetic CDOs peaked at writings on $418B of CDOs.
$58-62T in 2008 (notional value/gross exposure, through tear-ups $33T 12/2009) credit-default swaps. N.Y. Fed takes the lead in organizing this market defining them in September 2008 as an insurance product and organizes clearing. The Bank for International Settlements cites the total outstanding notional amount of OTC derivatives at $684T (June 2008) - $458T are interest rate derivatives.
Sub-prime linked assets, CDO/CDS/CMO and OTC derivatives cause losses and failures:
1) Long Term Capital Management fails and is seized (September 23, 1998) by the Federal Reserve Bank of New York, bailed out by major banks which injected $3.625 billion and liquidated. LTCM lost $4.6B as their equity fell from $4.7 billion to $600M - assets (including notional derivative positions) exceeded $1.25T (leverage exceed 250:1).
2) Enron fails and files bankruptcy (December 2, 2001) and liquidated assets of $63.4B the largest U.S. Bankruptcy - the "Enron loophole". Enron's energy trading activities forced Pacific Gas & Electric into bankruptcy. Arthur Andersen's firm was closed because of the scandal. Enron's accounting practices resulted in the Sarbanes-Oxley Act of 2002.
3) Bear Stearns fails and is purchased (March 17, 2008) by JP Morgan Chase for $10 (down from $172, 2007) the 5th largest U.S. investment bank - the Fed intervened with a non-recourse loan of $29B.
4) Lehman Brothers fails and files bankruptcy (September 15, 2008) and is liquidated, largest U.S. Bankruptcy, 4th largest U.S. investment bank, total debts of $613B against total assets of $639B. Lehman's leverage rose to 44:1 and balance sheet manipulation "repo 105" (accounting firm Earnest & Young). Lehman's brokerage customers receive 100% (and about $65B to pay $300B of claims). Bankruptcy trustees payouts: commercial paper claims $0.484-0.557, special financing unit $0.39, derivatives unit $0.279-0.32, senior bondholders $0.211 cents, most unsecured creditors $0.25-0.35, and final unsecured claims $0.17. Lehman claims from 67,000 filed originally demanding about $1.2T.
5 - Merrill Lynch fails and is purchased (September 14, 2008) by Bank of America for $50B, the 3rd largest U.S. investment bank.
6) AIG fails (September 16, 2008) enters conservatorship and receives a $85B Federal Reserve emergency loan ($1.1T assets, 74 million clients in 130 countries - total authorized assistance rising to $184.6B) in return for relinquishing 79.9% ownership in the company. AIG's Financial Products division writes over $20B of synthetic CDOs (from Goldman Sachs) in 2005 and over $30B from other financial institutions in 2006. Treasury Department exchanges $49.1B of preferred shares for 1.655 billion new shares of AIG common stock raising ownership to 92%, on 1/14/2011.
International Derivatives Clearing Group, LLC (IDCG), subsidiary of NASDAQ OMX Group, started clearing over-the-counter interest-rate swap contracts on December 29, 2008 - peaked near $458T 2Q08 (notional value/gross exposure) of interest rate derivatives.
ICE US Trust LLC, Intercontinental Exchange's entity, started clearing contracts on March 9, 2009 - before the CME Group (NYSE Euronext), Eurex AG and LCH.Clearnet Group Limited - peaked above $58.2T in 2008 (notional value/gross exposure, through tear-ups $33T 12/2009) of credit-default swaps.
Chrysler Group, LLC files Chapter 11 bankruptcy, April 30, 2009, $39B, 7th largest bankruptcy in U.S. history - Cerberus Capital Management, Daimler, U.S. Treasury, UAW and other creditors will reorganize. Chrysler Group exits bankruptcy in 42 days, closing 8 factories and 789 dealerships, with $6.6B in exit financing from the US government (in addition to $4.5B). Chrysler is owned by the UAW union trust 55%, Fiat SpA 20% (rising to 35% and 51%), the U.S. government 23% (falling to 8%) and the Canada government 2% - secured bondholders get about $0.29 while the Indiana pension funds get up to $0.72.
Toronto-Dominion Bank purchases (December 21, 2010) Chrysler Financial for $6.3B from Cerberus Capital Management LP. U.S. Treasury Department sold its stake for $1.9B on May 17, 2010 settling its $4B loan. Chrysler (operated by Fiat) repays (5/24/2011) U.S. government $5.9B and Canadian and Ontario provincial government $1.7B - U.S. government now owns 6.6%, Canadian government 1.7% and Chrysler retiree health-care trust (UAW) 46%.
General Motors Company files Chapter 11 bankruptcy, June 1, 2009, $91 billion, 4th largest bankruptcy in U.S. history - U.S. Treasury, Canadian government, UAW, old GM bondholders and other creditors will reorganize. General Motors exits bankruptcy in 40 days, closing 13 factories and 2,300 dealerships with $30B in exit financing from the US government (in addition to $19.4B). General Motors Co. is owned by the U.S. government 60.8%, the Canada and Ontario governments 11.7%, the UAW retiree medical benefits trusts 17.5% and the remaining 10% owned by Motors Liquidation (the old GM) to pay off creditors and unsecured bondholders. Pontiac division, first produced in 1926 - closed. Saab sold to Spyker (not Koenigsegg) for $74M in cash and $326M in preferred shares. Opel and Vauxhall brands (European GM) not sold to Magna International (with German government guarantees) - canceled. Saturn not sold to Penske Automotive - canceled. Hummer not sold to Sichuan Tengzhong Heavy Industrial Machinery Co. - canceled. GM goes public 11/17/2010 with an IPO with both overallotments the deal raises a total of $23.1B. General Motors still owes $27B to the U.S. Treasury, as of 9/2012.
PRICE INFLATION caused by CHEAP MONEY (low interest rates)
Commodity bubble pops, flight to U.S. Treasuries:
> Gold $255 (Apr '01) - $1033.90 (Mar 17 '08) - and $681 (Oct 23 '08) a 34.1% decline.
> Silver $4.54 (Jan '03) - $21.44 (Mar 17 '08) - and $9.09 (Oct 24 '08) a 57.6% decline.
> Platinum $406 (Oct '01) - $2308.80 (Mar 4 '08) - and $752.10 (Oct 27 '08) a 67.4% decline.
> Copper $0.60 (Nov '01) - $4.26 lbs. (May 5 '08) - and $1.25 (Dec 26 '08) a 70.6% decline.
> Oil $10 (Dec '98) - $147.27 (July 11 '08) - and $32.40 (Dec 19 '08) a 78% decline.
> CRB $184 (Nov '01) - $618 (July 2 '08) - and $327.50 (Dec 5 '08), Reuters Commodity Research Bureau Index of 17 commodities (1967=100, 9/74=226.80, 2/75=175.90, 11/80=334.80, 2/99=182.95), a 47% decline.
> Wheat from $4.12 (Apr '07) to $13.49 (Feb 17 '08) - and $4.71 (Dec 5 '08) a 65% decline.
> Corn from $2.22 (Sep '06) to $7.79 (Jun 27 '08) - and $3.05 (Dec 5 '08) a 60.8% decline.
> Rice from $6.18 (Jul '05) to $24.35 (Apr 18 '08) - and $11.19 (Mar 16 '09) a 54% decline.
> Soybeans from $6.00 (Oct '06) to $16.60 (Jun 27 '08) - and $7.76 (Dec 5 '08) a 53.2% decline.
- U.S. Dollar, eur:usd $0.8228 (Oct 26, 2000) depreciates to $1.6038 (July 15 '08) a 95% decline. Rallies to $1.2326 (Oct 27 '08) up 22% in 3 month.
- 1 month Treasury trades -0.091% (12/4/08) and trades below 0% (December 5, 8-11, 15, 16, 24, 26 2008 and 3/26/09).
- 3 month Treasury trades -0.041% (12/4/08) and trades below 0% (December 8-11, 15, 16, 24 & 26 2008 and 11/19/09) first time since the U.S. began selling them in 1929.
- 6 month Treasury trades 0.11% (11/19/09) lowest since 1958.
- 2yr Treasury trades 0.327% (10/12/10) all-time low.
- 10yr Treasury trades 2.035% (12/18/08) rallying from 4.32% (Jun 13 '08) yield down 52.8% in 6 months, the lowest yield in its 46-year history. Yields rise from 2.035% (12/18/08) to 4.00% (6/11/09). 10yr Treasury has its biggest 1 day rally (3/18/09) since 1962 rallying from 3.01% to 2.46%, yield down 18.2%.
- 2yr-10yr Treasury spread widens to a record 2.88% (12/22/09) and 2.93% (2/18/10) steepening the U.S. Treasury yield curve - spread was a record 2.74%, Aug. 13, 2003.
VIX trades below 20 (12/22/09) falls to 15.23 (4/12/2010) up to 48.2 (5/21/2010).
LIBOR trades below 25 bps most days between 12/21/09 (24.875 bps) and 2/05/10 up to 54 bps (5/25-6/25 2010).
TED spread trades below 16 bps (9/10/09) and 10.5 bps (3/16/2010) up to 48.82 bps (6/15/2010).
3 month LIBOR-OIS spread trades below 7.6 bps (12/15/09) and 5.9 bps (3/15/10) up to 35 bps (7/5/2010).
SEC and OVERSIGHT
April 28, 2004, SEC's William H. Donaldson - 'net capital rule' for the 5 big independent investment firms is loosened (allowing Bear Stearns leverage rise to 35.5 to 1) though oversight and risk audits are mandated.
March 2007, SEC's Christopher Cox - eviscerates the oversight office for the 5 big independent investment firms (under April 28, 2004, SEC ruling 'net capital rule') leaving their risk management office with no director and dismantled.
July 6, 2007, SEC's Christopher Cox - "short sale price test" under the Securities Exchange Act of 1934, the 'tick test rule' is repealed.
November 15, 2007 - FASB 157 Fair Value Measurements enacted mark-to-market under Sarbanes-Oxley Act enforced. Financial Accounting Standards Board interpretation of the Sarbanes-Oxley Act, July 30, 2002.
July 21, 2008 - SEC issues an emergency rule (July 21 - August 12) to limit naked-short selling in 19 major financial firms.
Sep 19, 2008 - SEC halts short selling of Financial stocks (Sep 19, effective immediately) protecting 799 financial companies - through Oct 2. SEC extends short selling ban of Financial stocks protecting 950 financial companies - through Oct 8.
Sep 19, 2008 - SEC's failure of U.S. Money market mutual funds (covered under the Securities Exchange Act of 1934) $3.5 trillion 'uninsured'. Paulson's Treasury uses his authority to protect Money market mutual funds with insurance (using a $50B Treasury fund). 2 MM funds "broke the buck" in 2008 - the SEC found that the parent companies supported their funds on more than 300 occasions (credit events) including the Orange County bankruptcy in 1994 and the 2008 Lehman bankruptcy.
Sep 19, 2008 - SEC lack of oversight of Hedge funds (covered under the Investment Company Act of 1940) $2-3 trillion engage in naked-shorting - 'voluntary regulation'. Short selling by Hedge funds of $100M must now report positions to the SEC.
Dec 11, 2008 - SEC charges Bernard Madoff with securities fraud for a $52 billion dollar Ponzi scheme, 4,900 account holders (about $17.5B invested), SIPC pays out $823.7M.
Irving Picard trustee sued about 1,050 for about $103B in clawbacks against banks, former customers and feeder funds on behalf of 2,547 recognized claims related to 2,213 accounts (16,518 claims were rejected more than 10,000 were from investors in feeder funds, about $6.9B). Recovered $10.5B (1,129 accounts with less than $925k fully reimbursed) as of 12/31/14: $7.2B (Madoff trustee $5B and U.S. Government $2.2B) from the estate of Jeffry Picower and related investors. $2.5B from the Bank Medici and its founder, Sonja Kohn (relationship began in 1985 fed more than $9.1B) and the Bank Austria. UniCredit of Italy sued for $19.6B. HSBC sued for $9B, *JPMorgan Chase & Co. for $5.4B, and Citibank, BofA/Merrill Lynch and 5 other banks for $1+B. *(Expands allegations against JPMC from $5.4B to $19B). ABN Amro, Fortis, Nomura and Banco Bilbao sued for receiving money through feeder funds: UBS, Tremont Group Holdings (Oppenheimer, settlement of more than $1B). CPAs Frank Avellino and Michael Bienes, and Madoff family members sued for more than $900M. Settled $80+M against a group of charities and non-profit organizations, Madoff's first clients and 19 family members settled agreeing to forfeit $625M. Madoff's firm beginning in 1961.
February 17, 2009 - SEC charges Robert A. Stanford for a fraudulent $7B CD / Ponzi scheme.
March 23, 2009 - U.S. Treasury and Federal Reserve agree on the Fed's responsibilities as the US exits the recession and removes liquidity from the system: 1). Treasury-Federal Reserve cooperation in improving the functioning of credit markets and fostering financial stability, 2). The Federal Reserve to avoid credit risk and credit allocation, 3). Need to preserve monetary stability, and 4). Need for a comprehensive resolution regime for systemically critical financial institutions.
April 2, 2009 - FASB (Financial Accounting Standards Board) loosens fair value rules (from mark-to-market) to cash flows and other factors for "distressed assets".
May 18, 2009 - FASB requires off-balance-sheet loans (qualifying "special purpose entities") to be reported - which may result in the nation's 19 largest banks reporting $900B in previously unrecognized assets and liabilities (requiring an increase of capital reserves).
September 17, 2009 - SEC rules 'Naked' Short-Selling ends - requiring that brokers must promptly buy or borrow securities to deliver on a short sale.
February 24, 2010 - SEC restricts short sales once a stock falls 10% from the previous day's closing price - then one can only execute a short sale at a price above the market's best bid (an uptick). The curb stays in place through the following day.
April 16, 2010 - SEC alleges that Goldman Sachs structured and marketed a CDO (April 26, 2007) which "wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party". Goldman Sachs agrees to $550M SEC settlement (July 15), largest penalty in Wall Street history.
June 11, 2010 - SEC mandates Exchanges begin uniform "circuit breakers" across NYSE, Nasdaq, BATS Global Markets, Direct Edge, International Securities Exchange, Chicago Board Options Exchange, CME Group Inc. and Intercontinental Exchange (following the May 6, 2010) DJIA interday 998.5 point fall. 6-month pilot period, S&P 500 stocks change of 10% in 5 minutes triggers a halt in trading for 5 minutes.
July 21, 2010 - Dodd-Frank Wall Street Reform and Consumer Protection Act signed. Requiring 243 new rules to be writen by 11 different federal agencies. Creates a Financial Stability Oversight Council, a Consumer Financial Protection Bureau, a Federal Insurance Office, OTC derivatives clearing, stricter Bank Capital standards (including restricted Propriety trading), Credit-rating business oversight, new authorities for the SEC and required registration for Hedge funds and Private Equity funds - phasing in through 2022.
SEC approves 1) "limit up-limit down" mechanism that prevents trades in individual exchange-listed stocks from occurring outside of a specified price band and 2) updates existing market-wide circuit breakers that when triggered, halt trading in all exchange-listed securities throughout the U.S. markets, effective by February 4, 2013.
CAPITAL MARKET LOSES
Global Markets fall from $62.6 trillion [10/31/07] to $25.5 trillion [Mar 9 '09] losing $37.1 trillion or 59.2%:
DJIA falls 54.6% from 14,279 to 6,469.95 [10/11/07 - Mar 6 '09]
S&P 500 falls 57.7% from 1,576 to 666.79 [10/11/07 - Mar 6 '09]
NASDAQ falls 55.7% from 2,861 to 1,265.52 [10/31/07 - Mar 9 '09].
MSCI Europe Index falls 61.8% from 1,388 to 529 [7/13/07 - Mar 9 '09]
MSCI Pacific Index falls 59.5% from 173.1 to 70.13 [11/1/07 - Mar 10 '09]
S&P Latin America 40 falls 68.2% from 5,862 to 1,862.84 [5/20/08 - Nov 20, 2008]
S&P Emerging Middle East & Africa falls 52% from 307.73 to 146.30 [11/7/07 - Mar 9, 2009]
S&P BRIC falls 71% from 466.90 to 135.25 [10/31/07 - Oct 27, 2008]
Japan's NIKKEI Index falls from 18,297 [6/20/07] to 6,994.90 Oct 28, 2008 - a 61.7% fall.
Germany's DAX Index falls from 8,131 [6/20/07] to 3,588.89 Mar 9 '09 - a 55.8% fall.
Britain's FTSE Index falls from 6,754 [7/13/07] to 3,460.71 Mar 9 '09 - a 48.7% fall.
France's CAC Index falls from 6,168 [6/1/07] to 2,465.46 Mar 9 '09 - a 60.0% fall.
Canada's TSX Index falls from 15,154 [6/6/08] to 7,479.96 Mar 6 '09 - a 50.6% fall.
Brazil's BOVESPA Index falls from 73,920 [5/29/08] to 29,435 Oct 27, 2008 - a 60.1% fall.
Russia's RTS Index falls from 2,498 [5/19/08] to 492.59 Jan 23 '09 - a 80.3% fall.
India's Bombay SENSEX Index falls from 21,113 [1/9/08] to 7,697.39 Oct 27, 2008 - a 63.5% fall.
Shanghai Composite falls 72.8% from 6,124 (Oct 16 '07) to 1,664 Oct 28, 2008 in 1 year - last year the Shanghai Composite was the best performer up 161%.
> US dollar - up 27.5% in 1 year:
70.80 on March 17, 2008 to 90.30 on Mar 4 '09.
> Japanese yen, jpy:usd - up 30.0% in 19 months:
$0.008059/124.09 on June 22, 2007 to $0.01149/87.0 on Jan 21, 2009.
*Yen fell 20.6% from 3/17/08 to 8/15/08 and 14.7% from 1/21/09 to 4/7/09
> Chinese yuan/renminbi, cny:usd - up 18.0% in 3 years:
$0.121/8.27 on July 21, 2005 to $0.147/6.78 on Aug 26, 2008.
> Euro, eur:usd - down 23.1% in 3 months:
$1.60/.625 on Jul 15, 2008 to $1.23/.813 on Oct 27, 2008.
> British Pound, gbp:usd - down 35.6% in 14 months:
$2.11/.474 on Nov 8, 2007 to $1.36/.736 on Jan 23 '09.
> Canadian Dollar, cad:usd - down 30.4% in 16 months:
$1.10/.909 on Nov 7, 2007 to $0.766/1.304 on Mar 9 '09.
> Indian Rupee, inr:usd - down 34.0% in 11 months:
$0.025/39.1 on Feb 1, 2008 to $0.019/52.4 on Mar 3 '09.
> Russian Ruble, rub:usd - down 56.9% in 7 months:
$0.043/23.2 on Jul 11, 2008 to $0.027/36.4 on Feb 18 '09.
U.S. and GLOBAL FIXES
Aug '07 - Emergency FOMC inter-meeting cut 8/17 - the 'discount rate' to 5.75% from 6.25% citing tighter credit and shaken financial markets. Central banks in the U.S., Europe and Asia had injected more then $400B (Aug 9-16) into the banking system providing liquidity to global credit markets. By the October 29th meeting - Fed Funds rate cut to 1.00% and the Discount rate is cut to 1.25%.
Dec '07 - U.S. Mortgage lenders have agreed to freeze the interest rates on adjustable-rate (subprime) mortgages for 5 years for mortgages written between January 2005 and July 2007 - FHASecure also offers relief to borrowers.
> Federal Reserve announces an agreement with the European Central Bank, Bank of England, Bank of Canada and the Swiss National Bank creating a (temporary) auction facility (establishing temporary swap arrangements) providing reserves for up to 6 months - to "help promote the efficient dissemination of liquidity" when other lines of credit are "under stress."
> European Central Bank (ECB, Dec 17) injects a record €348.6B Euro ($501.5B) lending (unlimited) to all banks submiting bids of at least 4.21% for 2-week funds at its weekly refinancing auction.
Jan '08 - GDP quarterly growth for 2007 1Q 0.2%, 2Q 3.1%, 3Q 2.7%, 4Q 1.4%.
Monthly jobs losses begin in July/August 2007: 6/07 71.000, 7/07 -33,000, 8/07 -16,000, 9/07 85,000, 10/07 82,000, 11/07 118,000, 12/07 697.000 and 1/08 15,000.
Countrywide Financial is purchased by Bank of America for $4.1B.
Feb '08 - $168 billion Stimulus plan signed into law - Tax rebates (to over 130M Americans), Business tax breaks and Housing provisions (Fannie Mae and Freddie Mac may temporarily purchase mortgages up to $793,000 up from $417,000 while the FHA can insure loans for up to $729,000).
Mar '08 - Bear Stearns is purchased by JP Morgan Chase for $10 (down from $172, 2007) - the Fed intervenes (non-recourse loan of $29B) in the protection of investment banking for the first time since the 1930s.
Apr '08 - Bank of England (BOE) follows Fed's lead with $100B swap of mortgage securities for BOE government bonds - the move is to encourage credit markets and bank lending.
Jul '08 - Housing bill signed into law: creating the FHFA (Federal Housing Finance Agency, GSE's regulator) for Fannie Mae and Freddie Mac (increasing limits to $625,500 from $417,000), modernizes/authorizes the FHA to insure up to $300B in refinanced mortgages, creates an affordable housing trust fund and $15B of home buyer's tax credits (States can offer an additional $11B to refinance subprime loans while increasing down payments to 3.5% from 3%) and grants $3.9B to buy and rehabilitate foreclosed homes.
> The Fed allows GSEs (government sponsored enterprises) Fannie Mae and Freddie Mac access to their discount window - they guarantee $5.4T of $12T of U.S. mortgages.
> SEC issues an emergency rule (July 21 - August 12) to limit naked short selling in 19 major financial firms - the 'tick test rule' was repealed on July 6, 2007.
> Federal Reserve's new regulations for mortgage lenders: banning repayment penalties, prohibiting lenders from issuing loans to borrowers that cannot repay while requiring the verification of their incomes and assets, and requiring escrow accounts for property taxes and homeowner's insurance, as well as: actual appraisal of a home's value and good faith lending practices.
> IndyMac Bancorp (July 11, 2008) is seized from imminent failure by the Office of Thrift Supervision and files for bankruptcy with $33B of assets (exceeding Continental Illinois, $9.5B in 1984) costing the FDIC $10.7B.
Aug '08 - UBS agrees to buy back $18.6B in failed auction-rate securities, Merrill Lynch agrees to $12B, Wachovia $9B, Citigroup $7.3B, Morgan Stanley $4.5B, Bank of America $4.5B, JPMorgan Chase $3B and Royal Bank of Canada $850M - about $330B of auction-rate securities are outstanding.
Sep '08 - FHFA (Federal Housing Finance Agency) places Fannie Mae (with Herb Allison of TIAA-CREF) and Freddie Mac (with David Moffett of U.S. Bancorp) into conservatorship - dividends on both the common and preferred shares will be eliminated. Interest and principal payments will continue to their companies' securitized bonds and subordinated debt. The Treasury will 'backstop' both agencies with up to $100B (each) of a special class of stock - the Treasury through senior preferred stock and warrants will own 79.9% of each agency. Their portfolios "shall not exceed $850B as of 12/31/09, and shall decline by 10% per year until they reach $250B" - Fannie's is $758B and Freddie's is $798B.
> Short selling by Hedge funds of $100M must now report positions to the SEC. SEC halts short selling of Financial stocks (Sep 19, effective immediately) protecting 799 financial companies - through Oct 2. SEC issues rules for short sales requiring delivery of securities by the settlement date, effective Sep 18. Britain's Financial Services Authority (& other Global exchanges) banned short-selling of financial stocks from Sep 18 - Jan 16, 2009.
> Federal Reserve approves Goldman Sachs and Morgan Stanley to become bank holding companies - ending independent investment banks. Paulson's Treasury Dept. protects US money market mutual funds with insurance (using a $50B fund, through April 30, 2009) - as some of the $3.6T of funds 'broke the buck'. Federal Reserve broadens eligible collateral - previously, only Treasury securities, Agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged.
> Lehman Brothers, the fourth-largest U.S. investment bank, files for the largest U.S. bankruptcy - listed total debts of $639B.
> Merrill Lynch, the third-largest U.S. investment bank, is purchased by Bank of America for $50B.
> AIG ($1.1T assets and 74 million clients in 130 countries) receives an $85B Federal Reserve loan in return for relinquishing 79.9% percent ownership in the company.
> Washington Mutual is seized by federal regulators and sold to J.P. Morgan Chase for $1.9B - the largest bank failure in U.S. history, $307B in assets.
> Bradford and Bingley nationalized (joins Northern Rock as U.K.'s 2nd mortgage lender) and rescues for European lenders Fortis (Benelux's banking and insurance group), Hypo Real Estate (Germany's real estate firm), Glitnir (Iceland's third-largest lender) and Dexia (Franco-Belgian's bank, world's biggest lender to European local governments).
Oct '08 - Emergency Economic Stabilization Act of 2008 (EESA) a $700B rescue of financial institutions by purchasing devalued mortgage-linked assets (Paulson's Treasury Dept. will administer the Troubled Asset Relief Program, or TARP) - protection and tax beaks for taxpayers (equity positions in the financial institutions participating), limits on executive's compensation, independent oversight and transparency, help to prevent home foreclosures (modifying troubled loans), raises FDIC to $250k from $100k and an insurance option into which banks would pay. Federal Reserve receives authority to pay interest on reserves, the SEC receives the power to change mark-to-market accounting rules and the FDIC supports interbank lending.
> EESA/TARP invests $125 billion in 9 large banks (10/26): $25B in each Citigroup, J.P. Morgan, Wells Fargo and Bank of America/Merrill Lynch, $10B in each Goldman Sachs and Morgan Stanley, $3B in Bank of New York Mellon and $2B in State Street. - with preferred stock (5% dividend for the first 5% years and then convert to 9%), warrants (right to buy common stock equal to 15% of the total investment in the firm) and compensation limitations.
> Federal Reserve increases currency swaps with foreign central banks to unlimited amounts (up from $620B) and increased the Term Auction Facility, the Fed's emergency loan program, to $900B - to easy liquidity problems. Federal Reserve begins to purchase U.S. commercial paper from U.S. companies and Money market funds - a $1.8T market (90-day unsecured at 1.88% plus a 1% credit surcharge and 90-day secured asset-backed rate at 3.88%, 10/27).
> Federal Housing Finance Agency orders Fannie Mae and Freddie Mac (FHFA is their new regulator) to purchase $40B a month of underperforming mortgage bonds - to promote greater stability and liquidity in the U.S. mortgage market.
> Bank of America modifies (cuts interest rates and/or principal) 265,000 mortgages and 400,000 of acquired Countrywide's mortgages - the largest predatory lending settlement, $8.6B. J.P. Morgan Chase will modify 400,000 borrower's mortgages from their acquisition of Washington Mutual.
> G7 (United States, Japan, Germany, France, Italy, the United Kingdom and Canada) agrees to recapitalizing banks with public and private funds, insure depositors and unfreezing credit markets. G20 (G7 plus China, Brazil, Russia, India, Mexico, South Korea, Saudi Arabia, Argentina, Australia, Indonesia, South Africa and Turkey) commits to "using all the economic and financial tools to assure the stability and well functioning of financial markets" - they account for about 90% of global gross domestic product. IMF's 185 member nations endorse a commitment to "use all available tools" to prevent systemic failure. World Bank agrees to help developing countries strengthen their economies, bolster their financial systems and protect the poor against the financial turmoil in international markets.
> Iceland Oct. 8, 2008, U.K freezes Iceland's bank assets. Iceland's krona falls 58% in 2 months, Iceland's resolution committee seizes and liquidates failing Kaupthing Bank, Landsbanki Islands and Glitnir - in receivership creditor claim $107B, assets had risen to $209B, 11 times Iceland's gdp. Iceland's banks defaulted (averting sovereign default) on $85B of debt. Iceland receives a $4.6B bailout led by the IMF. OMX Iceland 15 fell from 9,093.29 (7/19/07) to 211.43 (3/25/09) a 97.7% decline.
> IMF provides loans to Iceland, Ukraine, and Hungary - Britain was the last European country to receive an IMF loan in 1976.
> 15 leading European nations commit $2.3T and agree to a 14pt plan to aid troubled banks by adding capital through investment and by guaranteeing inter-bank lending. European governments (Germany, Ireland, Sweden, Austria, Denmark, Iceland and Greece) guarantee all private savings accounts. European Union countries raised minimum guarantees for bank deposits to €50,000 while the ECB raised overnight lending to $250B. The United Kingdom (£50 billion and £450 billion in loan guarantees), Spain (€100 billion), Russia ($36 billion), Portugal (€20 billion), Norway ($55.4B), Sweden ($205B), German (€500B), Netherlands (€200B), Austria (€85B), Switzerland ($60B) and France (€360B) establish plans to support their domestic banking systems. Japan's package includes government guarantees for loans to businesses is $270B.
> SEC extends short selling ban of Financial stocks protecting 950 financial companies - through Oct 8.
> Wachovia will be purchased by Wells Fargo (as Citigroup exits) in an $11.7B all-stock offering.
Nov '08 - World leaders summit (G20) in Washington DC (November 15) "to discuss the financial markets and the global economy" and "agree on a common set of principles" to reform global regulation of the markets: United States (George W. Bush, gdp $45,800), Canada (Stephen Harper, gdp $38,600), Australia (Kevin Rudd, gdp $37,300), United Kingdom (Gordon Brown, gdp $35,000), Germany (Angela Merkel, gdp $34,100), Japan (Tara Aso, gdp $33,500), France (Nicolas Sarkozy, gdp $32,600), Italy (Silvio Berlusconi, gdp $30,900), South Korea (Lee Myung-Bak, gdp $25,000), Saudi Arabia (Abdullah Bin Abdul Aziz, gdp $19,800), Russia (Dmitry Medvedev, gdp $14,800), Argentina (Cristina Fernandez de Kirchner, gdp $13,100), Mexico (Felipe Calderon, gdp $12,400), Turkey (Recep Tayyip Erdogan, gdp $12,000), South Africa (Kgalema Motlanthe, gdp $9,700), Brazil (Luis Inacio Lula, gdp $9,500), China (Hu Jintao, gdp $5,400), Indonesia (Susilo Bambang Yudhoyono, gdp $3,600), India (Manmohan Singh, gdp $2,600) and an European Union representative. G20 Declaration on Nov 15, 2008
> Federal Reserve announces $200B of support for debt backed by consumer and small-business debt (credit-card, auto, student and SBA loans) and the Fed will purchase up to $100B of debt from Fannie Mae and the Federal Home Loan Banks and up to $500B of mortgage-backed securities backed by Freddie Mac, Fannie and Ginnie Mae - the Treasury will initially provide $20B of "credit protection" to these Federal Reserve GSE lending programs from TARP.
> FDIC guarantees $1.4-1.8T of bank-to-bank lending for more than 3 years (Dec. 31, 2013) as part of the EESA. FDIC proposes a program applied to 4.4 million non-GSE mortgage loans using $24B from the EESA to save 1.5 million modified loans from foreclosure.
> Fannie Mae and Freddie Mac (own or back 31 million U.S. mortgages) modify mortgages: resident homeowners 90 days or more late, owe at least 90% of current value, have not filed for bankruptcy - payments would not exceed 38% of their monthly household income through interest rate adjustments and/or longer repayment schedules. Citigroup will modify 500,000 borrower's mortgages.
> European Central Bank cuts rates to 3.25% from 3.75%, Bank of England cuts to 3% from 4.5% (lowest level since 1955) and the Swiss National Bank cuts to 2% from 2.5%.
> Britain announces a £25.6B ($38.8B) stimulus package spent in 2009-10 - tax cuts and spending increases to avert the U.K.'s first recession since 1991.
> China announced a $586B (4T yuan) economic stimulus package (almost 20% of China's 2008 gdp) - the plan bolsters low-rent housing, infrastructure in rural areas, roads, railways, airports, subsidies for farmers will be raised and tax deductions for purchases of fixed assets (machinery) to stimulate investment.
> Japan promises $100B in loans to IMF raising their funding capacity to $250B - IMF provide a loan to Pakistan.
> American Express (and AmEx Travel Related Services) becomes a bank-holding company.
> Citigroup receives $20B (in addition to the initial $25B) from TARP to protect $306B of troubled mortgages and assets - Citigroup assumes losses on the first $29B the Treasury will absorb 90% of the remaining losses and $27B of preferred with an 8% dividend.
> EESA/TARP invests $125B in smaller regional banks: AIG ($40B and $60B credit facility, 52.5B MBS & CDO purchased), Federal Home Loan Mortgage Corp. ($13.8B), PNC ($7.7B), U.S. Bancorp ($6.6B), Capital One ($3.55B), SunTrust ($3.5B), Regions Financial ($3.5B), Fifth Third Bancorp ($3.4B), BB&T Corp. ($3.1B), KeyCorp ($2.5B), Comerica Inc. ($2.25B), Marshall & Ilsley ($1.7B), Northern Trust Corp. ($1.5B), Huntington Bancshares Inc. ($1.4B), Zions Bancorporation ($1.4B), Synovus Financial ($973M), Popular Inc. ($935M), First Horizon National Corp. ($866M), ETrade Financial ($800M), Colonial BancGroup ($550M), Associated Banc-Corp ($530M), Webster Financial ($400M), City National Corp. ($395M), Fulton Financial ($375M), TCF Financial ($361M), South Financial Group ($347M), Wilmington Trust ($330M), East West Bancorp ($306M), Sterling Financia ($303M), Whitney Holding Corp. ($301M), Susquehanna Bancshare ($300M), Valley National Bancorp ($300M), Citizens Republic Bancorp ($300M), UCBH Holdings Inc. ($298M), Cathay General Bancorp ($258M), Wintrust Financial ($250M), First Merit Corp. ($248M), SVB Financial Group ($235M), Trustmark ($215M), Umpqua Holdings Corp. ($214M) and Washington Federal ($200M) - and 88 banks borrowing less than $200M.
Dec '08 - FOMC easing stance - December 16 - Fed Funds rate cut of 0.75%-1% to 0%-0.25% from 1.00% the Discount rate is cut to 0.50% from 1.25%. "The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity."
> President Bush and the Treasury intercede extending $13.4B in loans to GM and Chrysler (another $4B in February - Ford did not seeking government assistance) - Paulson is the "president's designee". Wages to auto workers must match the compensation of foreign auto company plants in the U.S.. Paulson's Treasury requests the remaining $350B TARP funds from Congress. GM and Chrysler also receive $3.3B in government loans from Canada and the province of Ontario.
> European Central Bank cut interest rates 75 bps to 2.5%. Bank of England cuts rates 100 bps to 2% - lowest since 1951. The Swedish, Danish and New Zealand central banks also lowered their rates. Bank of Japan lowers interest rate to 0.1%, increases purchases of government debt and announces plans to buy commercial paper for the first time as Japan's recession starves worsens.
> Credit Union Homeowner Affordability Relief Program (Treasury) a $41B lending facility where retail credit unions could borrow up to $2 billion at favorable rates - about 8,400 U.S. credit unions with $775B in assets.
> Federal Reserve increases its balance sheet to $2.34T from $924B (9/10). The Federal Reserve, CFTC and SEC announce that a central clearinghouse for the $33T credit-default swap market will be running by December 31.
> Japan expands $270B package to $385B - ¥10T of stimulatory spending to save job cuts and ¥13T to protect the banking system.
> EESA begins assigning second $350B in other financial institutions awaiting Congressional approval: GMAC, American Express, CIT, Discover Financial Services, GM and Chrysler.
> 19.7% is a record spread on yields between high-yield, high-risk corporate bonds and Treasuries.
> Banks and securities firms (Citigroup, UBS, Merrill, etc.) report over $1.1T of mortgage-related writedowns from subprime securities - while raising over $750B of new capital in 2008.
Jan '09 - GDP quarterly growth for 2008 1Q -2.7%, 2Q 2.0%, 3Q -1.9%, 4Q -8.2%.
U.S. unemployment rate rises to 7.7%, 3.6 million jobs losts in 2008, most since 1945. Jobs lost in 2008: 1/08 -15,000, 2/08 -86,000, 3/08 -80,000, 4/08 -214,000, 5/08 -182,000, 6/08 -172.000, 7/08 -210,000, 8/08 -259,000, 9/08 -452,000, 10/08 -471,000, 11/08 -765,000, 12/08 -697.000 and 1/09 -798,000.
> European Central Bank cut interest rates 50 bps to 2%. Bank of England cuts interest rates to 1.5% - lowest ever, founded in 1694.
> Morgan Stanley agrees to buy 51% of Citigroup's Smith Barney for $2.7 billion. Citigroup to split between - Citicorp: retail, corporate, investment and private banking, credit card businesses and Citi Holdings: brokerage, asset management, CitiFinancial and CitiMortgage. FDIC sells IndyMac Bank to IMB Management Holdings LP (J.C. Flowers & Co., Paulson & Co., MSD Capital LP and Stone Point Capital) for $13.9B - FDIC's bank insurance fund losses are expected to be approximately $9 billion.
> International Derivatives Clearing Group, LLC (IDCG), subsidiary of NASDAQ OMX Group, started clearing over-the-counter interest-rate swap contracts on December 29, 2008 - $458T (notional value/gross exposure) of interest rate derivatives.
Feb '09 - Financial Stability Plan (Timothy Geithner ): 1. Financial Stability Trust (a Comprehensive Stress Test for Major Banks, Increased Balance Sheet Transparency and Disclosure and Capital Assistance Program), 2. Public-Private Investment Fund ($500B - $1T), 3. Consumer and Business Lending Initiative (Up to $1T), 4. Transparency and Accountability Agenda, Including Dividend Limitation, 5. Affordable Housing Support and Foreclosure Prevention Plan and 6. A Small Business and Community Lending Initiative.
> American Recovery and Reinvestment Act of 2009 (Obama signs) - a $787.2B Stimulus bill. Spending (& Aid), $575.2B (incl. $267B of Aid): health care ($141.3B), infrastructure ($89.7B), education ($87.3B), energy ($86.2B), aid to poor and unemployed ($67B), direct cash payments to entitlement recipients ($14.2B), state block grants ($8.8B), housing ($9.5B), science ($5.6B), law enforcement ($4B) and homeland security ($3.8B). Taxes, $212B: 2009-10 tax credit ($400 per-worker, $800 per-couple) AMT, college, child, homebuyer ($8,000), low-income earned income tax credits; renewable energy, depreciation and auto sales incentives.
> Housing plan that may help 3-4 million homeowners (Obama / Geithner) - the $75B plan ($50B from TARP and $25B from Fannie Mae and Freddie Mac): 1) Loan modifications owned or guaranteed by Fannie Mae and Freddie Mac and 2) A separate modification program through a participating lender. Loans originated before Jan. 1, 2009 are eligible for modification through 2012, mortgages up to $729,750 and rates as low as 2%.
> Japan, China, South Korea, Thailand, Indonesia, Malaysia, Singapore, Philippines and 5 Southeast Asian nations agree to form a $120B pool of foreign-exchange reserves to defend their currencies.
> Citigroup to convert $25B of preferred stock (debt from Treasury's TARP) into common shares, 33.6% of outstanding shares.
Mar '09 - Global Markets fall from $62.6T [10/31/07] to $25.5T [Mar 9 '09] losing $37.1T or 59.2%
- DJIA trades 6,469.95 (Mar 6) lowest since November 1996 - 54.6% lower than 14,279 (10/11/07)
- S&P 500 trades 666.79 (Mar 6) lowest since May 1996 - 57.7% lower than 1,576 (10/11/07) - NASDAQ trades 1,265.52 (Mar 9) lowest since October 1996 - 55.7% lower than 2,861 (10/11/07)
- MSCI Europe Index trades 529 (Mar 9) lowest since December 1996 - 61.8% lower than 1,388 (7/13/07)
> U.S. unemployment rate rises to 8.6%.
> 30-year fixed mortgage at historic record low of 4.61%.
> Federal Reserve begins TALF (Term Asset-Backed Securities Loan Facility, up to $1T) lending $84 to $95 for every $100 in ABS posted as collateral - initial interest rates for 3-year loans from 1%-3%.
> ICE US Trust LLC, Intercontinental Exchange's entity, started clearing contracts on March 9, 2009 - before the CME Group (NYSE Euronext), Eurex AG and LCH.Clearnet Group Limited - $27T (notional value/gross exposure) of credit-default swaps.
> FOMC neutral stance - March 18 - Fed Funds rate 0%-0.25% and the Discount rate of 0.50%. "Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750B of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25T this year, and to increase its purchases of agency debt this year by up to $100B to a total of up to $200B. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300B of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments."
> European Union pledges $100B (€75bn) to the IMF and doubles funds for non-Eurozone countries to $68B (€50bn).
> U.S. Treasuries (March 18) post their biggest 1 day rally since 1962 rallying from 3.01% to 2.46% following the Fed's announcement - Federal Reserve begins purchases of $300B of 2-10 year Treasuries hoping to reduce consumer borrowing costs.
> EESA/TARP invests second $350B in other financial institutions: Citigroup ($25B), Bank of America ($20B, Federal Reserve will backstop $118B of acquired Merrill assets), GM ($15.4B), GMAC ($5.0B), Chrysler ($4.5B), Chrysler Financial ($1.5B), American Express ($3.4B), CIT ($2.3B), Discover Financial Services ($1.2B), GM ($1B), M&T Bank Corp ($600M and New York Private Bank & Trust ($267M) - 555 institutions participating as of 3/09.
> NCUA (National Credit Union Administration Board) placed U.S. Central Federal Credit Union ($34B) and Western Corporate unions ($23B) into conservatorship.
> European Central Bank cut interest rates 50 bps to 1.5% - a record low. Bank of England cut interest rates 100 bps to 0.5% - lowest ever, founded in 1694.
> AIG receives up to $30B of new loans from TARP funds after reporting a $61.7B loss in 4Q08 - the largest in corporate history, total authorized assistance of $182.3B.
> Public-Private Investment Program (Treasury Secretary Timothy Geithner, March 23, 2009) using $75-100B from TARP: 1) creating the Legacy Loans Program (backed by FDIC, guaranteeing financing for up to 6 times the capital) to purchase and hold loans, 2) the Federal Reserve's TALF will expand to include asset-backed securities, and 3) establish Legacy Securities Program, 5 public-private investment funds, to purchase asset-backed securities - managed privately with up to 100% financial matching with profits or losses shared with the Federal Reserve.
> US Treasury and the Federal Reserve (March 23) agree on the Fed's responsibilities as the US exits the recession and removes liquidity from the system: 1. Treasury-Federal Reserve cooperation in improving the functioning of credit markets and fostering financial stability, 2. The Federal Reserve to avoid credit risk and credit allocation, 3. Need to preserve monetary stability, and 4. Need for a comprehensive resolution regime for systemically critical financial institutions.
> Switzerland, Liechtenstein, Andorra and Monaco banking authorities all pledged to comply with OECD (Organization for Economic Cooperation and Development) standards for banking transparency and information exchange. UBS paid (Feb. 18) $780 million to avoid prosecution for helping wealthy Americans evade taxes - disclosing information on more than 250 secret accounts, the U.S. continues to seek the identities of 52,000 American account holders suspected of tax evasion on $20 billion in assets.
> U.S. dollar's share of global currency reserves rises to 65% the euro's share rose to 25.9% - flight to quality.
Apr '09 - G20 agrees to provide the IMF with $1 trillion of lending power - by selling 403 tons of gold.
> FASB (Financial Accounting Standards Board) loosens fair value rules from mark-to-market to cash flows and other factors for distressed assets.
> European Central Bank cut interest rates 25 bps to 1.25% - a record low.
> Chrysler files Chapter 11 bankruptcy ($39B, 7th largest in U.S. history) - Cerberus Capital Management, Daimler, Fiat SpA, U.S. government, UAW and other creditors will reorganize.
May '09 - Federal Reserve releases that 10 of the 19 major U.S. banks need to raise a total of $74.6B in capital - BofA ($33.9B), Wells ($13.7B), GMAC ($11.5B), Citi ($5.5B), Regions ($2.5B), SunTrust ($2.2B), Morgan Stanley ($1.8B), KeyCorp ($1.8B), FifthThird ($1.1B), PNC ($0.6B) - while AmEx, BB&T, BNYM, CapOne, Goldman, JPMC, MetLife, State St and USB do not need additional funds.
> U.S. unemployment rate rises to 9.4%.
> Thornburg Mortgage (5/01/09) files for bankruptcy - 8th largest in U.S. history $36.5B.
> GM receives an additional $4B and GMAC an additional $7.5B ($19.4B and $12.5B, respectively) of TARP funds. Treasury offers $22B of TARP funds to Insurers: Prudential, Hartford, Allstate, Lincoln National, Principal and Ameriprise.
> FASB requires off-balance-sheet loans (qualifying special purpose entities) to be reported, which may result in the nation's 19 largest banks reporting $900B in previously unrecognized assets and liabilities - requiring an increase of capital reserves.
> European Central Bank cut interest rates 25 bps to 1.00% - a record low.
June '09 - U.S. unemployment rate rises to 9.5%.
> GM files Chapter 11 bankruptcy ($91B, removed from the DOW index having received $19.4B) 4th largest in U.S. history. Opel and Vauxhall brands, European GM, will be purchased by Magna International (Canadian parts supplier with €1.5B in credit guarantees from the German government). Sichuan Tengzhong Heavy Industrial Machinery Co. to buy Hummer. Penske Automotive Group to buy Saturn. Koenigsegg to buy Saab.
> Chrysler Group exits bankruptcy in 42 days, closing 8 factories and 789 dealerships, with $6.6B in exit financing from the US government. Chrysler is owned by a United Auto Workers union trust 55%, Fiat 20% (rising to 35%), the United States government 23% (falling to 8%) and 2% the Canada government - secured bondholders get about $0.29 while the Indiana pension funds get up to $0.72.
> European governments have approved $5.3 trillion of committed aid: United Kingdom €781.2, Denmark €593.9, Germany €554.2, Ireland €384.5, France €350.1, Belgium €264.5, Austria €165, Sweden €142, Spain €130 and the Netherlands €46.1.
> Dow Jones Industrial Average, June 8 - Travelers replaces Citigroup and Cisco replaces General Motors.
July '09 - U.S. unemployment rate rises to 9.4% - a record total of 9.35 million people have received unemployment compensation.
> General Motors exits bankruptcy in 40 days, closing 2,400 dealerships with $30B in exit financing from the US government. General Motors Co. is 60.8% owned by U.S. taxpayers, with 11.7% by the Canada and Ontario governments and 17.5% by the United Auto Workers' retiree medical benefits trusts (with 2.5% of preferred stock and $9 billion in notes) and the remaining 10% owned by Motors Liquidation (the old GM) to pay off creditors and unsecured bondholders (with 15% of preferred stock).
> SEC, 'Naked' Short-Selling ends - rules require that brokers must promptly buy or borrow securities to deliver on a short sale.
August '09 - U.S. unemployment rate rises to 9.7%.
> Colonial BancGroup fails with assets of $25B, biggest U.S. bank failure in 2009, taken over by BB&T Corp.
> Swedish Riksbank (world's oldest central bank, 1668), August 7, 2009 - is the first central bank to post a negative interest rates - their repo rate was cut to 0.25% and their deposit rate 50 bps lower at to -0.25%, a penalty on banks that refuse to lend. U.S. Treasury repo rates are generally 5 to 10 bps below the Fed funds rate.
> UBS AG agrees to discloses details on 4,450 accounts to the Internal Revenue Service.
> IMF offers $250B of SDRs (Special Drawing Rights) on Aug. 28 comprised of 4 major freely convertible currencies: US dollars: 44%; Euros: 34%; Yen: 11%; and British pound 11% - distributed to member countries in line with their shareholder stakes, secondary market restricted to participating governments or central banks. SDR 21.4 billion to SDR 204.1 billion (about $317B).
September '09 - U.S. unemployment rate rises to 9.8%.
> Group of 20 nations to replace G-8 (G-7 from 1975 until 1997) as primary organization coordinating global economic policy. Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.
> TED spread trades below 16 bps. on 9/10. 3-month LIBOR - OIS spread trades below 10 bps. on 9/18. LIBOR closes below 29 bps. on 9/18.
> IMF offers an additional $33B of SDRs (Special Drawing Rights) on September 9.
October '09 - U.S. unemployment rate rises to 10.1% - highest in 26 years. 8.7 million jobs lost since December 2007.
> Reserve Bank of Australia (Oct 6) becomes first major central bank to raise its policy rate 25 bps. to 3.25% rate - following a 49-year low.
> China sells an inaugural 6B yuan ($878.7M) of sovereign bonds in Hong Kong, issued Oct. 27 - representing 0.013% of $7T of total foreign exchange reserves.
> Capmark Financial Group (formerly commercial lending at GMAC) filed for bankruptcy (Oct 25) debt of $21B and consolidated assets of $20.1B, a top servicer of U.S. commercial real estate loans and the largest servicer of loans in the rest of the world.
> SIPC releases $534.25M to 1,558 Madoff's vicitms - exceeding the $520 million (from all 321 prior SIPC liquidations) since the program began in 1970.
November '09 - U.S. unemployment rate falls to 10.0%, 64,000 jobs created, ending 22 consecutive monthly declines in payrolls.
CIT Group files Chapter 11 bankruptcy, $71B in assets and $64.9B in debt, one of the U.S.'s largest small-business lenders - the fifth-largest bankruptcy in U.S. history.
> British government (Nov 3) bails out: RBS £25.5B (total £45.5B, U.K.'s government stake increases to 84.4% from 70%), the world's most expensive bank bailout. Lloyds Banking Group (acquired HBOS Plc on Jan 16) to recieve £5.6B pounds (government's rights to buy stock, in addition to earlier £17B) and plans to raise £21B (£13.5B pounds in a rights offering and £7.5B in a bond exchange) denying the government majority control which owns 43.5%.
> President Obama signs $24B Worker, Homeownership, and Business Assistance Act of 2009. Extending unemployment benefits (up to 20 weeks) and extending the $8,000 homebuyer tax credit (signed by April 30 and closed by June 30), the credit will have been used by 1.8 million homebuyers in 2009.
> Internet Gambling Enforcement Act in 2006 signed October 13, 2006 compliance is not required until Jun 1, 2010 to comply with the rules intended to limit the use of payment systems for Internet gambling.
December '09 - Gold trades at a new all-time high $1226, Dec 2.
> 30-year fixed-rate mortgage averaged 4.71%.
> U.S. Commodity Futures Trading Commission (CFTC) raises capital standards requiring the inclusion of over-the-counter derivatives positions into their risk-based capital calculations and raises margin requirements from 4% to 8%.
> GMAC Financial Services gets $3.8 billion in capital (total amount of government aid $16.3B) U.S. government's ownership is 56%.
> Citigroup issues $20.5B of capital and debt while repaying $20B of TARP trust preferred securities (December 14, 2009) reducing the government to 27% ownership.
> China's foreign-exchange reserves exceed $2.4T. China purchase more cars 13.6 million (up 46%, 2008) then the U.S. 10.4 million (down -21%, 2008) first time since 1908. China passes Germany as largest exporter $1.2 trillion compared to $1.17T. China approaches second largest economy, Japan's total GDP $5.085T while China's was $5.02T.
> LIBOR trades below 0.25%, Dec 21. 3-month LIBOR - OIS spread trades 7 bps Dec 28. VIX trades below 20, Dec 22. U.S. Treasury yield curve steepens to record as 2-10-year Treasury spread increases to 288 bps, Dec 22.
> Federal Reserve returns $47.4B (total net income $53.4B) to the Treasury up from $27.5B ($35.5B, 2008).
> U.S. Banks and securities firms (Citigroup, B of A, Wells Fargo, etc.) write off losses of $1.1T (banks writedown $885B). Worldwide reported losses over $1.78T of mortgage-related writedowns (and the securities on those loans totaled more than $1T). Asset-backed securities (losses from CDOs and other ABS derivatives $64.7B). Banks have raised over $1.5T of new capital.
January '10 - GDP quarterly growth for 2009 1Q -5.4%, 2Q -0.5%, 3Q 1.3%, 4Q 3.9%.
US economy contracts -2.4% (worst since 1946) in 2009. Following U.S. gdp of 3Q08 -1.9%, 4Q08 -8.2%, 1Q09 -5.4%, 2Q09 -0.5% (first time since the 1930's that the US has suffered 4 consecutive quarters of declining gdp) - loss of 8.73 million jobs.
> U.S. unemployment rate falls to 9.7%, 5.0 million jobs losts in 2009, most since 1945. Jobs lost in 2009: 1/09 -798,000, 2/09 -701,000, 3/09 -826,000, 4/09 -684,000, 5/09 -354,000, 6/09 -467.000, 7/09 -327,000, 8/09 -216,000, 9/09 -227,000, 10/09 -198,000, 11/09 -6,000, 12/09 -283,000 and 1/10 +18,000.
> General Motors sells Saab to Spyker for $74M in cash and $326M in preferred shares.
February '10 - Federal Reserve increases the Discount rate 25 bps to 0.75% (February 19) its first increase (since Jun 29, 2006) when the Fed raised from 5.00% to 5.25%. Then the Emergency FOMC inter-meeting cut (August 17, 2007) to 5.75% from 6.25% (at outset of credit crisis) and the Fed Funds rate cut to 4.75% from 5.25% (discount rate to 5.25% from 5.75%, September 18).
> SEC restricts short sales (February 24) once a stock falls 10% from the previous day's closing price - then one can only execute a short sale at a price above the market's best bid (an uptick). The curb stays in place through the following day.
March '10 - Obama signs $17.6B Hiring Incentives to Restore Employment (HIRE) Act.
> AIG sells Alico (American Life Insurance Co.) to MetLife Inc. for $6.8B in cash and $8.7B in stock and convertible preferred securities. AIG's sale of AIA Group Ltd. (its Asian life insurance operations) to Britain's Prudential PLC for $25B in cash and $10.5B in stock and other securities - canceled.
April '10 - U.S. unemployment rises to 9.9%, 313,000 jobs created - fourth month of payroll gain since October.
> Obama signs $18.2B Continuing Extension Act of 2010 extending unemployment benefits.
> Greek government receives EU-IMF aid backstop (€30B EU and up to €15B IMF, total $61B) at below-market interest rates. Greece spent €50B ($62B) on defense (since 2000), €9B ($11B) on 2004 Olympics while 40% are government employed, full pension as early as 50 yrs old and 30% avoid taxes. The Euro (founded 1999) facing pressures, the 16-nations worked around the Maastricht Treaty barring the bailout of debt-stricken countries.
> SEC alleges that Goldman Sachs fraudulently structured and marketed a CDO in April 2007. Goldman shorted about $615M of CDOs and residential mortgage-backed securities (RMBSs) that Goldman underwrote since 2006.
May '10 - Greece receives a €110B ($146B) rescue package, EU nations (led by Germany and France) €80B and the IMF €30B. Greece must cut its budget deficit by 11% (of GDP) by 2013, €30B cut this year. Greek loan rate around 5% for three years. ECB (European Central Bank) announced it would indefinitely accept Greece's debt as collateral regardless of its credit rating.
> DJIA falls 998.5 points (May 6, a 1010.14 point swing), the 9.2% plunge its biggest since the 1987 crash. The 10 yr U.S. Treasury rallied to 3.26% from 4% (April 5, in 24 trading days). The fall was precipitated by the Greek crisis, then P&G and 3M stocks fell to their NYSE "circuit breakers" (limiting losses) and Waddell & Reed sold 75,000 e-mini S&P 500 index futures contracts. NYSE orders "rolled over" to other "electronic exchanges" and were filled at prices below NYSE "circuit breaker" prices. The "gap" in trading effected other issues, then the NYSE resumed regular trading in issues that had traded limit down - Exchanges subsequently canceled 20,761 trades in 296 issues (160 ETFs of 1,003 ETFs temporarily lost almost all their value).
> Federal Reserve extends U.S. Dollar Liquidity Swaps extended (5/9/10) following the May 6, 2010 DJIA interday 998 pt fall.
> EU leaders (16 euro nations) agree to a €750B ($940B) stabilization facility fund for the Euro. U.S. Federal Reserve reopens foreign bank swaps (through January 2011). The EU Commission will provide €60B, the 16-nation eurozone promises €440B and the IMF will contribute €250B. ECB will buy government and private bonds. Starting May 19 (through March 31, 2011) German regulators temporarily ban naked short-selling on 10 banks and insurers and naked credit-default swaps on euro-area government bonds. ECB expects Europe's banks to writedown €195B of bad debt through 2011 (€444B already recognized, a total of $770B). The 16-country Euro zone had $1.57T of exposure (as of March 31) to Spain ($727B), Ireland ($402B), Portugal ($244B), and Greece ($206B).
> 10 yr U.S. Treasury rallies to 3.06% (May 21) from 4% (April 5, in 7 weeks). VIX rise to 48.2 (May 21) from below 20 on May 3 (15.23 on April 12, up 216%).
June '10 - Federal Reserve starts Term Deposit Facility first auction June 14 ($1.15 billion of 14-day term deposits), June 28 ($2.12 billion of 28-day) and July 12 ($2.11B of 84-day) paying 0.27%, 0.27%, and 0.31% - tightening credit by draining cash from the banking system.
> Gold trades at a new all-time high of $1266.50 June 21.
> Exchanges (June 11) begin SEC mandated uniform "circuit breakers" across NYSE, Nasdaq, BATS Global Markets, Direct Edge, International Securities Exchange, Chicago Board Options Exchange, CME Group Inc. and Intercontinental Exchange (following the May 6, 2010) DJIA interday 998.5 point fall. 6-month pilot period, S&P 500 stocks change of 10% in 5 minutes triggers a halt in trading for 5 minutes.
> Bank of Canada (June 1) raises rates to 0.50% from 0.25%, first G7 central bank to raise interest rates since credit crisis began.
> Chinese RMB (renminbi) fixed-rate ends on June 21 trading below 6.82 (band, low 6.78 8/26/08 to high 6.885 12/1/08) and re-floats against the U.S. dollar after nearly 2 years.
> ECB (European Central Bank) will lend EU banks €131.9B ($161.5B) for 3 months - less than estimated. ECB lends €111.2B ($136.5B) for 6 days (to 78 banks) bridging the landmark 12-month loans (1%) the banks need to repay €442B.
> SEC and federal prosecutors indicted Lee Bentley Farkas - Taylor, Bean & Whitaker Mortgage Corp. and Colonial BancGroup Inc caused more than $1.9B in losses through a scam that started as early as 2002.
> Fannie Mae and Freddie Mac to delist their common and preferred stock from the NYSE, over $145B taxpayer aid to date.
July '10 - July 21 - Dodd-Frank Wall Street Reform and Consumer Protection Act signed: Financial Stability Oversight Council (10 members, Treasury Secretary enforces) monitors and addresses national system-wide risks with the power to seize and break up large, complex financial firms - stricter capital, leverage and new rules (with veto power over proposals by the Consumer Financial Protection Bureau). The liquidation process run by the FDIC while the Treasury would supply funds (to cover the costs) until a "repayment plan" created by assessing fees on financial firms (more than $50B in assets) is established.
Consumer Financial Protection Bureau (under the Federal Reserve) with rule-making (examine and enforce regulations) authority for all mortgage-related, credit cards, pay day lenders, check cashers and loan businesses (more than $10 billion in assets) that offer consumer financial products or services. Auto dealers, mobile-home sellers, real estate brokers, accountants and insurers exempt from the Bureau (state and federal regulations). Consumers get an actual credit score along with an annual report. States can impose stricter consumer protection laws on national banks though the banks can appeal (if a state's law "prevents or significantly interferes" with the bank's ability to do business) to federal regulators. State's attorneys-generals have the power to enforce certain rules issued by the Consumer Financial Protection Bureau.
Federal Insurance Office (under the Treasury) monitors the insurance industry's laws and regulations, reports to the Financial Stability Oversight Council and reports to Congress. Fixed-equity annuities escape SEC regulation (currently regulated by state insurance commissioners).
The Fed will supervise large, complex financial companies that threaten the broader economy and retains oversight over community banks while eliminating the Office of Thrift Supervision. The Fed's emergency lending authority would require the Treasury Secretary's approval and prohibits insolvent firm's participation. The Fed will disclose (2-year lag) details of its discount window loans and open-market transactions. Bankers will no longer pick the presidents of the Fed's regional banks. GAO to conduct one-time audit of all of the Fed's emergency lending programs from the financial crisis of 2007-08.
OTC derivatives (standard interest rate, foreign exchange, commodity and CDO) required to be traded on exchanges and routed through clearinghouses. Customized swaps could be traded, but they would have to be reported with new capital, margin, record-keeping and business conduct rules. Spin-off riskiest OTC derivatives trading operations into affiliates - trading in agriculture, uncleared commodities, most metals, CMOs and energy swaps.
Bank Capital standards (size and risk-based) established including a prohibition on large bank holding companies treating trust-preferred securities as Tier 1 capital (though grandfathers securities for banks with less than $15B in assets). Larger banks would have 5 years to phase-out their trust-preferred securities as Tier 1 capital. A special assessment would be mandated by the Financial Stability Oversight Council on the premiums big banks pay for FDIC insurance (on commercial deposits) and ends TARP. The Fed can cap Interchange fees on "debit" card swipes which retailers pay to banks making them more reasonable and proportional. Propriety trading limited to 3% (or less, Volcker Rule) of a bank's Tier 1 capital in hedge and private-equity funds. Financial firms and banks would be prohibited from bailing out funds in which they are invested. Home mortgages must adhere to new national minimum underwriting standards while lenders would be required to ensure that borrowers are able to repay home loans by verifying the borrower's income, credit history and job status. Bans payments to brokers for steering borrowers into high-priced loans. Unemployed homeowners (with good credit) would be eligible for low-interest loans ($1 billion from TARP). Banks that securitize mortgage-backed loans must keep 5% of the credit risk on their balance sheets (though a class of low-risk mortgages that meets certain minimum standards would be exempt). Regulators could permit alternative risk-retention arrangements for the commercial mortgage-backed securities market. FDIC insurance coverage permanently increased for banks, thrifts and credit unions to $250,000.
Credit-rating business overseen by a new quasi-government entity designed to address conflicts of interest. Allows investors to sue credit-rating firms for a "knowing or reckless" failure to conduct a reasonable investigation (agencies must disclose their methodologies). SEC (new oversight office) has the ability to fine and/or deregister ratings agencies and must find an independent way to match credit rating agencies with financial firms seeking ratings.
SEC can hold broker dealers who give investment advice to a fiduciary duty similar to registered investment advisers. SEC can grant shareholders proxy access (to nominate directors) and require industry regulators with oversight of pay practices (within the financial industry). Shareholders of publicly-traded companies have a non-binding vote on executive pay and "golden parachutes". Hedge funds and private equity funds required to register with the SEC as investment advisers and to provide information on trades.
243 new rules required writing by 11 different federal agencies - phasing in through 2022.
> FDIC securitizes $471.3M of performing single-family mortgages originated by 16 failed banks. $400M of senior guaranteed certificates sold paying 2.184% for about 3.66 years and the mezzanine slice and an over-collateralization tranche currently held.
> European Union begin stress tests on 91 banks, accounting for 65% of the EU's banking industry. 7 banks fail, need to raise more than €3.5B ($4.5B) of additional capital: Germany's Hypo Real Estate, Greece's ATEBank and five Spanish banks - Unnim, Diada, Espiga, Banca Civica and CajaSur.
> Obama signs (July 22) $34B Unemployment Compensation Extension Act of 2010 extending unemployment benefits.
> Goldman Sachs agrees to $550M SEC settlement (July 15), largest SEC penalty in Wall Street history.
> AIG settles $725M (July 16) "fraud from October 1999 to April 2005 involving anti-competitive market division, accounting violations and stock price manipulation, and brings total expected recovery for AIG shareholders to over $1B." In 2006 (Feb 9) AIG settled $1.64B for insurance and securities fraud.
August '10 - 30 yr U.S. Treasury rallies to 3.4616% (Aug 25) from 4.85% (April 6, in 4+ months).
> Obama signs (Aug 10) $26.1B Education Jobs and Medicaid Assistance Act of 2010 providing $10B for state teacher's payrolls and $16.1B for state Medicaid funding.
> Federal Reserve extends GSE Mortgage-Backed Securities and GSE Debt Purchases (8/10/08). System Open Market Account (debt purchases) concentrating new purchases in 2-10 year Treasuries, up to $10-25B/month.
September '10 - Basel III, 27 nations agree to raising bank Tier 1 capital ratio to 6% (core to 4.5%, up from 4% and core of 2%) and a capital conservation buffer up to 2.5% - phased in 2013-18.
> Obama signs (September 27) Small Business Jobs and Credit Act of 2010 $30 billion federal fund for small bank small businesses loans and $12B in business tax breaks.
October '10 - 10 yr U.S. Treasury rallies to 2.3302% (Oct 8) from 4% (April 5, in 6 months). 2 yr U.S. Treasury rallies to 0.327% (Oct 12), an all-time low regular sales began in 1975.
> 30-year fixed mortgage at historic record low of 4.19%, October 13 (4.61%, 3/2009).
November '10 - FOMC will continue to reinvest principal payments from agency debt and agency mortgage-backed securities into longer-term Treasury securities: $250-300B plus $600B of new purchases of longer-term Treasury securities through the end of the 2nd quarter of 2011 (about $110 billion per month with an average duration of between 5 and 6 years) 1.5-2.5 year Treasuries: 5%, 2.5-4 years: 20%, 4-5.5 years: 20%, 5.5-7 years: 23%, 7-10 years: 23%, 10-17 years: 2%, 17-30 years: 4% and TIPS 1.5-30 years: 3%.
> 2 yr U.S. Treasury rallies to 0.3118% (Nov 4), an all-time low regular sales began in 1975
> Prime Minister Brian Cowen negotiates Ireland's rescue as government budget deficit reaches 32% of gdp, €35B for banks and €50B the Irish government ($113B) - €67.5B in loans from the EU, the IMF and U.K., Denmark and Sweden and €17.5B from Ireland's own reserves and pensions average interest of 5.8%
> Japanese yen trades ¥80.22 (Nov 1) the Bank of Japan intervenes and sells yen and raised their ¥20-30T ($360B) credit program (Aug 30). 1949 Bretton Woods, fixed rate of ¥360 until January of 1971 (Smithsonian Agreement). March 14, 1973 yen appreciates to ¥254.45 (free float), December 8, 1975 yen depreciates to ¥306.84 (1973 oil crisis), October 30, 1978 yen appreciates to ¥177.05 (trade surpluses), November 4, 1982 yen depreciates to ¥277.65 (differential in interest rates), April 19, 1995 yen appreciates to a dollar low of ¥79.75 (Plaza Accord) and August 11, 1998 yen depreciates to ¥147.11 (Japanese asset bubble).
December '10 - Gold trades at a new all-time high of $1,432.50 December 7 (Silver trades $30.75, highest since March 1980). Official U.S. government Gold price $19.39 (from 1792-1833), $20.67 (1833-1934), $35 (1934-1971, $31.69 low in 1949 and $41.28 high in 1969). In 1968 the U.S. established a two-tiered gold market. On August 15, 1971 the U.S. stopped the direct conversion of U.S. dollars to gold. Gold price set at $38 (1972) and $42.22 (1973) ending the existing Bretton Woods system of international financial exchange. Gold set an all-time high of $850 on January 21, 1980 then fell to $251.70 Aug. 18, 1999. The Washington Agreement (September, 26 1999) limited central banks gold sales following Britain's controversial plan to reduce its gold holdings by 58% to 300 tons from 715 tons, July 1999.
> Dec 17 - Middle Class Tax Relief Act of 2010 ($858B bill for 2011-12). Extended Income tax rates ($288B): 10%, 15%, 25%, 28%, 33% and 35%. Extended Alternative Minimum Tax ($137B): up to $47,450 for individuals and $72,450 for couples (2010), $48,450 and $74,450 (2011) and nonrefundable credits applied to one's tax liability. Social Security tax reduction ($112 billion): a 2% reduction on payroll taxes to 4.2% (2011) on wages up to $106,800. Expanded Child tax credit ($90B): retains $1,000 child tax credit. Estate tax ($68B): exemption raised to $5M and tax lowered to 35% while reinstating the "step up in basis" for beneficiaries of those who die in 2010-12. Unemployed ($57B): 13-month extension, as high as 99 weeks in states hit hardest by job loss. Extended Capital Gains rates ($53B): unchanged for 2011-12. Marriage penalty relief ($27B): twice the standard deduction and an expanded 15% tax bracket for couples. Expanded College credit ($18B): retains American Opportunity tax credit (a HOPE tax credit). Individual tax break extensions ($8B): extends many tax breaks.
> Federal Reserve transfers $78.4B to the Treasury Department in 2010, up from 47.4B that the Fed paid the Treasury in 2009.
> GDP quarterly growth for 2010 1Q 1.7%, 2Q 3.9%, 3Q 2.7%, 4Q 2.5%.
> U.S. unemployment monthly job losses continue in 2010: 1/10 +18,000, 2/10 -50,000, 3/10 +156,000, 4/10 +251,000, 5/10 +516,000, 6/10 -122,000, 7/10 -61,000, 8/10 -42,000, 9/10 -57,000, 10/10 +241,000, 11/10 +137,000, 12/10 +71.000 and 1/11 +70,000.
US GOVERNMENT PROGRAMS
Federal Reserve programs:
*1. Discount window (Primary Credit) - repo rate, lends directly to commercial banks.
Commitment: $113.7B high on 10/29/08
1a. Discount window (Depository Institutions) - lends directly to all financial firms, including securities firms.
Commitment: $61B as of 3/31/09
1b. Discount window (secondary credit) - lends at primary credit rate plus 50 bps when collateral is weaker.
Commitment: $9.3B as of 3/31/09
1c. Single-Tranche Open-Market Operations (ST OMO, March 7, 2008, ends December 30, 2008) - Federal Reserve Bank of New York $80B initiative, 28-day loans at rates as low as 1 bps to 19 banks (primary dealers) which posted mortgage securities guaranteed by GSEs (Fannie Mae or Freddie Mac). Credit Suisse $45B 8/27/08, Goldman Sachs $34.5B 12/31/08, RBS Securities $31.5B 10/8/08, Barclays $20B 12/08, UBS $20.5B 11/26/08, Deutsche Bank $15B 10/08, Morgan Stanley and BNP Paribas each borrowed $10B, Citigroup, JPMorgan Chase, Merrill Lynch less than $5B and Lehman Brothers $2B outstanding when it filed bankruptcy Sept. 15, 2008.
Commitment: $80B as of 12/08
*2. U.S. Dollar Liquidity Swaps (12/12/07, ends February 1, 2010) - currency swaps with 14 foreign central banks to unlimited amounts (up from $606B): Reserve Bank of Australia, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Japan, the Reserve Bank of New Zealand, the Norges Bank, the Sveriges Riksbank, Swiss National Bank, Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore.
Commitment: unlimited increased from $600B (peak $580B as of 12/31/08)
2a. U.S. Dollar Liquidity Swaps extended (5/9/10, ends January 31, 2011) - following the May 6, 2010 DJIA interday 998 pt fall.
Commitment: unlimited ($30B as of 5/30/10)
2b. U.S. Dollar Liquidity Swaps extended (12/17/10, ends August 1, 2011) - following troubles in Ireland.
Commitment: unlimited ($0B as of 12/31/10)
2c. U.S. Dollar Liquidity Swaps extended (11/30/11, ends February 1, 2013) - following troubles in the EU.
Commitment: unlimited ($0B as of 12/31/10)
3. Term Auction Facility (TAF, 12/17/07 ends March 8, 2010) - provides a negotiated rate for banks to borrow from the Fed.
Commitment: $900B (peak $493.2B as of 2/26/09)
4. Bear Stearns bailout (3/17/08)
Maiden Lane LLC created by JPMorgan Chase to hold Bear Stearns assets.
Commitment: $29.5B ($29Bn as of 3/31/09)
5. Primary Dealer Credit Facility (PDCF, 3/17/08 ends February 1, 2010) - provides funding to primary dealers in exchange for a specified range of eligible collateral.
Commitment: $200B ($155.7B high on 9/29/08)
*6. Term Security Lending Facility (TSLF, 3/27/08 ends February 1, 2010) - auctions loans of Treasury securities to bond dealers in exchange for collateral such as mortgage-backed securities.
Commitment: $250B (peak $233.6B as of 10/31/08)
6a. Term Securities Lending Facility Options Program (TOP, 3/27/08 ends February 1, 2010) - auctions loans of Treasury securities to bond dealers in exchange for eligible collateral.
Commitment: $100B ($0B as of 10/31/08)
6b. Securities Lending program (3/27/08 ends February 1, 2010) - System Open Market Account (SOMA) portfolio.
Commitment: peak $26,149B as of 10/23/08
7. AIG line of credit (9/16/08), AIG Residential Mortgage-Backed Security LLC Facility (11/10/08), and AIG Collateralized Debt Obligation LLC Facility (11/10/08)
Commitment: $85B, $22.5B and $30B ($137.5B as of 3/31/09)
8. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF, 9/22/08 ends February 1, 2010) - lends to banks so they can buy commercial paper from mutual funds.
Commitment: unlimited ($7B as of 3/31/09)
9. Money Market Investor Funding Facility (MMIFF, 10/21/08 ends October 30, 2009) - buys assets from financial companies to bolster money-market mutual funds, at its peak it covered over $3T of combined fund assets and earned more than $1B in income.
Commitment: $540B (never used ends Oct' 09)
10. Commercial Paper Funding Facility (CPFF, 10/27/08 ends February 1, 2010) - buys short-term notes from companies, which use the proceeds to pay bills.
Commitment: $1.8T ($274.1B hign 3/9/09)
11. Citigroup bailout guarantees (11/23/08)
Commitment: $306B as of 3/31/09
12. Bank of America guarantees (11/23/08)
Commitment: $118B as of 9/22/09 $57M exit fee to the Federal Reserve
13. Term Asset-Backed Securities Loan Facility (TALF, 11/25/08 ends June 30, 2010) - initially lends money to owners of securities that are backed by education, car and credit-card loans, and borrowing guaranteed by the Small Business Administration loans. Also, added under the Legacy Securities Program lends for the purchase of asset-backed securities.
Commitment: up to $1T ($70B as of 8/31/09)
*14. GSE Mortgage-Backed Securities and GSE Debt Purchases (11/25/08) - purchase up to $1.25T in MBS (by asset managers: BlackRock, Goldman Sachs, Pacific Investment Management Co. and Wellington Management) in an effort to reduce GSEs debt costs and thereby lower mortgage rates. Purchase up to $200B (reduced to $175B) in GSE direct obligations.
Commitment: $1.45T ($823B as of 9/30/09, Treasury's purchase of $175B ends 12/31/2009)
14a. GSE Mortgage-Backed Securities and GSE Debt Purchases extended (8/10/08) - System Open Market Account (debt purchases) concentrating new purchases in 2-10 year Treasuries, $10-25B/month.
Commitment: repurchases ($2B as of 8/17/10)
15. U.S. Treasury purchases (3/31/09) - purchase up to $300B of 2yr to 10yr Treasuries.
Commitment: $300B ($295.3B ended 10/29/09)
16. U.S. Treasury purchases (QE2, 11/10/10 ends 6/30/11) - FOMC will continue to reinvest principal payments from agency debt and agency mortgage-backed securities into longer-term Treasury securities: $250-300B plus $600B of new purchases of longer-term Treasury securities through the end of the 2nd quarter of 2011.
Commitment: $600B ($600B ended 6/30/11)
**A. Term Deposit Facility (TDF, 6/14/10) - pays above Fed funds rate (initially 0.27-0.31%) to tightening credit by draining cash from the banking system
Withdrawing billions through purchases ($5.38B on 7/12/10)
* Federal Reserve programs totals:
Maximum commitment: over $7.7T - Peak accessed on 3/9/09: $1.5T. Earned $13B 8/07 - 12/09.
*1. Temporary Liquidity Guarantee Program (TLGP, October 13, 2008) - takes the risk out of bank-to bank lending. Earned more than $9B in income.
Commitment: $1.5T (peak $345B ends December 31, 2010)
1a. GE Capital guarantees TLGP (11/12/08)
Commitment: $139B ($88B as of 7/22/09)
1b. Citigroup bailout TLGP (11/25/08)
Commitment: $64.6B as of 5/11/09
1c. Bank of America guarantees TLGP (12/08)
Commitment: $44.5B as of 9/22/09, $92M exit fee to FDIC
1d. JPMorgan Chase guarantees TLGP (12/08)
Commitment: $39.7B as of 5/11/09
1e. Morgan Stanley guarantees TLGP (12/08)
Commitment: $25B as of 5/11/09
1f. Goldman Sachs guarantees TLGP (12/08)
Commitment: $21.2B as of 5/11/09
1g. Wells Fargo guarantees TLGP (12/08)
Commitment: $9.5B as of 5/11/09
2. Public-Private Investment Program (PPIP, March 23, 2009) - guaranteeing financing (up to 6 times the capital) to purchase and hold loans of asset-backed securities.
Commitment: $150B reduced from an initial $1T ($20B as of 3/31/09)
* FDIC Program totals:
Maximum commitment: $1.6T - Accessed as of 9/30/09: $357B - Earned $9B as of 9/30/09.
National Credit Union Administration (NCUA) program:
1. Credit Union Homeowner Affordability Relief Program - Dec 9, 2008, Central Liquidity Facility (CLF) where retail credit unions could borrow up to $2B at favorable rates. Congress increased the funding authorization from $1.5B to $41B.
Commitment: $41B ($0B as of 3/31/09)
2. Credit Union Deposit Insurance Guarantees - January 28, 2009, temporary guarantee of all NCUA credit unions deposits above former $250,000 limit.
Commitment: $80B ($0B ends December 31, 2010)
3. Credit Union System Investment Program (CU SIP) - January 28, 2009, help troubled NCUA credit unions cover anticipated losses on asset-backed securities.
Commitment: $1B ($1B as of 3/31/09)
4. NCUA bailouts - U.S. Central and WesCorp credit unions bailouts ($57B). 15 credit unions failed in 2008, 31 credit unions failed in 2009 and 14 credit unions failed in 2010.
Commitment: unlimited ($60B as of 3/31/09)
* NCUA Program totals:
Maximum commitment: $98B - Accessed as of 9/30/09: $57B
Treasury Department programs:
1. Economic Stimulus Act of 2008 - February 13, 2008, Tax rebates for individuals ($117B) and Tax breaks for businesses ($51B).
Commitment: $168B ($168B as of 3/31/09)
2. Fannie Mae & Freddie Mac bailout - September 7, 2008 (ends December 31, 2012), lending facility to support Fannie Mae & Freddie Mac mortgage lending activities.
Commitment: $400B 2/18/09 increased from $200B 9/7/08 ($150B as of 8/16/10)
3. Exchange Stabilization Fund (ESF) - Sep 19, 2008, Exchange Stabilization fund buys and sells short-term notes to moderate fluctuations in foreign currency exchange rates.
Commitment: $50B ($50B as of 3/31/09)
4. Temporary Guarantee Program for Money Market Funds - September 19, 2008, helps money market funds by insuring against losses.
Commitment: $50B of $700B ($0B as of 8/6/10)
5. AIG bailout - September 22, 2008, investments in AIG preferred stock. Updated to be administered through the TARP program, the U.S. government's 79.9% ownership.
Commitment: $70B up from $40B ($44.8B as of 9/30/08)
*6. Emergency Economic Stabilization Act of 2008 (EESA / TARP) - Oct 3, 2008:
TARP including housing, auto and insurance rescues, will cost taxpayers $32B (CBO), as of 8/2012.
Commitment: $700B ($356.2B as of 8/6/10)
6a. Capital Purchase Program (CPP) - October 14, 2008, purchases of preferred stock $25B in each Citigroup, J.P. Morgan, Wells Fargo and Bank of America/Merrill Lynch, $10B in each Goldman Sachs and Morgan Stanley, $3B in Bank of New York Mellon, $2B in State Street and hundreds of other institutions. Profit of about $11.6B, as of 8/2012.
Commitment: first $250B of $700B ($204.7B as of 8/6/10)
6b. Targeted Investment (TIP) - November 20, 2008, Bank of America ($20B) and Citigroup ($20B).
Commitment: $40B of $700B ($40B as of 8/6/10)
6c. Consumer & Business Lending Initiative (CBLI) - February 10, 2009, Term Asset-Backed Securities Loan Facility (TALF) commitment ($45B increased from $20B) and TALF loss provisions ($35B). Small business loan program commitment ($20B).
Commitment: $100B of $700B ($20B as of 9/30/09)
6d. Automotive Industry Financing Program (AIFP) - Feb 10, 2009, General Motors ($49.9B), GM Supplier Receivables ($3.5B), Chrysler ($15.2B), Chrysler Receivables ($1.5B), GMAC ($13.5B) and Chrysler Financial ($1.5B). $80B auto bailout may cost taxpayers $14B.
Commitment: $80.1B of $700B ($77.6B as of 11/9/09)
6e. Capital Assistance Program (CAP) - Feb 10, 2009, Supervisory Capital Assessment Program (SCAP, stress tests Apr 24, 2009) on 10 of the 19 major U.S. banks are required to raise a total of $74.6B in capital.
Commitment: $75B of $700B ($0B as of 11/9/09)
6f. Making Home Affordable plan - February 18, 2009, may help 2-4 million homeowners (521,630 through 2010), $75B plan ($50B from TARP and $20B from Fannie Mae, Freddie Mac and $5B from HUD.
Commitment: $50B of $700B ($1.75B as of 8/6/10)
6g. Asset Guarantee Program (AGP) - March 2, 2009, Temporary Liquidity Guarantee Program (TLGP) commitment. Citigroup ($5B) and Bank of America ($7.5B).
Commitment: $12.5B of $700B ($5B Citigroup as of 8/6/10)
6h. Public-Private Investment Program (PPIP) - March 23, 2009, in conjunction with the Federal Deposit Insurance Corporation ("FDIC") and the Federal Reserve System.
Commitment: $30B reduced from $100B of $700B ($5B as of 11/9/09)
7. Student loan guarantees - January 15, 2009, lending facility to purchase Student loans
Commitment: $195B ($32.6B as of 9/30/09)
8. FDIC support - February 10, 2009, line of credit, lending facility to support FDIC.
Commitment: $500B ($0B ends October 31, 2009)
9. NCUA support - February 10, 2009, line of credit, lending facility to support NCUA through Central Liquidity Facility (CLF).
Commitment: $500B ($0B ends October 31, 2009)
10. American Recovery and Reinvestment Act of 2009 - February 17, 2009, Tax relief ($288B) and Stimulus ($499.2B) including $8,000 homebuyer's tax credit for 314,000 Americans.
Commitment: $787.2B ($498B as of 8/6/09)
11. Car Allowance Rebate System - June 24, 2009, Cash for Clunkers
Commitment: $3B ($2.88B as of 9/1/09)
12. Worker, Homeownership, and Business Assistance Act - November 6, 2009.
13. Advanced Technology Vehicles Manufacturing program - November 12, 2009, Department of Energy (DOE) through Energy Independence and Security Act of 2007 establishes an incentive program consisting of both grants and direct loans.
Commitment: $25B ($8B as of 12/31/09)
14. Hiring Incentives to Restore Employment (HIRE) Act - March 18, 2010.
15. Continuing Extension Act - April 15, 2010.
16. Unemployment Compensation Extension Act - July 22, 2010.
17. Education Jobs and Medicaid Assistance Act - August 10, 2010.
18. Small Business Jobs and Credit Act - Sept. 27, 2010.
19. Middle Class Tax Relief Act - Dec 17, 2010.
20. Temporary Payroll Tax Cut Continuation Act - Dec 23, 2011.
21. Welfare Integrity and Data Improvement Act - Feb 2012.
* Treasury Department Program totals:
Maximum commitment: $4T - Accessed as of 9/30/09: $1.1T
Federal Housing Administration (FHA) programs:
*1. Housing and Economic Recovery Act of 2008 - July 30, 2008
1a. Hope for Homeowners (H4H) - provides loan guarantees and a $7,500 tax credit for 2,687,000 1st time homebuyers and mortgage borrowers.
Commitment: $293B ($21B as of 2009)
1b. Neighborhood Stabilization (NSP) - provides loan guarantees for mortgage borrowers.
Commitment: $6.92B ($6.92B as of 2011)
*2. Making Home Affordable plan - February 18, 2009, may help 3-4 million homeowners, $75B plan ($50B from TARP and $20B from Fannie Mae, Freddie Mac and $5B from HUD: 1) Loan modifications owned or guaranteed by Fannie Mae and Freddie Mac and 2) A separate modification program through a participating lender. Loans originated before Jan. 1, 2009 are eligible for modification through 2012, mortgages up to $729,750 and rates as low as 2%. Covers more than 85% of loans in the country.
Commitment: $75B (521,630 through 2010, $1.75B as of 8/6/10)
2a. FHA Home Affordable Modification Program (FHA-HAMP)
Home Affordable Modification Program SM (HAMPSM)
Veteran's Affairs Home Affordable Modification (VA-HAMP)
Home Affordable Modification Program for Rural Development Loans (RD-HAMP) - March 4, 2009, provides loan guarantees for mortgage borrowers. Trial modification 1,775,000, permanent modification 933,000 and FHA Loss mitigation interventions 1,188,000.
Commitment: $40B of $75B ($30B as of 2012)
2b. Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HHF) - June 23, 2009, provides loan guarantees for mortgage borrowers in Arizona, California, Florida, Michigan and Nevada.
Commitment: $7.6B from TARP ($7.6B as of 2011)
2c. Home Affordable Refinance Program (HARP) - begins September 7, 2010, provides loan guarantees for mortgage borrowers between 998,000 million may be able to refinance.
Commitment: $14B from TARP ($5 billion as of 2011)
2d. Principal Reduction Alternative SM (PRA)
2e. Second Lien Modification Program (2MP)
2f. USDA's Special Loan Servicing
2g. Home Affordable Foreclosure Alternatives Program (HAFA)
2h. Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP)
2i. FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance)
2j. Home Affordable Unemployment Program (UP) - 2d-j., additional programs. All Refinances (2a-j.) $24.639B reductions.
* Federal Housing Administration Program totals:
Maximum commitment: $375B - Accessed as of 9/30/09: $302B
** US Government program totals: Maximum U.S. commitment: $12.8T
U.S. support peaked March 2009: $4.1T
Globally, Governments and Central banks provided over $11T of support for Financial institutions: $1.56T in capital injections, $5.21T for asset purchases and guarantees and $4.64T in debt guarantees.