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A Nonpartisan Timeline Of How We Got In This Mess (unfinished)
Category: News and Politics
Keep in mind this is a work in progress... (still not complete. I guess I'm a little over half done with this ambitious project. Forgive all the typos, changes in tense, and a few nonsensical phrases. I'm trying!)
(if anyone has info to add feel free to message me...)
1929: The US economy begins the freefall known as the "Great Depression" with certain agreed upon causes:
Institutional Financial Speculation: American banks loaned money across the Atlantic to fund the German and Austrian reparations debt demanded under the Treaty of Versailles. The Germans and Austrians gave the money to the British and French who then repaid war loans to the American banks. When the Germans and Austrians default on the loans made by American banks they also quit paying reparations. The British and French suspend payment on their war debt and US banks are hit with a double whammy.
A real estate bubble: "The Roaring Twenties" saw a boom in certain sectors of the US economy. Banks provide mortgages at a greater pace than ever before in our history, leading to a spike in urban housing prices. As the Depression developed and deflation set in more and more of the loans went bad, adding further stress to the banks.
Underconsumption: half of the American people did not benefit from the "Roaring Twenties." Industrial workers and farmers who'd received higher wages and farm prices saw a precipitous decline when WWI ended. Workers faced grim times and farmers faced foreclosure and eviction. The pool of consumers capable of buying the products of a mass production society was kept low by policies favoring and a government completely controlled by business interests.
Overcapitalization/ Overleveraging: The maldistribution of income concentrated greater wealth in fewer hands. The savings rate surged and financiers seeking the highest returns invested the money in riskier and riskier forms of investment (like loans to Europe, real estate, and driving up the stock market to unwarranted levels).
Consumer Financial Speculation: Common citizens who had never participated in the stock market were convinced by bankers to take funds from deposit accounts and invest in stocks and bonds. Often bankers allowed consumers to pay only 10% of the price of the stocks. Regular Joes tossed money into the market expecting a return based on the pyramidal rise in prices rather than on the basis of profitability.
Panic!!! Slowly all the speculation and overleveraging of assets reached the crisis point as all Ponzi schemes do. Farmers defaulting on mortgages due to drought and European bank defaults plus an economic downturn due to a further erosion of wages sparked a panic. Regular Joe was called upon to pay the other 90% on stocks that had gone down in value, wiping out savings. Institution were caught on both sides of the equation. Some could not pay for stocks theyb had received with 10% down. Others were not paid the full 90% they were due. On "Black Tuesday" the market took a huge dive. After a small rise the market slip dramatically.
The result was that CREDIT disappeared. Banks had no money to loan and many were wiped out because they were overleveraged. Customers who had never participated in the speculation saw their savings wiped out in the closures.
The government, locked in the mindset of laissez-faire 19th century capitalism had neither the inclination nor the ability to keep the availability of credit from shrinking by 50%. Unable to borrow businesses laid off millions of workers which caused further problems... The country went into the shitter with up to 40%unemployment.
1929-33: The Hoover administration attempts several market driven reforms that fail to halt the deepening of the economic disaster. Millions are forced into unemployment and foreclosure. Tent cities called "Hoovertowns" spring up across America. Desperation sets in and a large minority of the American people turn towards radical solutions from the left and right. Rumors of coups circulate. Federal, state, and local governments uses force to counter dissent and union activity.
Jan 1933: a run on banks causes many to collapse leading to further panic. Millions lose their life savings. The lame duck Hoover administration did nothing to stop the bank run and ensuing panic.
4 Mar 1933: Franklin Roosevelt is inaugurated as president having been elected on nothing more than the vague promise of hope and a "New Deal." Roosevelt assembles a team of Cabinet and sub-Cabinet officials who are willing to see beyond the 19th century economics of Hoover and begin trying pragmatic solutions to the nations dire problems.
5 Mar 1933: Roosevelt declares a "bank holiday" and forces the closure of the nation's banks and of all financial transactions.
9 Mar 1933: Congress passes Roosevelt's Emergency Banking Act. By the following day solvent banks begin reopening and the panic ends...
1933: The first Glass Steagle Act allows the federal government to use currency as banking reserves instead of specie (gold and other precious metals) essentially abolishing the "gold standard."
The Second Glass Steagle Act (officially the Banking Act of 1933):
creates the FDIC to insure deposits up to $100,000 to reestablish trust in commercial (deposit) banks.
sets up firewalls between commercial and investment banks forcing institutions to become one or the other. The merging of these two types of banks had caused dangerous conflicts of interest as the banks used their assets to buy bad investments sold by the investment banking side, then to toss more depositer cash to try to prop up failed ventures. Depositers were encouraged to use savings to buy highly leveraged and risky investments. Financial giant JP Morgan was the most prominent example of a mixed commercial/investment bank...
Forbade commercial banks to have more than 10% of investments in securities (generally bonds) with the exception of federal gov't bonds. Unscrupulous financiers often had forced banks to buy risky bond issues which led to the Panic of 1933...
1938: The Federal National Mortgage Association (FNMA/ Fannie Mae) is created as a government agency as part of FDR's New Deal. The agency is given the task of improving liquidity in the moribund mortgage industry of the Great Depression with the primary goal of expanding the opportunity of lower and middle class buyers to be able to purchase affordable housing. For thirty years the agancy has a near monopoly on the secondary mortgage market. (Not made a semi-private GSE until 1968)
Fannie Mae bought mortgages from banks and other mortgage lenders, bundled them together, and resold them as "mortgage backed securities" on the secondary market, guarenteeing that the principal and interest would be paid even if the borrower defaulted. By doing this Fannie Mae providied lending institutions with fresh money to buy more mortgages.
Simply put Fannie Mae is created as a government run credit union for mortgage lenders. Each transaction is regulated and charged a small fee which is held in an insurance reserve pool against possible losses.
1956: The Bank Holding Act: is passed by a Democratic Congress and signed by President Eisenhower. The aim is to prevent banks from circumventing federal laws that forbid commercial banks to operate across state lines. Large banks had formed holding companies to purchase banks in other states and then operated them as subsidiaries in all but name only. The act was meant to prevent combinations that would have undue economic and political power or threaten the economic health of the nation if allowed to grow too large.
Sep 9 1965: The Department of Housing and Urban Development is created by an act of Congress (Democrat) and signed into law by President Johnson.
1968: President Johnson and ( Democratic Congress privatize Fannie Mae by selling stock to participating lending instituitions. The federal government explicitly excludes any government backing, insuring, or subsidies of the mortgage backed securities sold by Fannie Mae. The securities are not debts or obligations of the federal government but solely of Fannie Mae. Where private banks are required to maintain a capital to asset ratio (reserves) of greater than 3% Fannie Mae is required to hold only half the reserves. In good times this means Fannie Mae can better leverage capital to make a greater profit, but in bad times is at greater risk of insolvency.
1970 President Nixon signs a bill passed by a Democratic Congress founding the Federal Home Loan Mortgage Corporation (Freddie Mac) to expand the secondary market for mortgages in the US. The idea was to end the near monopoly Fannie Mae had on the secondary mortgage market by providing competition. Freddie Mac is created as a government sponsored enterprise (GSE) owned by the 12 federally chartered, regional Federal Home Loan Banks and governed by the Federal Home Loan Bank Board. Generally speaking Fannie Mae dealt with banks and Freddie Mac dealt with the secondary mortgage market for Savings & Loans.
1977: Congress (Democrat controlled) passes and President Carter signs the Community Reinvestment Act which is designed to prevent "redlining" ( banks drawing a redline around certain areas and refusing any loan applications within that zone). The act mandated that commercial banks that took deposits/ had branches in low income areas make a "good faith effort" to lend within those communities to creditworthy borrowers. Enforcement of the original bill was lax, and the main requirements were that banks work with community boards and publish loan information in local publiucations. No lowering of credit standards was called for in the act.
Bankers predict that the act will result in fewer banking services in low income areas as prudent bankers would close branches instead of providing risky loans.
1980: The Depository Institutions Deregulation and Monetary Control Act is signed by President Jimmy Carter after passage by a Democratic Congress. The bill repeals portions of Reg. Q of the Glass Steagle Act and allows financial institutions to set their own interest rates given to depositers instead of the rate being set by the Fed.
1981: Credit card services giant American Express buys Shearson, the second largest securities firm in America.
Oct 12, 1982: Congress (Rep Senate and Dem House) passes and Ronald Reagan signs the Garn St. Germain Institutions Act of 1982 which repealed some of the regulatory provisions of the Roosevelt era Glass Steagle Act. This bill allowed the vast increase in the number of federally chartered Savings & Loans and is cited as a direct cause of the Savings & Loan Crisis of the late 1980s. This act specifically allowed (Title VII) for S&Ls to issue ARMs (Adjustible Rate Mortgages). The bill was a Reagan administration initiative and passed both houses of Congress with strong bi-partisan support. In his signing statement Reagan stated:
"... this bill also represents the first step in our administration's comprehensive program of financial deregulation. I particularly want to commend the leadership of the chairman, Senator Garn, and Chairman St Germain, along with Secretary Regan and his fine team at Treasury. They did a remarkable job forging a consensus within the Congress and among affected industries in favor of the bill's deregulatory provisions...Unfortunately, this legislation does not deal with the important question of delivery of other financial services, including securities activities by banks and other depository institutions. But I'm advised that many in the Congress want to put this question at the top of the banking deregulatory agenda next year, and I would strongly endorse such an initiative and hope that at the same time, the Congress will consider other proposals for more comprehensive deregulation which the administration advanced during the 97th Congress."
State chartered S&Ls rushed to become federally chartered to gain the benefits of the Act and to avoid state regulation.
1984: Charles Keating's American Financial Corporation purchases tiny Lincoln Savings for $51 million. Over the next four years Lincoln's claimed assets grew to $5 Billion.
1984: Shearson American Express buys investment banking/trading firm Lehman Bros
Feb 1985: Keating hires Alan Greenspan as an economic consultant, in an unsuccessful effort to convince an oversight agency to exempt Lincoln Savings from certain regulations. Greenspan delivers a favorable report, writing that Lincoln Savings was "a financially strong institution that presents no foreseeable risk to depositors or the government." (Greenspan produced similar favorable reports on numerous other banks that also failed soon after.)
Mar 1985: The Home State Savings Bank of Cincinnati verges on collapse. Customers made aware of the imminent failure rush to withdraw deposits. Depositors of other S&Ls also begin panic withdraws. Gov. Celeste orders the closure of all Ohio S&Ls and only those that join the FDIC are allowed to reopen.
1986: The Tax Reform Act of 1986 is passed by Congress ( Republican Senate, Democratic House) and signed by Ronald Reagan. Unregulated S&Ls that made imprudent mortgage loans during the 1970s and early '80s were placed under greater pressure. The tax code change placed a further burden on the S&Ls as the tax benefits for money losing commercial real estate ventures were eliminated. Real estate values plummeted and the assets held by S&L were greatly reduced in value. Over the next few years the S&L meltdown led to the number of housing units built each year to drop from 1.8 million to 1 million ( a post WWII low).
1986: Large numbers of S&Ls begin to fail. Bad investments, lack of regulation, and the real estate bust are proximate causes. A major problem is that small S&Ls attract huge amounts of deposits by offering high rates of return on CDs. In one type of deal Mike Milken offers to deposit large quantities of cash in tiny S&Ls if even greater amounts of customer deposits are then used to buy junk bonds issued by his firm.
Nov 19, 1986: Rudy Giuliani, US Attorney, launches an investigation of Drexel Burnham Lambert and junk bond shyster Michael Milken. Milken and his firm are finally indicted in 1988 for insider trading, stock manipulation, and fraud. Under threat of a further RICO indictment Drexel pleads no contest to six felonies and agrees to pay a $650 million fine.
1987: The first "credit debt obligation" ( a "derivative") is issued by now defunct Drexel Burnham Lambert for the Imperial Savings Association. ISA goes bankrupt and is taken over in 1990 by the Resolution Trust Fund. The CDOs give financial managers less accountability and greater profit opportunities.
ANALYSIS:
A Collateralized Debt Obligation, or CDO, is a synthetic instrument created by bundling a pool of similar loans into a single investment that can be bought or sold. An investor that buys a CDO owns a right to a part of this pool's interest income and principal. For example, a bank might pool together 5,000 different mortgages into a CDO. An investor who purchases the CDO would be paid the interest owed by the 5,000 borrowers whose mortgages made up the CDO, but runs the risk that some borrowers don't pay back their loans.
1988: The Silverado Savings and Loan ( Director Neil Bush, son of then VP G.H.W. Bush and brother of George W. Bush) collapses at a cost of $1.3 billion to taxpayers. Director Bush admits to giving himself loans deemed improper and also approving $100 million in improper bad loans to business partners. Bush agrees to an out of court settlement negotiated by Reagan administration prosecutors, pays a $50,000 fine and is barred from any role in banking for his lifetime. In 1991 Bush and the other officers are ordered to pay a $26.5 million civil suit verdict against them.
1989: Lincoln Savings goes bankrupt. Charles Keating cheats 21,000 mostly elderly depositers out of $228 Million. Most of the investors were assured that the junk bonds they invested in were FDIC insured. They were not. Keating is indicted. The Keating Five (Senators John McCain, John Glenn, Alan Cranston, Dennis Deconcini, and Donald Riegle) are accused of improperly aiding Keating.
1989: Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (creating the Resolution Trust Fund) passes in a Democratic Congress and is signed by President George H.W. Bush in response to the Savings and Loan debacle. The act commits taxpayers to a massive bailout of the Savings & Loan Industry and ends up costing the taxpayers of America $160 Billion (1996 dollars). Freddie Mac, the primary market for mortgage backed securities for Savings & Loans is reorganized, putting it under an appointed board of directors and HUD.
The act also requires the banking industry to issue CRA ratings publicly.
ANALYSIS: The Savings & Loan Crisis of the late 1980s was in large part due to S & L s having a large percentage of their investment portfolios in fixed rate mortgages. When inflation ( which actually hit 21% one year {1981?} the S& Ls were stuck with securities based on a 7 or 8% fixed rate.) The value of the securities evaporated, capitalization and liquidity took a dive. (sound familiar?) As a result common business practices, accounting procedures, and new federal regulations said that banking institutions should not over-invest in fixed rate mortgages in case inflation ever took off again. Because of this adjustible rate mortgages (ARM) made a big splash in the 1980s...At one point even the most creditworthy home buyers could not get a fixed rate mortgage because of inflation and because no one would sell one!
Lenders could tell borrowers "I know the rate is 21% now, but it will DROP as inflation goes down since the rate is tagged to the Federal Reserve rate to banks. Bankers could safely buy more mortgage securities because the ARMs would adjust UPWARDS if inflation ever took off and because federal regulations only allowed 10%? of an institution's assets to be fixed rate mortgages or securities backed by fixed rate mortgages. Bankers, buyers, investors, and the federal government all could benefit by the prudent use of ARMs.
The lesson to be learned was not to be caught overinvesting in one particular asset that could flip you upside down if the business climate changed, Financiers learned the wrong simple lesson of "fixed = bad and ARM = good!" In the following years very savvy businessmen (and women) adapted to the new love affair with ARMs and mutate both the ARM mortgage and securities backed by them to something completely different. THERE WAS MONEY TO BE MADE!!!)
1989: After being warned that HUD under the Reagan and Bush 1 administrations was a "sewer", Catherine Austin Fitts takes an appointment as Assistant Secretary for Housing-Federal Housing Commissioner. She explains
"After issuing $9 billion in mortgage guarantees, HUD/FHA was to lose something approaching 50% of the value of the portfolio – a level of losses hard to explain with mortal logic. When my staff approached me with a proposal to bail out a mortgage company so they could continue to lose money for us, I asked why we should spend money to lose more money in a way that would harm communities. After a long silence during which 30 staff members intently studied their feet, one brave soul explained to me that the mortgage bank was owned and run by a major Republican donor. Shocked, I said. 'I am a major Republican donor,' and pointing to my presidential cufflinks that were adorning my French cuffs, 'I got a pair of cuff links. You get cuff links. You don't get $400 million of federal credit to throw down the drain.' My staff looked at me like I was so naive and clueless that there was no point in trying to communicate with me – better to let me learn the hard way."
1991: After a lengthy investigation, the Senate Ethics Committee determined that Senators Alan Cranston, Dennis DeConcini, and Donald Riegle had substantially and improperly interfered with the FHLBB in its investigation of Lincoln Savings. Senators John Glenn and John McCain were cleared of having acted improperly but were criticized for having exercised "poor judgment".
1992: The Federal Housing Enterprises Financial Safety And Soundness Act is passed by a Democratic Congress and signed by President G.H.W.Bush. The act directs Fannie Mae and Freddie Mac to direct a portion of their lending to underserved communities.
1994: The Riegle-Neal Interstate Banking and Branching Efficiency Act repealed the Banking Act of 1956 allowed commercial banks to, legally operate across state lines for the first time. The idea of keeping banks small and local to prevent monopolistic influence and to limit the damage any bank's failure would cause the economy was abandoned. The bill was passed by a Democratic Congress and signed by President Clinton.
1994: Reigle Community Development and Regulatory Improvement Act authorized community development banks, credit unions, savings & loans, and other financial entities to provide credit services in "distressed communities." The entities work primary through community agencies and the Small Business Administration to provide credit to creditworthy borrowers in those communities.
1995: Fannie Mae buys $18.6 Billion in "sub prime" loans. Sub prime loans are allowed to be counted towards Fannie Mae and Freddie Mac requirements to provide affordable housing.
Jan 31 1995: New regulations for CRA require banks to make public their compliance with CRA requirements for lending in underserved communities.
1996: Chemical Bank purchases Chase Manhatten Bank using the name of the purchased company.
1997: $1 Billion in Credit Debt Obligations are created in the year (growing to $1 Trillion outstanding by 2005.) In the coming years the massive growth of CDOs leads to further removing of assets from actual financial transactions and the increase in speculation in subprime mortgage backed securities.
1997: Countrywide Financial spins off Countrywide Mortgage Investment as an independent IndyMac Bank. The idea was to set up a secondary market clearinghouse for mortgages too large to be sold thru Fannie Mae.
1998: In violation of the Glass Steagle Act of 1933 ( under a "temporary" exemption) Citicorp purchases Travelers Insurance with the goal of merging investment banking, commercial banking, insurance underwriting, and real estate under one roof. Citigroup alone spends $200 million in 1998 alone to lobby Congress to repeal the Glass Steagle Act. Senator Phil Gramm begins a one man mission to push the "reform" through Congress.
1999: The Gramm-Leach-Bliley Act to allow commercial and investment banks to operate under the same roof is passed by a Republican Congress with bipartisan support and signed by President Bill Clinton. Among the signers of the bill are John McCain, Nancy Pelosi, and Phil Gramm. Lawmakers are assured that proper self-regulation will keep the commercial and investment divisions of banks from engaging in conflict of interest business practices. The vote of 90-8-1 in the Senate and 362-57-15 in the house was vetoproof and thus assured signing by Clinton. Clinton threatens to veto the act anyway unless lenders are required to follow the provisions of the Community Reinvestment Act of 1977 and subsequent amendments. Clinton's provisions are included in the final bill.
2000: (Clinton Administration) HUD anti-predatory lending rules are put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals.
2000: Chase Manhatten Bank purchases investment giantt JP Morga to form JP Morgan Chase.
2000: The Commodity Futures Modernization Act of 2000 is passed by a Republican Congress and signed by President Clinton. Written by Enron lobbyists and originally introduced by Senator Phil Gramm (R-TX) the bill allows the unregulated trading of "credit default swaps" which later prove to be the undoing of insurance giant AIG and an $85 Billion dollar taxpayer bailout. The bill also exempts most over-the-counter energy trades and trading on electronic energy commodity markets, called the "Enron Loophole" and led to the manipulation of energy markets and the crash of that corporation. The Loophole, despite repeated attempts by Democratic legislators with a veto by G.W.Bush was not repealed until July 2008.
ANALYSIS: This bill sets up the meltdown of 2008 more than any other single piece of legislation. The act specifically prevents the regulation of "credit default swaps" which are essentially sold as insurance in case subprime loans were to go bad. Investors and portfolio managers could explain to investors that they were not engaging in risky investment by purchasing securities based on subprime loans because the CDSs provide insurance against loss if defaults occured. The sale of subprime loans and of secondary market instruments (CDOs) based on subprime loans explodes into the hundreds of billions of dollars..Essentially insurance, the financial industry fought and paid to keep CDSs out of insurance regulations because this would have required the set-aside of reserves to back them if defaults on the underlying real estate increased dramatically (as had occured in earlier recessions).
CDSs are even sold as purely speculative instruments, as investors bet on whether or not securities will perform, even when the speculators have no financial stake in the underlying securities themselves. THE MARKET FOR THES INSTRUMENTS IS COMPLETELY UNREGULATED BY LAW!
2001: U.S. Department of Treasury guidelines define "Subprime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt to income ratios, or other criteria that may encompass borrowers with incomplete credit histories."
In the financial markets "sub-prime" means junk, and includes loans not only for high risk consumers but also speculative driven mortgages that are non-traditional. Interest only and ARM mortgages used to fuel speculative purchases of properties in an appreciating real estate market are also commonly refered to as "sub-prime."
2002: Bush's Treasury Secretary Paul O'Neill resigns because of disagreements with Bush over his tax cut program. O'Neill predicted budget deficits ballooning to $500 Billion (which came true). The Bush administration dismissed his numbers as faulty.
Mar 20 2003: Begining of the Iraq War. The Bush Administration claims the War will take six weeks until troops can begin coming home (six months maximun) and that the war will pay for itself with Iraqi oil. Instead the war drags on through 2008 and adds over $150 Billion to the Federal budget deficit each year. Through Mar 2008 the direct war costs are estimated at $865 Billion and final costs conservatively expected to exceed $3 Trillion.
Apr 23 2003: The world's ten largest investment firms ( Bear Stearns, Lehman Bros, Merrill Lynch, USB, Morgan Stanley, Salomon Smith Barney, JP Morgan, Goldman Sachs, Deutsche Bank, Credit Suisse) settle with the SEC over corruption charges, essentially that analysts were being paid to improperly rate the investment instruments being sold by the firms to the public.
Sept 2003: Fortune Magazine describes Countrywide Financial as the "23,000% stock" with a better rate of return for investors than Washington Mutual, WalMart, or Warren Buffet's Berkshire Hathaway.
2004: Under pressure from investors the Bush administration drops Clinton era HUD regulations that do not allow predatory loans to be counted towards fullfilment of affordable housing goals. High risk loans are once again counted towards affordable housing numbers.
2004: $157 Billion of CDOs are issued worldwide
2004: JP Morgan Chase merges with Capital One Corp. The Chase and Capital One names are used for retail banking and credit card services. JP Morgan is used for investment banking.
Fannie Mae buys $175 Billion in sub prime loans (up from $18.6 Billion in 1995)
Sept 2004: A federal investigation discovers that during the tenure of former Clinton Chairman and CEO of Fannie Mae James Jackson (1991-1998)expenses of $100,000,000 went unreported to allow senior officials to receive performance bonuses.
Dec 21 2004: Bush Secretary of Housing and Urban Development Franklin Raines accepts "early retirement" because of seperate investigations by HUD, the FBI, and a grand jury. He was accused of creative accounting to allow him to "earn" multi-million dollar bonuses for performance.
2005-7: Chairman Angelo Mozilo of Countrywide begins selling his stock, earning almost $300 Million in profits. (A class action suit of former stockholders is currently pending against Mozilo claiming violation of secuities laws and regulations in his stock selloff.)
2005: $272 Billion of CDOs are issued worldwide
2005: A study by the Census Bureau estimates the number of foreign born inhabitants of the US at 35 Million, the highest proportion in eight decades. Of that number 18 to 20 million are 'undocumented" or 'illegal' aliens. The Census Bureau report draws no conclusions concerning employment but the general consensus among economists is that: the illegal/undocumented workers place a downward pressure on the wages and salaries of native born citizens and legal immigrants; and that employment of native born inhabitants and legal immigrants is decreased. The lowering of wages primarily effects the second lowest quintile of income earners, contributing to the skewing of income distribution and a drop in consumer spending that makes up over 60% of economic activity...
Jan 2005: Senators Hagel (R-Ne) Dole (R-NC) and Sununu (R-NH) sponsor a bill (the Federal Housing Regulatory Reform Act, S-190, 109th Congress) calling for increased oversight and a management shakeup at Fannie Mae and Freddie Mac and warns of consequences if mismanagement is allowed to continue. Senator McCain allows his name to be added as a co-sponsor of the bill. The bill fails to come to a vote in the Republican controlled committee(because of its criticism of Bush Administration appointees) and an alternative bill sponsored by Sen. Shelby (R-AL) is voted on and passes 11-9 along party lines. The Republican majority leadership tables the proposal which never comes up for a floor debate or vote ...This bill is cited by McCain in his election bid as proof of his warnings about Freddie Mac and Fannie Mae.
2005-2007: Subprime lender Countrywide boss Angelo Mozilo, seeing the handwriting on the wall, begins selling off his stock in the company.
Sept 2005: Bush Administration greatly reduces the effectiveness of the CRA (Community Reinvestment Act) deeming them unnessary and burdensome as loans are available outside of government programs. Despite the gutting of the CRA loans to innercity neighborhoods continue to soar, showing that the CRA had very little to do with the vast expansion of sub-prime loans into minority neighborhoods. Total bank loans made under the auspices of the CRA are estimated in the "tens of billions" of dollars with the great majority of the loans performing profitably.
Jan 1 2006 Bank of America buys the nations largest credit card giant MBNA. MBNA owns or manages $122 in credit card debt, and had invented the sale of securities based on credit card debt. Most of the credit card securities are owned by pension funds and insurance companies.
2006: Subprime mortgages purchased in 2006 amount to approx. $600 Biilion, about 20% of all mortgages sold (up from 9% 1996-2004).
22% of homes puchased ( 1.65 million units) during the year are bought as speculative investments. Another 14% (1.07) million units are purchased as second homes or vacation homes. An estimated 85% of condos purchased in the overheated Miami housing market are bought as investments. Like all Ponzi schemes, when the available pool of speculators able to further drive up the price of overvalued homes in speculative markets dried up the bubble burst. Speculators either did not enter the housing market or began trying to sell off properties at this point. Home values began to tumble. The reset of ARM and interest only mortgages made speculative investments untenable in a falling market. Foreclosures and further downward pressure on housing prices resulted. An economic downturn and the rset of ARMs also adds to the increase of foreclosures in non-speculative loans.
2006: Over 45% of the sub-prime loans written by sub-prime giant Countrywide Financial are too large to be sold to Fannie Mae. These "non-conforming" loans were above the $417,000 limit. A spinoff company, IndyMac, serves as a clearinghouse for selling securities originating from mortgages too large to be sold thru Fannie Mae.
Countrywide originates 20% of all mortgages sold in the US.equalling 3.5% of GDP.
2006: $552 Billion of CDOs are issued worldwide. The total of CDOs floating around the world at the end of 2006 totals over TWO TRILLION dollars.
First Quarter 2007: Countrywide Financial in it's annual report states that 19% of its subprime loans are "nonperforming" (delinquent or in foreclosure).
2007: $503 billion of CDOs are issued worldwide.
June 28 2007: The Office of Federal Housing Enterprise Oversight certifies that Fannie Mae and Freddie Mac are adequately capitalized for Q1 2007.
Aug 2007: Shearson Lehman American Express closes its sub prime lender BMC Mortgage citing poor market conditions.
Third Quarter 2007: Sub-prime Adjustible Rate Mortgages (ARM) represent 6.8% of outstanding US mortgages but 43% of all foreclosures started. Sub-prime fixed rate mortgages represent 6.3% and 12% of foreclosures starting in this period.
Nov 2007: Realizing that the company was too deep in the private secondary mortgage market not covered under Fannie Mae, IndyMac changes business plans in a panic. Indymac dramtically shifts from to mortgages that can be sold thru Fannie Mae instead of acting as a clearinghouse for the private secondary mortgage market. The shift comes too late...
IndyMac shifts $10.7 Billion in non-agency mortgages from the "held for investment" status to the Oh fuck we gotta hurry and sell these to raise capital category, essentially dumping these securities on an already depressed market for such securities. This further lowers the market price of non-agency securities across the industry causing all dealers in such securities to become more overleveraged. (IndyMac begins looking for a White Knight buyer realizing the company is undercapitalized and would never be able to raise the necessary money alone.)
2007: Fortune Magazine recognizes Bear Stearns as America's most admired securities firm.
Dec 2007: The outstanding amount of credit default swaps (cds) outstanding is estimated to be $62.2 TRILLION.
Jan 11 2008: Bank of America announces plans to buy Countrywide Financial.
Feb 13 2008: President Bush signs the Economic Stimulus Package giving "rebate" checks of up to $1600 to taxpayers and accelerating depreciation deductions for small business in an attempt to ward off recession. Estimated cost of $152 Billion for 2008 and $276 Billion over ten years.
Mar 2008: Bush's Secretary of Housing and Urban Development, Alphonso Jackson, resigns after an FBI investigation, grand jury probe, and internal HUD investigation look into Jackson's conflict of interest vis-a-vis a $127 million contract awarded to Columbia Residential, a firm Jackson had substantial business dealing with.
The Federal Reserve grants a loan of billions to investment banking, securities trader Bear Stearns in an attempt to head off bankruptcy.
Mar 16 2008: JP Morgan Chase announces FDIC approval of the purchase of failed investment firm Bear Stearns.
Mar 31 2008: IndyMac Bank announces losses of $1.85 billion from nonperforming loans and later announces that figure is expected to rise for the next quarter.
April 2008: Moodys drop the bond rating on non-governmental mortgage backed securities dramatically affecting the capitalization of financial institutions across the industry. In one fell swoop the value of billions of dollars of securities drops and their perceived risk rises sharply. Moodys had been sharply criticized for over-rating such instruments in the past.
May 2008: Senate Banking Committe Chairman Dodd (D-CT) along with Rep. Barney Franks (D-MA) sponsor a plan that would allow the FHA to insure $400 Billion in sub prime mortgages converted to fixed rate mortgages at market rates. President Bush announces he will veto any such bill as a bailout.
May 12 2008: IndyMac bank suspends dividend payments (after halfing them the quarter before) and announces suspension of interest payments on some prefered securities.
First Half 2008: Shearson Lehman American Express stock drops 73% in th first half after the company reports huge losses in the sub prime mortgage and secondary mortgage security market.
May 30 2008: JP Morgan Chase acquires bankrupt Bear Stearns for $10 per share, down from $133 a year earlier.
Jun 2008: The Wall Street Journal breaks a story about troubled sub-prime lender Countrywide making sweatheart deals for politicians under the umbrella of "Friends of Anjelo" (Chairman Anjelo Mozilo). Senator Christopher Dodd (D-CT current Chairman of the Senate Banking Committee) Senator Kent Conrad (D-ND current Chairman of the Banking Committee), Franklin Raines ( disgraced former Chairman/CEO of Fannie Mae and Obama advisor), Donna Shalala (former Clinton Secretary of Health and Human Services), James Jackson (former Clinton CEO/Chairman of Fannie Mae), and Alphonso Jackson (former Bush Secretary of Housing and Urban Development) all received preferential mortgage terms from Countrywide.
Jun 5 2008: Bank of America announces that the Board of Governors of the Federal Reserve System have approved the planned purchase of Countrywide Financial. The deal is completed on Jul 1. Bof A puchases Countrywide for $4 Biilion, one sixth of the company's $24 Billion value from a year earlier.
Jun 26 2008: Sen Charles Schumer (D-NY) releases several letters questioning the viability of Savings and Loan sub-prime IndyMac. This begins a run on the bank with depositors withdrawing several billion dollars. IndyMac, facing a liquidity crisis already is sent over the brink.
July 2008: Fannie Mae and Freddie Mac are granted access to low interest loans from the Federal Reserve already available to banks. A prohibition against the Treasury Dept buying Fannie Mae? Freddie Mac stock is suspended. The measures are instituted to bolster financial market confidence.
Jul 11 2008: IndyMac Bank (formerly Countrywide Mortgage Investment) is seized by federal regulators.
Jul 28 2008: Former Secretary of the Treasury Lawrence Summers (1999-2001) in an article in the Washington Post opposes the Fannie Mae/Freddie Mac bailout because the people in charge are not ousted from entities they helped run into the ground and who would continue to operate under the same faulty premises..
Aug 2008: Fannie Mae and Freddie Mac stock falls to only 10% of the value from the previous year.
Sep 7 2008: Fannie Mae, a privately held corporation and a government sponsored enterprise (GSE) is put into a federal government conservatorship. The executves f th cprations ae repaced d te government takes an eqty sake in the GSEs (Government Sponrd Enrpres).
Sept 10 2008: Lehman Brothers says it lost $3.9 billion in its fiscal third quarter and plans a number of moves to shore up its balance sheet. The firm says it will consider all "strategic alternatives," a Wall Street synonym for seeking a buyer.
Sept 14 2008: After a weekend of furious negotiations, U.S. regulators make it clear there will be no government bailout of Lehman Brothers. Fearful of the likely fallout from a Lehman failure, Merrill Lynch & Co. arranges a hasty deal to be bought by Bank of America Corp. for $50 billion in stock.
Sep 15 2008: Shearson Lehman American Express announces filing for Chapter 11 bankruptcy, the largest bankruptcy in US history. Between 1994 and 2007 the company's revenue had increased from $2.7 to $19 Billion and assets had grown to $275 Billion.
Sep 16 2008: The Federal Reserve announces an $85 Billion bailout of insurance giant AIG which got into desperate financial trouble dealing in "credit swap defaults" and insuring the trades of other companies in those instruments. (see 2000 Commodities Futures Modernization Act)
Sept 16 2008: Two remaining major independent investment banks, Goldman Sachs Group Inc. and Morgan Stanley, report third-quarter profits above Wall Street's expectations. A massive pullout from Reserve Primary Fund, a $62 billion money market fund, causes its holdings to fall below its total deposits. Money market funds are typically considered to be almost as safe as cash.
Sept 17 2008: A major investor in ailing Washington Mutual Inc. removes a potential obstacle to a sale of the thrift. Morgan Stanley and Wachovia Corp. are said to be in talks about a possible combination.
Sept 18 2008: The Fed and several other central banks inject as much as $180 billion into money markets. The Fed also added another $55 billion in overnight loans. Putnam Investments closes a $15 billion money market fund after institutional clients pull their cash.
Sept 19 2008: Treasury Secretary Henry Paulson says he will formulate a plan to help banks remove toxic assets from their books. The Fed says it will expand its emergency lending, let commercial banks finance purchases of asset-backed paper from money market funds. Injects another $20 billion in temporary reserves. The Treasury Dept. says it will tap into a Depression-era fund to provide guarantees for money market funds. SEC enacts temporary ban on the short-selling of nearly 800 financial stocks. (Goldman Sachs and others made billions on short selling, essentially betting the price of rival stocks would fall.)
Sept 22 2008: Congressional leaders and the Bush administration haggle over details of the massive $700 billion financial bailout legislation. Main stumbling blocks are executive compensation, government purchase of equity in faltering companies, allowing judges to rewrite bankrupt homeowners' mortgages so they could avoid foreclosure.
Sept 22 2008: The last two remaining major investment banks, Goldman Sachs and JP Morgan Chase, receive Federal Reserve approval to transition from investment banks (raising and selling securities) to bank holding companies (owning other banks).
Sept 23 2008:Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson testify before Senate Banking Committe about their bailout plan. Lawmakers in both parties demanded changes to the administration's proposal despite dire warnings from top economic officials of recessions, layoffs and lost homes if Congress doesn't approve it quickly.
Sept 24 2008: Lawmakers and Bush administration officials got closer to agreement on a Wall Street rescue plan but were still wrangling over major elements, including how to phase in the eye-popping cost without spooking markets and the government's stake in troubled companies as part of the rescue. The president, in a prime-time television address, acknowledged that the bailout would be a "tough vote" for lawmakers but said failing to approve it would risk dire consequences for the economy and most Americans.
Sept 25 2008: The FDIC forced the closure of Washington Mutual Savings (WaMu, the largest Savings & Loan in the US) and sells the assets to JP Morgan Chase. Also after early reports of agreement "in principal" on the Wall Street bailout, a White House meeting descended into arguments between Republicans which put the plan in jeopardy.
Sept 29 2008: The House defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and congressional leaders from both sides of the aisle to quickly bail out the staggering financial industry. Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor (losing $1 Trillion in value to shareholders).
Sept 30 2008: Congressional leaders scrambled to come up with changes to help them sell the failed $700 billion U.S. financial rescue plan to rank-and-file members. One idea gathering support: raise the federal deposit insurance limit to reassure nervous savers and help small businesses. Meanwhile, President Bush made another statement at the White House. "Congress must act," he said.
Oct 1 2008: The Senate passes its own version of the bailout plan (now called a "rescue plan") which includes and extra $150 Billion in tax cuts and pork to try to influence the coming House vote.
Oct 2 2008: A Fed report revealed banks and investment firms ramped up borrowing from the Federal Reserve's emergency lending facility over the past week, providing fresh evidence of the credit stresses squeezing the country. Meanwhile President Bush and congressional backers of the $700 billion financial industry bailout carried out high-intensity lobbying on the eve of a crucial House vote.
Oct 3 2008: Wells Fargo Bank announces an agreement to purchase ailing Wachovia Bank in a private purchase. The deal catches Citigroup by surprise after that company and federal regulators already worked out a deal whereby Citibank purchases Wachovia with federal guarantees. Citigroup demands the acquisition be stopped.
Oct 5 2008: Bank of America announces a court settlement providing that tens of thousands of former Contrywide Financial subprime loans will be renegotiated to provide lower interest rates for borrowers whose rates have reset.
Oct 7 2008: The Federal Reserve has announced a radical plan to buy massive amounts of short-term debts in a dramatic effort to break through a credit clog that is imperiling the economy. The Federal Reserve said Tuesday it will buy "commercial paper," a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls.
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