Follow History & Understand what happened to our Industry!!

Mortgage and Lending with INPAC Enterprise

Fog a Mirror and Get a Loan became the “MANTRA”!!

The history of governmental attempted “financial control” below has proven no amount of regulation will be able to abrogate greed. Instead, it will serve as an example of the law of unintended consequences.

Unfortunately, the government does not have any incentive to listen to Governor Ben S. Bernanke and relinquish control of how much money is in circulation and what interest rate it should carry. That is where it derives a great portion of its power and influence. Therefore, I predict the solution deemed appropriate on the part of government will be to: tax financial institutions; place a size limit on banks in order to avoid the too big to fail concept; regulate the trading practices on money derived from deposits; and to impose arbitrary and capricious capital requirements.


1938: The Federal National Mortgage Association, commonly known as Fannie Mae, is established (as part of Franklin Delano Roosevelt's New Deal) to purchase and securitize mortgages to ensure that funds are consistently available to the institutions that lend money to home buyers.

1968: Fannie Mae is converted from a federal government entity to a stand-alone government sponsored enterprise (GSE) which purchases and securitizes mortgages to facilitate liquidity in the primary mortgage market. The move takes the debt of Fannie Mae off of the books of the government.

1970: Federal Home Loan Mortgage Corporation (Freddie Mac) is created by an act of Congress, as a government sponsored enterprise, to buy mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors on the open market; 1971 it issues its first Mortgage Participation Certificate security.

1970s: Private companies begin mortgage asset securitization with the creation of private mortgage pools in the 1970s.

1971: President Richard Nixon unilaterally ordered the cancellation of the direct convertibility of the United States dollar to gold. This act was known as the Nixon Shock.

1972: The United States reset the value to 38 dollars per troy ounce (122.17 ¢/g) of gold. Because other currencies were valued in terms of the U.S. dollar (which occurred after WWII because it was the only currency tied to gold. Some think the current world wide crisis was fostered by the U.S. removing itself from the gold standard and now racking up historic deficits), this failed to resolve the disequilibrium between the U.S. dollar and other currencies.

1974: Equal Credit Opportunity Act imposes heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or age.

1975: The United States began to float the dollar with respect to both gold and other currencies. With this the United States was, for the first time, on a fully fiat currency.

1977: Community Reinvestment Act is enacted to address historical discrimination in lending. The Act encourages commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.

1978: the Federal Home Loan Bank Board, the National Credit Union Administration, and the Federal Reserve Board had promulgated regulations that allowed a) savings and loan associations to deploy remote service units (RSU's); b) federal credit unions to issue share drafts; and c) commercial banks to engage in automatic fund transfers. This was stayed by the U.S. Court of Appeals for the District of Columbia.

1979:Consumer Equity Act permits commercial banks, savings and loan associations, and mutual savings banks to offer interest-bearing checking accounts, known as negotiable orders of withdrawal (NOW), beginning September 30, 1980. The bill also authorizes federally insured credit unions to offer share drafts, an equivalent of NOW accounts. In addition, the bill explicitly sanctions the remote units and automatic transfer accounts ruled illegal earlier this year by the U.S. Court of Appeals for the District of Columbia. Signed into law in 1980 as DIDMCA.

1980: The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 granted all thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts and exempted federally chartered savings banks, installment plan sellers and chartered loan companies from state usury (unlimited interest rates) limits.

1981: Each of the 12 Federal Reserve banks establishes a Community Affairs Office to offer public and private guidance in accordance with the Community Reinvestment Act.

1982: Alternative Mortgage Transaction Parity Act of 1982 (AMTPA) preempts state laws allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payments, and negative amortization and "allows lenders to make loans with terms that may obscure the total cost of a loan".

1986: Tax Reform Act of 1986 (TRA) ended prohibited taxpayers from deducting interest on consumer loans, such as credit cards and auto loans, while allowing them to deduct interest paid on mortgage loans, providing an incentive for homeowners to take out home equity loans to pay off consumer debt. Household debt would grow from $705 billion at year end 1974, 60% of disposable personal income, to $7.4 trillion at year end 2000, and finally to $14.5 trillion in midyear 2008, 134% of disposable personal income.

1985–1989: The effects of Tax Reform Act of 1986, the elimination of Regulation Q which had capped interest rates banks were allowed to pay, imprudent lending during the late 1970s inflationary period, as well as other causes, led to asset-liability mismatch for many Savings and Loans., This defacto insolvency led to the Savings and Loan Crisis and the failure and/or closure of half of all federally insured savings and loans. The number declined from 3,234 to 1,645.

1989-1995: Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") established the Resolution Trust Corporation (RTC) which closed hundreds of insolvent savings and loans holding $519 billion in assets and moved regulatory authority to the Office of Thrift Supervision (OTS). The U.S. government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of 40 billion dollars by the end of 1999.

1990 - 2000

1992: Federal Housing Enterprises Financial Safety and Soundness Act of 1992 required Fannie Mae and Freddie Mac to devote a percentage of their lending to support affordable housing increasing their pooling and selling of such loans as securities; Office of Federal Housing Enterprise Oversight (OFHEO) created to oversee them.

1993: The Federal Reserve Bank of Boston published "Closing the Gap: A Guide to Equal Opportunity Lending" which recommended a series of measures to better serve low-income and minority households, including loosening income thresholds for receiving a mortgage, influencing government policy and housing activist demands on banks thereafter.

1994: Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA) repeals the interstate provisions of the Bank Holding Company Act of 1956 that regulated the actions of bank holding companies.

1995: New Community Reinvestment Act regulations break down home-loan data by neighborhood, income, and race, enabling community groups to complain to banks and regulators about CRA compliance. Regulations also allows community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities.

1995–2001: Dot-com bubble and collapse

1997: Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of subprime mortgage backed securities, six times more than 1991’s volume of $10 billion. (private label securities, not GSE backed)

July: The Taxpayer Relief Act of 1997 expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties.]

November: Freddie Mac helped First Union Capital Markets and Bear Stearns & Co launch the first publicly available securitization of CRA loans, issuing $384.6 million of such securities. All carried a Freddie Mac guarantee as to timely interest and principal. First Union was not a subprime lender.

1998: Incipient housing bubble as inflation-adjusted home price appreciation exceeds 10% per year in most West Coast metropolitan areas.

October: "Financial Services Modernization Act" killed in Senate because of no restrictions on Community Reinvestment Act-related community groups written into law.

Federal Reserve Bank of New York rescues Long-Term Capital Management hedge fund in 1998, which a Government Accountability Office critic said encouraged risky loans on assumption government will bail out "too big to fail" banks and companies.

1998-2008: With increase in sales of mortgage-backed securities, companies buy more Credit default swaps, unregulated insurance contracts used to protect debt holders; these increased 100-fold from, with estimates of the debt covered by such contracts, as of November 2008, ranging from $33 to $47 trillion.


September: Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans.

November: Gramm-Leach-Bliley Act "Financial Services Modernization Act" repeals Glass-Steagall Act, deregulates banking, insurance and securities into a financial services industry allow financial institutions to grow very large; limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks.

2000: Lenders originating $160 billion worth of subprime, up from $40 billion in 1994. Fannie Mae buys $600 million of subprime mortgages, primarily on a flow basis. Freddie Mac, in that same year, purchases $18.6 billion worth of subprime loans, mostly Alt A and A- mortgages. Freddie Mac guarantees another $7.7 billion worth of subprime mortgages in structured transactions.

October: Fannie Mae commits to purchase and securitize $2 billion of Community Reinvestment Act eligible loans,

November: Fannie Mae announces that the Department of Housing and Urban Development (“HUD”) will soon require it to dedicate 50% of its business to low- and moderate-income families" and its goal is to finance over $500 billion in Community Reinvestment Act related business by 2010.[33]

December: Commodity Futures Modernization Act of 2000 defines interest rates, currency prices, and stock indexes as "excluded commodities," allowing trade of credit-default swaps by hedge funds, investment banks or insurance companies with minimal oversight - cite_note-Ritzholz-33, and contributing to 2008 crisis in Bear Stearns & Co, Lehman Brothers, and AIG.


2000–2003: Early 2000s recession spurs government action to rev up economy.[citation needed]

2000-2001: US Federal Reserve lowers Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001), creating an easy-credit environment that fueled the growth of US subprime mortgages.

2002-2006: Fannie Mae and Freddie Mac combined purchases of incorrectly rated AAA subprime mortgage-backed securities rise from $38 billion to $90 billion per year.

Lenders began to offer loans to higher-risk borrowers, including illegal immigrants. Subprime mortgages amounted to $600 billion (20%) by 2006.

Speculation in residential real estate rose. During 2005, 28% of homes purchased were for investment purposes, with an additional 12% purchased as vacation homes. During 2006, these figures were 22% and 14%, respectively. As many as 85% of condominium properties purchased in Miami were for investment purposes which the owners resold ("flipped") without the seller ever having lived in them.

2002–2003: Mortgage denial rate of 14 percent for conventional home purchase loans, half of 1997.

2002: Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states.

June 17:President G.W. Bush sets goal of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits, subsidies and a Fannie Mae commitment of $440 billion to establish NeighborWorks America with faith based organizations.

2003: Federal Reserve Chair Alan Greenspan lowers federal reserve’s key interest rate to 1%, the lowest in 45 years.

September: Bush administration recommend moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. The changes are blocked by Congress.

2003-2007: U.S. subprime mortgages increased 292%, from $332 billion to $1.3 trillion, due primarily to the private sector entering the mortgage bond market, once an almost exclusive domain of government sponsored enterprises like Freddie Mac.

The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender's ability to securitize and repackage subprime loans.

2004-2007: Many financial institutions issued large amounts of debt and invested in mortgage-backed securities (MBS), believing that house prices would continue to rise and that households would keep up on mortgage payments.

2004: U.S. homeownership rate peaks with an all time high of 69.2 percent.

Following example of Countrywide Financial, the largest U.S. mortgage lender, many lenders adopt automated loan approvals that critics argued were not subjected to appropriate review and documentation according to good mortgage underwriting standards. In 2007, 40% of all subprime loans resulted from automated underwriting. Mortgage fraud by borrowers increases.

HUD ratcheted up Fannie Mae and Freddie Mac affordable-housing goals for next four years, from 50 percent to 56 percent, stating they lagged behind the private market; they purchased $175 billion in 2004—44 percent of the market; from 2004 to 2006, they purchased $434 billion in securities backed by subprime loans. - cite_note-Leonnig-16

October: SEC effectively suspends net capital rule for five firms—Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Freed from government imposed limits on the debt they can assume, they levered up 20, 30 and even 40 to 1, buying massive amounts of mortgage-backed securities and other risky investments.


January: Federal Reserve Governor Edward Gramlich raises concerns over subprime lending practices, says mortgage brokers might not have incentives for careful underwriting and that that portion of the subprime industry was veering close to a breakdown, that it's possible that it is a bubble but that the housing market did not qualify for specific monetary policy treatment at this point.

February: The Office of Thrift Supervision implements new rules that allow savings and loans with over $1 billion in assets to meet their CRA obligations without investing in local communities, cutting availability of subprime loans.

Fall 2005: Booming housing market halts abruptly; from the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide drop 3.3 percent.


May: The subprime lender Ameriquest announces it will cut 3,800 Jobs, close its 229 retail branches and rely instead on the Web

May: Merit Financial Inc, based in Kirkland, Washington, files for bankruptcy and closes its doors, firing all but 80 of its 410 employees; Merit’s marketplace decline about 40% and sales are not bringing in enough revenue to support overhead.

August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.


See also: Financial crisis of 2007–2010, List of write downs due to subprime crisis, and List of bankrupt or acquired banks during the subprime mortgage crisis Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991. The subprime mortgage industry collapses, and a surge of foreclosure activity (twice as bad as 2006) and rising interest rates threaten to depress prices further as problems in the subprime markets spread to the near-prime and prime mortgage markets. ·

January 3: Ownit Mortgage Solutions Inc. files for Chapter 11. Records show that Ownit Mortgage Solutions owed Merrill Lynch around $93 million at the time of filing.

February 5: Mortgage Lenders Network USA Inc., the country's 15th largest subprime lender with $3.3 billion in loans funded in third quarter 2006, files for Chapter 11.

February–March: Subprime industry collapse; several subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale. These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial. March: The value of USA subprime mortgages was estimated at $1.3 trillion as of March 2007.

March 6: In a speech before the Independent Community Bankers of America's Annual Convention and Techworld, Honolulu, Hawaii, Ben Bernanke, quoting Alan Greenspan, warns that the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, were a source of "systemic risk" and suggest legislation to head off a possible crisis.

April 2: New Century Financial, largest U.S. subprime lender, files for chapter 11 bankruptcy.

April 3: According to CNN Money, business sources report lenders made $640 billion in subprime loans in 2006, nearly twice the level 3 years earlier; subprime loans amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases; financial firms and hedge funds likely own more than $1 trillion in securities backed by subprime mortgage; about 13 percent of subprime loans are now delinquent, more than five times the delinquency rate for home loans to borrowers with top credit; more than 2 percent of subprime loans had foreclosure proceedings start in the fourth quarter.

April 18: Freddie Mac fined $3.8 million by the Federal Election Commission as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services which oversees Freddie Mac.

June 7: Bear Stearns & Co informs investors in two of its funds, the High-Grade Structured Credit Strategies Enhanced Leverage Fund and the High-Grade Structured Credit Fund that it was halting redemptions.

June 20: Merrill Lynch seized $800 million in assets from two Bear Stearns hedge funds that were involved in securities backed by subprime loans.

June 25: FDIC Chair Shelia Bair cautioned against the more flexible risk management standards of the Basel II international accord and lowering bank capital requirements generally: "There are strong reasons for believing that banks left to their own devices would maintain less capital -- not more -- than would be prudent. The fact is, banks do benefit from implicit and explicit government safety nets...In short, regulators can't leave capital decisions totally to the banks."

July 19: Dow Jones Industrial Average closes above 14,000 for the first time in its history.

August: Worldwide "credit crunch" as subprime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas to Bank of China. Many lenders stop offering home equity loans and "stated income" loans. Federal Reserve injects about $100 billion into the money supply for banks to borrow at a low rate.[citation needed]

August 6:American Home Mortgage Investment Corporation (AHMI) files Chapter 11 bankruptcy. The company expects to see up to a $60 million loss for the first quarter 2007. A

ugust 7: Numerous quantitative long/short equity hedge funds suddenly begin experiencing unprecedented losses as a result of what is believed to be liquidations by some managers eager to access cash during the liquidity crisis. It highlights one of the first examples of the contagion effect of the subprime crisis spilling over into a radically different business area.

August 8: Mortgage Guaranty Insurance Corporation (MGIC, Milwaukee, Wisconsin) announces it will discontinue its purchase of Radian Group after suffering a billion-dollar loss of its investment in Credit-Based Asset Servicing and Securitization (C-BASS, New York]).

August 9: French investment bank BNP Paribas suspends three investment funds that invested in subprime mortgage debt, due to a "complete evaporation of liquidity" in the market. The bank's announcement is the first of many credit-loss and write-down announcements by banks, mortgage lenders and other institutional investors, as subprime assets went bad, due to defaults by subprime mortgage payers. This announcement compels the intervention of the European Central Bank, pumping 95 billion euros into the European banking market.

August 10: Central banks coordinate efforts to increase liquidity for first time since the aftermath of the September 11, 2001 terrorist attacks. The United States Federal Reserve (Fed) injects a combined 43 billion USD, the European Central Bank (ECB) 156 billion euros (214.6 billion USD), and the Bank of Japan 1 trillion Yen (8.4 billion USD). Smaller amounts come from the central banks of Australia, and Canada.

August 14: Sentinel Management Group suspends redemptions for investors and sells off $312 million worth of assets; three days later Sentinel files for Chapter 11 bankruptcy protection. US and European stock indices continue to fall.

August 15: The stock of Countrywide Financial, which is the largest mortgage lender in the United States, falls around 13% on the New York Stock Exchange after Countrywide says foreclosures and mortgage delinquencies have risen to their highest levels since early 2002.

August 16: Countrywide Financial Corporation, the biggest U.S. mortgage lender, narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks.

August 17: the Federal Reserve cuts the discount rate by half a percent to 5.75% from 6.25% while leaving the federal funds rate unchanged in an attempt to stabilize financial markets.

August 31: President Bush announces a limited bailout of U.S. homeowners unable to pay the rising costs of their debts. Ameriquest, once the largest subprime lender in the U.S., goes out of business;

September 4: The Libor rate rises to its highest level since December 1998, at 6.7975%, above the Bank of England's 5.75% base rate.

September 6: the Federal Reserve adds $31.25 billion in temporary reserves (loans) to the US money markets which has to be repaid in two weeks.

September 7: US Labor Department announces that non-farm payrolls fell by 4,000 in August 2007, the first month of negative job growth since August 2003, due in large part to problems in the housing and credit markets.

September 17: Former Fed Chairman Alan Greenspan said "we had a bubble in housing" and warns of "large double digit declines" in home values "larger than most people expect."

September 18: The Fed lowers interest rates by half a point (0.5%) in an attempt to limit damage to the economy from the housing and credit crises.

September 28: Television finance personality Jim Cramer warns Americans on The Today Show, "don't you dare buy a home—you'll lose money," causing a furor among Realtors.

September 30: Affected by the spiraling mortgage and credit crises, Internet banking pioneer NetBank goes bankrupt, and the Swiss bank UBS announces that it lost US$690 million in the third quarter.

October 5: Merrill Lynch announces a US$5.5 billion loss as a consequence of the subprime crisis, which is revised to $8.4 billion on October 24, a sum that credit rating firm Standard & Poor's called "startling".

October 10: Hope Now Alliance is created by the US Government and private industry to help some sub-prime borrowers.

October 15–17: A consortium of U.S. banks backed by the U.S. government announces a "super fund" of $100 billion to purchase mortgage-backed securities whose mark-to-market value plummeted in the subprime collapse. Both Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson express alarm about the dangers posed by the bursting housing bubble; Paulson says "the housing decline is still unfolding and I view it as the most significant risk to our economy. … The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."

October 31: Federal Reserve lowers the federal funds rate by 25 basis points to 4.5%.

November 1: Federal Reserve injects $41B into the money supply for banks to borrow at a low rate. The largest single expansion by the Fed since $50.35B on September 19, 2001.

November 15: Financial Accounting Standards Board "Fair Value Measurements" standards upgrade the quality of financial reporting through greater transparency. However, this "mark-to-market" accounting may exaggerate the loss in value of an asset, as shown on balance sheets, and trigger a cascade of unnecessary financial losses.

December 6: President Bush announces a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages (ARM). He also asked Members Of Congress to: 1. pass legislation to modernize the FHA. 2. temporarily reform the tax code to help homeowners refinance during this time of housing market stress. 3. pass funding to support mortgage counseling. 4. pass legislation to reform Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae..

December 24: A consortium of banks officially abandons the U.S. government-supported "super-SIV" mortgage crisis bail-out plan announced in mid-October, citing a lack of demand for the risky mortgage products on which the plan was based, and widespread criticism that the fund was a flawed idea that would have been difficult to execute.


January 2–21: January 2008 stock market downturn.

January 24: The National Association of Realtors (NAR) announces that 2007 had the largest drop in existing home sales in 25 years, and "the first price decline in many, many years and possibly going back to the Great Depression."

March 1–June 18: 406 people are arrested for mortgage fraud in an FBI sting across the U.S., including buyers, sellers and others across the wide-ranging mortgage industry.

March 10: Dow Jones Industrial Average at the lowest level since October 2006, falling more than 20% from its peak just five months prior.

March 14: Bear Stearns gets Fed funding as shares plummet.

March 16: Bear Stearns is acquired for $2 a share by JPMorgan Chase in a fire sale avoiding bankruptcy. The deal is backed by the Federal Reserve, providing up to $30B to cover possible Bear Stearn losses.

May 6: UBS AG Swiss bank announces plans to cut 5500 jobs by the middle of 2009.

June 18: As the chairman of the Senate Banking Committee Connecticut's Christopher Dodd proposes a housing bailout to the Senate floor that would assist troubled subprime mortgage lenders such as Countrywide Bank, Dodd admitted that he received special treatment, perks, and campaign donations from Countrywide, who regarded Dodd as a "special" customer and a "Friend of Angelo." Dodd received a $75,000 reduction in mortgage payments from Countrywide. The Chairman of the Senate Finance Committee Kent Conrad and the head of head of Fannie Mae Jim Johnson also received mortgages on favorable terms due to their association with Countrywide CEO Angelo R. Mozilo.

June 19: Ex-Bear Stearns fund managers arrested by the FBI for their allegedly fraudulent role in the subprime mortgage collapse. The managers purportedly misrepresented the fiscal health of their funds to investors publicly while privately withdrawing their own money.

July 11 Indymac Bank, a subsidiary of Independent National Mortgage Corporation (Indymac), is placed into the receivership of the FDIC by the Office of Thrift Supervision. It was the fourth-largest bank failure in United States history, and the second-largest failure of a regulated thrift. Before its failure, IndyMac Bank was the largest savings and loan association in the Los Angeles area and the seventh-largest mortgage originator in the United States.

July 17: Major banks and financial institutions had borrowed and invested heavily in mortgage backed securities and reported losses of approximately $435 billion as of 17 July 2008.

July 30: President Bush signs into law the Housing and Economic Recovery Act of 2008, which authorizes the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value.

September 7: Federal takeover of Fannie Mae and Freddie Mac, which at that point owned or guaranteed about half of the U.S.'s $12 trillion mortgage market, effectively nationalizing them. This causes panic because almost every home mortgage lender and Wall Street bank relied on them to facilitate the mortgage market and investors worldwide owned $5.2 trillion of debt securities backed by them.

September 14: Merrill Lynch is sold to Bank of America amidst fears of a liquidity crisis and Lehman Brothers collapse

September 15: Lehman Brothers files for bankruptcy protection September 16: Moody's and Standard and Poor's downgrade ratings on AIG's credit on concerns over continuing losses to mortgage-backed securities, sending the company into fears of insolvency. In addition, the Reserve Primary Fund "breaks the buck" leading to a run on the money market funds. Over $140 billion is withdrawn vs. $7 billion the week prior. This leads to problems for the commercial paper market, a key source of funding for corporations, which suddenly could not get funds or had to pay much higher interest rates.

September 17: The US Federal Reserve lends $85 billion to American International Group (AIG) to avoid bankruptcy.

September 18: Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke meet with key legislators to propose a $700 billion emergency bailout through the purchase of toxic assets. Bernanke tells them: "If we don't do this, we may not have an economy on Monday."

September 19: Paulson financial rescue plan is unveiled after a volatile week in stock and debt markets.

September 23: The FBI discloses that it had been investigating the possibility of fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers, and insurer American International Group, bringing to 26 the number of corporate lenders under investigation.

September 25: Washington Mutual is seized by the Federal Deposit Insurance Corporation, and its banking assets are sold to JP MorganChase for $1.9 billion.

September 29: Emergency Economic Stabilization Act is defeated 228-205 in the United States House of Representatives; Federal Deposit Insurance Corporation announces that Citigroup Inc. would acquire banking operations of Wachovia.

September 30: US Treasury changes tax law to allow a bank acquiring another to write off all of the acquired bank's losses for tax purpose.

October 1: The U.S. Senate passes HR1424, their version of the $700 billion bailout bill..

October 1: The financial crisis spreads to Europe. October 3: President George W. Bush signs the Emergency Economic Stabilization Act, creating a $700 billion Troubled Assets Relief Program to purchase failing bank assets and build assest reserves. It contains also easing of the accounting rules that forced companies to collapse because of the existence of toxic mortgage-related investments. Also key to winning GOP support was a decision by the Securities and Exchange Commission to ease mark-to-market accounting rules that require financial institutions to show the deflated value of assets on their balance sheets."

October 3: Using tax law change made September 30, Wells makes a higher offer for Wachovia, scooping it from Citigroup October 6–10: Worst week for the stock market in 75 years. The Dow Jones loses 22.1 percent, its worst week on record, down 40.3 percent since reaching a record high of 14,164.53 October 9, 2007. The Standard & Poor's 500 index loses 18.2 percent, its worst week since 1933, down 42.5 percent in since its own high October 9, 2007.

October 6: Fed announces that it will provide $900 billion in short-term cash loans to banks.

October 7: Fed makes emergency move to lend around $1.3 trillion directly to companies outside the financial sector.

October 7: The Internal Revenue Service (IRS) relaxes rules on US corporations repatriating money held oversees in an attempt to inject liquidity into the US financial market. The new ruling allows the companies to receive loans from their foreign subsidiaries for longer periods and more times a year without triggering the 35% corporate income tax.

October 8: Central banks in USA (Fed), England, China, Canada, Sweden, Switzerland and the European Central Bank cut rates in a coordinated effort to aid world economy.

October 8: Fed also reduces its emergency lending rate to banks by half a percentage point, to 1.75 percent.

October 8: White House considers taking ownership stakes in private banks as a part of the bailout bill. Warren Buffett and George Soros criticized the original approach of the bailout bill.

October 11: The Dow Jones Industrial Average caps its worst week ever with its highest volatility day ever recorded in its 112 year history. Over the last eight trading days, the DJIA has dropped 22% amid worries of worsening credit crisis and global recession. Paper losses now on US stocks now total $8.4 trillion from the market highs last year.

October 11: The G7, a group of central bankers and finance ministers from the Group of Seven leading economies, meet in Washington and agree to urgent and exceptional coordinated action to prevent the credit crisis from throwing the world into depression. The G7 did not agree on the concrete plan that was hoped for.

October 14: The US taps into the $700 billion available from the Emergency Economic Stabilization Act and announces the injection of $250 billion of public money into the US banking system. The form of the rescue will include the US government taking an equity position in banks that choose to participate in the program in exchange for certain restrictions such as executive compensation. Nine banks agreed to participate in the program and will receive half of the total funds: 1) Bank of America, 2) JPMorgan Chase, 3) Wells Fargo, 4) Citigroup, 5) Merrill Lynch, 6) Goldman Sachs, 7) Morgan Stanley, 8) Bank of New York Mellon and 9) State Street. Other US financial institutions eligible for the plan have until November 14 to agree to the terms.

October 21: The US Federal Reserve announces that it will spend $540 billion to purchase short-term debt from money market mutual funds. The large amount of redemption requests during the credit crisis have caused the money market funds to scale back lending to banks contributing to the credit freeze on interbank lending markets. This government is hoping the injection will help unfreeze the credit markets making it easier for businesses and banks to obtain loans. The structure of the plan involves the Fed setting up four special purpose vehicles that will purchase the assets.

November 12: Treasury Secretary Paulson abandons plan to buy toxic assets under the $700 billion Troubled Asset Relief Program (TARP). Mr. Paulson said the remaining $410 billion in the fund would be better spent on recapitalizing financial companies.

November 15: The group of 20 of the world’s largest economies meets in Washington DC and releases a statement of the meeting. Although no detailed plans were agreed upon, the meeting focused on implementing policies consistent with five principles: strengthening transparency and accountability, improving regulation, promoting market integrity, reinforcing cooperation and reforming international institutions.

November 17: The Treasury gives out $33.6 billion to 21 banks in the second round of disbursements from the $700 billion bailout fund. This payout brings the total to $158.56 billion so far. - cite_note-UIOWA12-08-160

November 24: The US government agrees to rescue Citigroup after an attack by investors causes the stock price to plummet 60% over the last week under a detailed plan that including injecting another $20 billion of capital into Citigroup bringing the total infusion to $45 billion.

November 25: The US Federal Reserve pledges $800 billion more to help revive the financial system. $600 billion will be used to buy mortgage bonds issued or guaranteed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

November 28: The Bank for International Settlements (BIS), the global organization behind the Basel Accord, issues a consultative paper providing supervisory guidance on the valuation of assets. The paper provides ten principles that should be used by banks to value assets at fair market value.

Remarks by Governor Ben S. Bernanke March 2, 2004 Money, Gold, and the Great Depression: “Perhaps the most fascinating discovery arising from researchers' broader international focus is that the extent to which a country adhered to the gold standard and the severity of its depression were closely linked. In particular, the longer that a country remained committed to gold, the deeper its depression and the later its recovery (Choudhri and Kochin, 1980; Eichengreen and Sachs, 1985)”

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