Subprime crisis impact timeline
Encyclopedia
The subprime crisis impact timeline lists dates relevant to the creation of a United States housing bubble
United States housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...

 and the 2005 housing bubble burst (or market correction
Market trends
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...

) and the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....

 which developed during 2007 and 2008. It includes United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 enactment of government laws and regulations, as well as public and private actions which affected the housing industry and related banking and investment activity. It also notes details of important incidents in the United States, such as bankruptcies and takeovers, and information and statistics about relevant trends. For more information on reverberations of this crisis throughout the global financial system see Financial crisis of 2007–2010 or Global financial crisis of September–October 2008.

1938–1979

  • 1938: The Federal National Mortgage Association, or Fannie Mae, is established as part of Franklin D. Roosevelt
    Franklin D. Roosevelt
    Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

    's New Deal
    New Deal
    The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

    , to purchase mortgages guaranteed by the Veterans Administration
    United States Department of Veterans Affairs
    The United States Department of Veterans Affairs is a government-run military veteran benefit system with Cabinet-level status. It is the United States government’s second largest department, after the United States Department of Defense...

     and the Federal Housing Administration
    Federal Housing Administration
    The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...

    . This took the loans off the books of mortgage lenders, freeing up capital
    Financial capital
    Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....

     so that they could make more loans.
  • late 1960s: Fannie Mae is permitted to purchase 'conventional' mortgages (not just VA/FHA)
  • late 1960s: Angelo Mozilo
    Angelo Mozilo
    Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...

     & Loeb found Countrywide Financial
    Countrywide Financial
    Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

    , and pioneer the nationwide non-bank mortgage lending business; in the beginning, Mozilo is extremely concerned with credit quality.
  • 1968: Fannie Mae spins off Ginnie Mae as a separate entity. Ginnie will continue to have an explicit, written government guarantee for all its mortgage loans. Fannie Mae, however, is converted into to a stand-alone corporation, a government sponsored enterprise (GSE).
  • 1970: Federal Home Loan Mortgage Corporation (Freddie Mac) is created by an act of Congress as a government sponsored enterprise to buy mortgages from the Thrift
    Thrift
    Thrift may refer to:* A savings and loan association in the United States* Restrained or disciplined spending habits* Apache Thrift a remote procedure call framework developed at Facebook for "scalable cross-language services development"....

    /savings and loan industry; it is owned by the industry itself (until 1989)
  • The GSEs (Fannie and Freddie) have an 'implicit guarantee' from the government; that if they get into trouble, the government will bail them out. There is no written law or contract stating the government will do this; it is simply assumed by the industry, government officials, and investors. This implicit, unstated guarantee is what allows the debt of Fannie and Freddie to be moved off of the balance sheet of the government. This makes the National debt falsely appear to be lower than it really is, and artificially makes the budget look more balanced
    Balanced budget
    A balanced budget is when there is neither a budget deficit or a budget surplus – when revenues equal expenditure – particularly by a government. More generally, it refers to when there is no deficit, but possibly a surplus...

    . This arrangement will not be tested until 2008 (see below)
  • 1970: Ginnie Mae creates the first mortgage backed security, based on FHA and VA mortgages. It guarantees them.
  • 1971: Freddie issues its first Mortgage Participation Certificate security. This is the first mortgage backed security made of ordinary mortgages.
  • 1970s: Private companies begin mortgage asset securitization with the creation of private mortgage pools in the 1970s.
  • 1974: Equal Credit Opportunity Act
    Equal Credit Opportunity Act
    The Equal Credit Opportunity Act is a United States law , enacted in 1974, that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age ; to the...

     imposes heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or age
  • 1977: Community Reinvestment Act
    Community Reinvestment Act
    The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...

     is enacted to address historical discrimination in lending, such as 'redlining
    Redlining
    Redlining is the practice of denying, or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. The term "redlining" was coined in the late 1960s by John McKnight, a...

    '. 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.
  • 1977: Salomon Brothers
    Salomon Brothers
    Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

     attempts creation of a "private label" mortgage backed security (one that doesn't involve GSE mortgages). It fails in the marketplace.
  • Late 1970s: Lew Ranieri (Salomon
    Salomon Brothers
    Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

    ) and Larry Fink
    Laurence D. Fink
    Laurence D. "Larry" Fink is the chairman and chief executive officer of BlackRock, an American multinational investment management corporation. BlackRock is the largest money-management firm in the world.-Early life and education:...

     (First Boston
    First Boston
    First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...

    ) invent securitization
    Securitization
    Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

    ; mortgages are pooled and the pool is sliced into tranche
    Tranche
    In structured finance, a tranche is one of a number of related securities offered as part of the same transaction. The word tranche is French for slice, section, series, or portion, and is cognate to English trench . In the financial sense of the word, each bond is a different slice of the deal's...

    s, which are then sold to investors.

1980–1989

  • 1980: The Depository Institutions Deregulation and Monetary Control Act
    Depository Institutions Deregulation and Monetary Control Act
    The Depository Institutions Deregulation and Monetary Control Act, a United States federal financial statute law passed in 1980, gave the Federal Reserve greater control over non-member banks.* It forced all banks to abide by the Fed's rules....

     (DIDMCA) of 1980 grants all thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts. The law also exempts federally chartered savings banks, installment plan sellers and chartered loan companies from state usury
    Usury
    Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...

     (unlimited high interest rates) limits. The law also allowed home equity loan
    Home equity loan
    A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

    s to be treated just like mortgages.
  • 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.
  • 1981: Salomon Brothers
    Salomon Brothers
    Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

     transitions from a private partnership to a public corporation, the first of the Wall St. investment banks to do so. This shifts the risk of financial loss from the partners to shareholders, arguably increasing the appetite for risk.
  • 1981: David Maxwell becomes CEO of Fannie; he greatly increases the use of mortgage securities, forming an uneasy alliance with Ranieri and Fink
  • 1982: Reagan's Commission on Housing recommends the GSEs be separated from the government
  • 1982: Alternative Mortgage Transaction Parity Act of 1982
    Alternative Mortgage Transaction Parity Act of 1982
    The Alternative Mortgage Transaction Parity Act of 1982, also known as AMTPA, preempts state laws that restrict banks from making any mortgage except conventional fixed rate amortizing mortgages. AMTPA was contained in title VIII of the Garn–St...

     (AMTPA) preempts state laws allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payment
    Balloon payment
    When a debt is repaid in payments of varying amounts there are some colourful jargon terms used to describe the different loan structures. The term balloon payment arises because if you hold back most of a debt and pay it only towards the end of the agreement, both those last payments and the total...

    s, and negative amortization
    Negative amortization
    In finance, negative amortization, also known as NegAm, deferred interest or graduated payment mortgage, occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases...

     and "allows lenders to make loans with terms that may obscure the total cost of a loan".
  • 1983: The first collateralized mortgage obligation
    Collateralized mortgage obligation
    A collateralized mortgage obligation is a type of financial debt vehicle that was first created in 1983 by the investment banks Salomon Brothers and First Boston for U.S. mortgage lender Freddie Mac. A collateralized mortgage obligation (CMO) is a type of financial debt vehicle that was first...

     (CMO) is created by Larry Fink's team at First Boston
    First Boston
    First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...

    . It is made from Freddie Mac mortgages.
  • 1984: The Secondary Market Enhancement Act (SMMEA), partly formed by Ranieri's closeness with Reagan's staff, attempts to level the playing field on the mortgage securities market so that private mortgage-securities companies (like Salomon Brothers) will be able to be able to compete with the GSEs. The act also is the foundation of the credit ratings agencies importance in the market; the law limits pension funds & others so that they are only allowed to buy mortgage bonds that are rated highly by a NRSRO
    Nationally Recognized Statistical Rating Organization
    A Nationally Recognized Statistical Rating Organization is a credit rating agency that issues credit ratings that the U.S. Securities and Exchange Commission permits other financial firms to use for certain regulatory purposes...

  • 1986: Tax Reform Act of 1986
    Tax Reform Act of 1986
    The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

     (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 loan
    Home equity loan
    A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

    s 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.
  • 1986: The Real Estate Mortgage Investment Conduit (REMIC) law is passed, as part of an uneasy alliance between Ranieri (of Salomon) and Maxwell (of Fannie). It prevents double-taxation of mortgage securities; the 'secondary market' for mortgages booms.
  • 1987 The mezzanine CDO
    CDO
    CDO may refer to:* Cagayan de Oro, a city that lies along the northern coastline of Mindanao island, Philippines.* Canyon del Oro High School, a public school in Oro Valley, Arizona, USA....

     was invented at Drexel Burnham Lambert
    Drexel Burnham Lambert
    Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...

  • 1987: Maxwell of Fannie, fights bitterly with Wall Street and Congress about allowing GSEs to do REMICs. Lobbying and threats fly back and forth.
  • 1985–1989: The effects of Tax Reform Act of 1986
    Tax Reform Act of 1986
    The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

    , the elimination of Regulation Q
    Regulation Q
    Regulation Q is Title 12, part 217 of the United States Code of Federal Regulations. It prohibits banks from paying interest on demand deposits in accordance with Section 11 of the Glass–Steagall Act ....

     which had capped interest rates banks were allowed to pay, imprudent lending during the late 1970s inflationary period
    Inflation
    In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

    , as well as other causes, led to asset-liability mismatch for many Savings and Loans. This de facto insolvency led to the Savings and Loan Crisis
    Savings and Loan crisis
    The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...

     and the failure and/or closure of half of all federally insured savings and loans. The number declined from 3,234 to 1,645.
  • Late 1980s: Several groups lose big money on tranched mortgage securities, including Merrill Lynch. Market shrinks.
  • 1988: Guardian Savings and Loan issues the first 'subprime'-backed mortgage security. Long Beach Mortgage begins to move towards the subprime securitization market. Its employees will later go on to lead many other subprime companies.
  • 1989–1995: Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) established the Resolution Trust Corporation
    Resolution Trust Corporation
    The Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...

     (RTC), which closed hundreds of insolvent savings and loans holding $519 billion in assets. The law also moved regulatory authority to the Office of Thrift Supervision
    Office of Thrift Supervision
    The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...

     (OTS). The U.S. government ultimately appropriated $105 billion to resolve the S&L crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of $40 billion by the end of 1999.
  • The RTC decides to sell the massive amount of bad real estate debt it holds to investors. In order to do this, it decides to use the tools of securitization
    Securitization
    Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

     and structured finance
    Structured finance
    Structured finance is a broad term used to describe a sector of finance that was created to help transfer risk and avoid lawsStructured finance is a broad term used to describe a sector of finance that was created to help transfer risk and avoid laws...

    , such as overcollateralization, bond insurance
    Bond insurance
    Bond insurance is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security...

    , and subordination
    Subordination (finance)
    Subordination in banking and finance refers to the order of priorities in claims for ownership or interest in various assets.-Subordination of debt:...

    . This results in transforming the bad debt into various new products that had high enough ratings to attract investors.

1990–1995

  • 1990s: The first subprime bubble. Founding of subprime lenders New Century
    New Century
    New Century Financial Corporation was founded in 1995 by a trio of former managers at Option One Mortgage, including former CEO Brad Morrice and is headquartered in Irvine, California...

    , Option One, FirstPlus Financial, and the buyout of The Money Store. Famco and several other subprime lenders go bankrupt. Angelo Mozilo
    Angelo Mozilo
    Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...

     of Countrywide
    Countrywide
    Countrywide Ltd are the United Kingdom's largest estate agency group. It employs 10,000 personnel nationwide, working across 1,300 estate agency or lettings offices operating under 46 local high street brands, supplemented by 650 mortgage consultants and over 350 surveyors...

     privately calls subprime lenders 'crooks', but is forced to compete or lose market share.
  • 1990s: J.P. Morgan invents Value-at-Risk and credit default swap
    Credit default swap
    A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

    s; later misused tragically by other companies.
  • 1990: Fannie gets Paul Volcker
    Paul Volcker
    Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...

     to argue it doesn't need the same regulatory capital as banks.
  • 1992: Federal Housing Enterprises Financial Safety and Soundness Act of 1992
    Federal Housing Enterprises Financial Safety and Soundness Act of 1992
    The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 . The Act established the Office of Federal Housing Enterprise Oversight within the United States Department of Housing and Urban Development...

     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
    Security (finance)
    A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

    ; Office of Federal Housing Enterprise Oversight
    Office of Federal Housing Enterprise Oversight
    The Office of Federal Housing Enterprise Oversight was an agency within the Department of Housing and Urban Development. It was charged with ensuring the capital adequacy and financial safety and soundness of two government sponsored enterprises—the Federal National Mortgage Association and the...

     (OFHEO) created to oversee them
  • 1992: Jim Johnson is new CEO at Fannie. Ramps up the 'cut them off at the knees' strategy against political enemies. Tactics include a massive lobbying
    Lobbying
    Lobbying is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by various people or groups, from private-sector individuals or corporations, fellow legislators or government officials, or...

     effort, neutering the OFHEO, creating a "partnership office" network to court the politically powerful with pork
    Pork
    Pork is the culinary name for meat from the domestic pig , which is eaten in many countries. It is one of the most commonly consumed meats worldwide, with evidence of pig husbandry dating back to 5000 BC....

    , giving high level employment to the well connected, giving out campaign contributions, creating a charity foundation, and threatening critics like FM Watch with retaliation. One of McClean & Nocera's sources compared Fannie's activities to Tammany Hall
    Tammany Hall
    Tammany Hall, also known as the Society of St. Tammany, the Sons of St. Tammany, or the Columbian Order, was a New York political organization founded in 1786 and incorporated on May 12, 1789 as the Tammany Society...

    .
  • 1993: The Federal Reserve Bank
    Federal Reserve Bank
    The twelve Federal Reserve Banks form a major part of the Federal Reserve System, the central banking system of the United States. The twelve federal reserve banks together divide the nation into twelve Federal Reserve Districts, the twelve banking districts created by the Federal Reserve Act of...

     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
    Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 [IBBEA] amended the laws governing federally-chartered banks in order to restore the laws' competitiveness with the recently relaxed laws governing state-chartered banks. The goal was the return to a balance between the...

     (IBBEA) repeals the interstate provisions of the Bank Holding Company Act of 1956
    Bank Holding Company Act of 1956
    The Bank Holding Company Act of 1956 is a United States Act of Congress that regulates the actions of bank holding companies.The original law , specified that the Federal Reserve Board of Governors must approve the establishment of a bank holding company, and prohibited bank holding companies...

     that regulated the actions of bank holding companies.
  • 1994: J.P. Morgan & Blythe Masters
    Blythe Masters
    Blythe Sally Jess Masters is an economist and current head of Global Commodities at J.P. Morgan Chase. From 2004-2007, she was Chief Financial Officer of J.P...

     sell the first credit default swap
    Credit default swap
    A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

     to the European Bank for Reconstruction and Development, to insure Exxon
    Exxon
    Exxon is a chain of gas stations as well as a brand of motor fuel and related products by ExxonMobil. From 1972 to 1999, Exxon was the corporate name of the company previously known as Standard Oil Company of New Jersey or Jersey Standard....

    's JPM credit line, & free up JPM's capital
  • 1995: New Community Reinvestment Act
    Community Reinvestment Act
    The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...

     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 allow community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities.

1995–2000

  • 1995–2001: Dot-com bubble
    Dot-com bubble
    The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...

     and collapse
  • circa 1996: President Clinton's "National Homeownership Strategy"
  • 1997: Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of private-label (non-GSE) subprime mortgage-backed securities, six times more than 1991's volume of $10 billion.
    • J.P. Morgan bundles credit default swap
      Credit default swap
      A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

      s into BISTRO
      Bistro
      A bistro, sometimes spelled bistrot, is, in its original Parisian incarnation, a small restaurant serving moderately priced simple meals in a modest setting. Bistros are defined mostly by the foods they serve. Home cooking with robust earthy dishes, and slow-cooked foods like cassoulet are typical...

      , the precursor of the Synthetic CDO
      Synthetic CDO
      A Synthetic CDO is a complex financial security used to speculate or manage the risk that an obligation will not be paid...

      . AIG
      AIG
      AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

       sells credit protection against BISTRO's super-senior tranche.
    • July: The Taxpayer Relief Act of 1997
      Taxpayer Relief Act of 1997
      The Taxpayer Relief Act of 1997 reduced several federal taxes in the United States.Subject to certain phase-in rules, the top capital gains rate fell from 28% to 20%. The 15% bracket was lowered to 10%....

       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
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       launch the first publicly available securitization
      Security (finance)
      A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

       of CRA
      CRA
      -Organizations in California:* California Republican Assembly, a conservative California Republican activist group. It is the oldest and largest grassroots volunteer organization chartered by the California Republican Party...

       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.
    • The New York Fed
      Federal Reserve Bank of New York
      The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...

       persuades Wall Street to bail out Long-Term Capital Management
      Long-Term Capital Management
      Long-Term Capital Management L.P. was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute-return trading strategies combined with high leverage...

       (a hedge fund
      Hedge fund
      A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...

      ). Bear Stearns
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       declines, but every other major bank agrees. Some worry the Fed intervention creates moral hazard
      Moral hazard
      In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

      .
    • May: Brooksley Born
      Brooksley Born
      Brooksley E. Born is an American attorney and former public official who, from August 26, 1996, to June 1, 1999, was chairperson of the Commodity Futures Trading Commission , the federal agency which oversees the futures and commodity options markets...

       at the Commodity Futures Trading Commission
      Commodity Futures Trading Commission
      The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....

       wants to investigate over the Counter derivatives like credit default swap
      Credit default swap
      A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

      s; their lack of transparency, lack of regulation, and possible systemic risk. Alan Greenspan
      Alan Greenspan
      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

      , Robert Rubin
      Robert Rubin
      Robert Edward Rubin served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs eventually serving as a member of the Board, and Co-Chairman from 1990-1992...

      , and Arthur Levitt
      Arthur Levitt
      Arthur Levitt, Jr. was the twenty-fifth and longest-serving Chairman of the United States Securities and Exchange Commission from 1993 to 2001. Widely hailed as a champion of the individual investor, he has been criticized for not pushing for tougher accounting rules. Since May 2001 he has been...

       of Clinton's Working Group on Financial Markets
      Working Group on Financial Markets
      The Working Group on Financial Markets was created by Executive Order 12631, signed on March 18, 1988 by United States President Ronald Reagan.The Group was established explicitly in response to events in the financial markets surrounding October 19,...

      , and Larry Summers shut her down. She resigns soon after.
    • October: "Financial Services Modernization Act" killed in Senate because of no restrictions on Community Reinvestment Act-related community groups written into law
  • 1998–2008: Credit default swap
    Credit default swap
    A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

    s boom along with the products they insure; mortgage securities and CDO tranches. By November 2008, there are between $33 to $47 trillion CDS contracts; nobody can know for sure because the market is unregulated and non-transparent.
  • 1999:
    • 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: The Gramm-Leach-Bliley Act
      Gramm-Leach-Bliley Act
      The Gramm–Leach–Bliley Act , also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress...

       (Financial Services Modernization Act) passes. It repeals the Glass-Steagall Act
      Glass-Steagall Act
      The Banking Act of 1933, , was a law that established the Federal Deposit Insurance Corporation in the United States and introduced banking reforms, some of which were designed to control speculation. It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Senator...

       of 1933. It deregulates banking, insurance, securities, and the financial services industry, allowing financial institutions to grow very large. It also limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks. Congressmen key to the effort include Phil Gramm
      Phil Gramm
      William Philip "Phil" Gramm is an American economist and politician, who has served as a Democratic Congressman , a Republican Congressman and a Republican Senator from Texas...

      , Jim Leach
      Jim Leach
      James Albert Smith "Jim" Leach is a former member of the U.S. House of Representatives from Iowa. In August 2009, he became Chairman of the National Endowment for the Humanities ....

      , Thomas J. Bliley, Jr.
      Thomas J. Bliley, Jr.
      Thomas Jerome "Tom" Bliley, Jr. is a United States Republican politician and former U.S. Representative from the state of Virginia.-Background:...

      , Chuck Schumer, and Chris Dodd.
  • 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.
    • Credit Suisse
      Credit Suisse
      The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...

       develops the first mortgage-backed CDO
    • Lehman Brothers
      Lehman Brothers
      Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

       convicted of 'aiding and abetting' the fraud of bankrupt subprime lender Famco, pays a tiny fine.
    • 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.
    • December:Commodity Futures Modernization Act of 2000
      Commodity Futures Modernization Act of 2000
      The Commodity Futures Modernization Act of 2000 is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton...

       (based on a report by Summers, Greenspan, Levitt, & Rainer) declares credit default swap
      Credit default swap
      A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

      s (and other derivatives) to be unregulated, banning the SEC, Fed, CTFC, state insurance companies, and others from meaningful oversight. CDS eventually destroy AIG & others.

2001-2004

  • 2000–2003: Early 2000s recession
    Early 2000s recession
    The early 2000s recession was a decline in economic activity which occurred mainly in developed countries. The recession affected the European Union mostly during 2000 and 2001 and the United States mostly in 2002 and 2003. The UK, Canada and Australia avoided the recession for the most part, while...

     spurs government action to rev up economy.
  • 2000-2001: US Federal Reserve lowers Federal funds rate
    Federal funds rate
    In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...

     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.
  • 2001: Ex-Wall Streeter John Posner writes A Home Without Equity is just a Rental with Debt, criticizing the massive growth in home equity loan
    Home equity loan
    A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

    s and refinancing
    Refinancing
    Refinancing may refer to the replacement of an existing debt obligation with a debt obligation under different terms. The terms and conditions of refinancing may vary widely by country, province, or state, based on several economic factors such as, inherent risk, projected risk, political...

     for consumer purchases, amongst other things. Charles Kindleberger of Manias, Panics, and Crashes finds it insightful; it is largely ignored.
  • 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, 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
      Flipping
      Flipping is a term used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling it for profit...

      ") 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.
    • Paul O'Neill (Secretary of the Treasury) is fired by Bush. Among other things, he had wanted to take action on executive compensation and corporate governance.
    • June 17:Bush unveils his "Blueprint for the American Dream". He 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
      NeighborWorks America
      The Neighborhood Reinvestment Corporation, doing business as NeighborWorks America,is a Congressionally chartered nonprofit organization that supports community development in the United States. The organization provides grants and technical assistance to 235 U.S...

       with faith based organizations.
  • 2003: Federal Reserve Chair Alan Greenspan
    Alan Greenspan
    Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

     lowers federal reserve’s key interest rate to 1%, the lowest in 45 years.
    • August: Borio and White of Bank of International Settlements speak at the Jackson Hole Economic Symposium. Their warnings about problems with collateralized debt obligations and rating agencies are rejected or ignored by attendees, including Alan Greenspan
      Alan Greenspan
      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

      .
    • September: Bush administration recommend moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury
      United States Department of the Treasury
      The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

      . 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
      Countrywide Financial
      Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

      , 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
      Mortgage fraud
      Mortgage fraud is crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth....

       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
    • October:SEC effectively suspends net capital rule
      Net capital rule
      The uniform net capital rule is a rule created by the U.S. Securities and Exchange Commission in 1975 to regulate directly the ability of broker-dealers to meet their financial obligations to customers and other creditors...

       for five firms—Goldman Sachs
      Goldman Sachs
      The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...

      , Merrill Lynch
      Merrill Lynch
      Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

      , Lehman Brothers
      Lehman Brothers
      Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

      , Bear Stearns
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       and Morgan Stanley
      Morgan Stanley
      Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....

      . 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.

2005

  • 2005:
    • circa 05-06: Head CDO trader at Deutsche Bank
      Deutsche Bank
      Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...

      , Greg Lippman, calls the CDO market a 'ponzi scheme'. With knowledge of management, he bets $5 billion against the housing market, while other desks at Deutsche Bank continue to sell mortgage securities to investors.
    • The Securities and Exchange Commission ceases an investigation of Bear Stearns
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear.
    • Robert Shiller
      Robert Shiller
      Robert James "Bob" Shiller is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management...

       gives talks warning about a housing bubble to the Office of the Comptroller of the Currency
      Office of the Comptroller of the Currency
      The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...

       and the Federal Deposit Insurance Corporation
      Federal Deposit Insurance Corporation
      The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

      . He is ignored, and would later call it an incidence of Groupthink
      Groupthink
      Groupthink is a psychological phenomenon that occurs within groups of people. It is the mode of thinking that happens when the desire for harmony in a decision-making group overrides a realistic appraisal of alternatives. Group members try to minimize conflict and reach a consensus decision without...

      . That same year, his second edition of Irrational Exuberance
      Irrational Exuberance (book)
      Irrational Exuberance is a March 2000 book written by Yale University professor Robert Shiller, named after Alan Greenspan's "irrational exuberance" quote. Published at the height of the dot-com boom, it put forth several arguments demonstrating how the stock markets were overvalued at the time...

       warns that the housing bubble might lead to a worldwide recession.
    • January:
      • Federal Reserve Governor Edward Gramlich
        Edward Gramlich
        Edward M. Gramlich was a professor of economics at the University of Michigan and a former member of the Board of Governors of the Federal Reserve....

         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.
      • The Bank of International Settlements warns about the problems with structured financial products, and points out the conflict of interest of credit rating agencies
        Credit rating agency
        A Credit rating agency is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves...

         - that they are being paid by the same companies they are supposed to be objectively evaluating.
    • 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.
    • June: At Lehman Brothers, Mike Gelband & friends make a push to get out of the mortgage market and start shorting it. They are ignored and later fired. Dr Madelyn Antoncic, '2006 risk manager of the year', is shut out of meetings by CEO Dick Fuld and Joe Gregory; she is fired in 2007.
    • June: The International Swaps and Derivatives Association
      International Swaps and Derivatives Association
      The International Swaps and Derivatives Association is a trade organization of participants in the market for over-the-counter derivatives....

       smooths the process of creating credit default swaps against ABS CDOs; a boon for hedge funds.
    • August: Raghuram Rajan
      Raghuram Rajan
      Raghuram Govind Rajan is currently the Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. He is also an honorary economic adviser to Prime Minister of India Manmohan Singh and the current President of the American Finance...

       delivers his paper "Has Financial Development Made the World Riskier?", warning about credit default swaps, at the Jackson Hole Economic Symposium. His arguments are rejected by attendees, including Alan Greenspan
      Alan Greenspan
      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

      , Donald Kohn
      Donald Kohn
      Donald Lewis Kohn is an American economist who served as the former Vice Chairman of the Board of Governors of the Federal Reserve System. He is considered a moderate dove on fiscal policy. He retired after 40 years at the central bank in September, 2010.-Early life and family:Kohn was born in...

      , and Lawrence Summers
      Lawrence Summers
      Lawrence Henry Summers is an American economist. He served as the 71st United States Secretary of the Treasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United States National Economic Council for President Barack Obama until November 2010.Summers is the...

      .
    • September: The Mortgage Insurance Companies of America send a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate.
    • 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.

2006

    • 2006: Commerzbank
      Commerzbank
      Commerzbank AG is the second-largest bank in Germany, after Deutsche Bank, headquartered in Frankfurt am Main.-Activities:Commerzbank is mainly active in commercial bank, retail banking and mortgaging. It suffered reversals in investment banking in early 2000s and scaled back its Securities unit...

       begins to stop building its massive subprime position
    • Early: AIG
      AIG
      AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

       gets scared and stops selling credit protection against CDOs. The Monolines (AMBAC, MBIA) continue to sell, though.
    • May: The subprime lender Ameriquest
      Ameriquest
      ACC Capital Holdings was a national mortgage lender based in Orange, California. The company is the largest privately held retail mortgage lender in the United States and the largest subprime lender by volume...

       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.
    • Mayish: Merrill Lynch fires Jeff Kronthal, who had formerly worked under Lew Ranieri at Salomon Brothers, and his team, because they made a presentation outlining the risks of the mortgage CDO market.
    • Middle: Merrill Lynch
      Merrill Lynch
      Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

       CDO sales department has trouble selling the super senior
      Super senior
      A super senior is a student in an American four-year educational institution such as a high school or university who has been attending the institution for 5 or more years or has more than the usual number of credits required to graduate without achieving a diploma or bachelors...

       tranche of its CDOs. Instead, it sets up a group within Merrill to buy the tranches, so that the sales group can keep making bonuses.
    • Middle: Magnetar Capital
      Magnetar Capital
      Magnetar Capital is a hedge fund based in Evanston, Illinois. Among its many activities, the firm was actively involved in the collateralized debt obligation market during the 2006–2007 period...

       starts creating CDOs to fail on purpose, so that it can profit from the insurance (credit default swap
      Credit default swap
      A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

      s) it has bought against their failure. Their program is so large that it helps extend the credit bubble into 2007, thus making the crash worse.
    • August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.
    • September 7: Nouriel Roubini
      Nouriel Roubini
      Nouriel Roubini is an American economist. He claims to have predicted both the collapse of the United States housing market and the worldwide recession which started in 2008. He teaches at New York University's Stern School of Business and is the chairman of Roubini Global Economics, an economic...

       warns the International Monetary Fund
      International Monetary Fund
      The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

       about a coming US housing bust, mortgage-backed securities failures, bank failures, and a recession. His work was based partly on his study of recent economic crises in Russia (1998), Argentina (2000), Mexico (1994)
      1994 economic crisis in Mexico
      The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....

      , and Asia (1997)
    • Fall 2006 J.P. Morgan CEO Jamie Dimon directs the firm to reduce its exposure to subprime mortgages.
    • December 2006 Goldman-Sachs claims after the fact that it began reducing its exposure to subprime mortgages at this point. It also begins betting against the housing market, while continuing to sell CDOs to its clients. Others claim these risk decisions were made in the spring and summer 2007.

2007

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
Case–Shiller index
The Standard & Poor's Case–Shiller Home Price Indices are constant-quality house price indices for the United States. There are multiple Case–Shiller home price indices: A national home price index, a 20-city composite index, a 10-city composite index, and twenty individual metro area...

 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.

Lehman Brothers leaders Dick Fuld and Joe Gregory double down; in 2007 they fire their internal critics and spend billions of dollars on real estate investments that will, within a year, become worthless, including Archstone-Smith and McAllister Ranch.
    • January 3: Ownit Mortgage Solutions Inc. files for Chapter 11; it owed Merrill Lynch
      Merrill Lynch
      Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

       around $93 million.
    • January 29: American Freedom Mortgage, Inc. files for Chapter 7 protection.
    • 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 8: HSBC
      HSBC
      HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...

       warns that bad debt provisions for 2006 would be 20% higher than expected to roughly $10.5bn (£5bn).
    • February 22: HSBC
      HSBC
      HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...

       fires head of its US mortgage lending business as losses reach $10.5bn.
    • February 26:Comments by former Federal Reserve Chairman, Alan Greenspan
      Alan Greenspan
      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

      , set off market tremors.
    • February 27: Dow Jones drops 416 points (3.3%).
    • February–March: Subprime industry collapse; several subprime lenders declaring bankruptcy
      Bankruptcy
      Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

      , announcing significant losses, or putting themselves up for sale. These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial
      Countrywide Financial
      Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

    • 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
      Ben Bernanke
      Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

      , 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
      Federal Election Commission
      The Federal Election Commission is an independent regulatory agency that was founded in 1975 by the United States Congress to regulate the campaign finance legislation in the United States. It was created in a provision of the 1975 amendment to the Federal Election Campaign Act...

       as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services
      United States House Committee on Financial Services
      The United States House Committee on Financial Services is the committee of the United States House of Representatives that oversees the entire financial services industry, including the securities, insurance, banking, and housing industries...

       which oversees Freddie Mac.
    • June: "Shorts" actively prevent banks (like Bear Stearns) from helping homeowners avoid foreclosure. Shorts are hedge funds and proprietary bank traders like John Paulson, Kyle Bass, and Greg Lippman, who will profit from the housing crash. Harvey Pitt
      Harvey Pitt
      Harvey Pitt was the 26th chairman of the U.S. Securities and Exchange Commission , serving from 2001-2003. He led the SEC in restoring the U.S...

       lobbies the SEC for shorts.

The subprime crisis impact timeline lists dates relevant to the creation of a United States housing bubble
United States housing bubble
The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...

 and the 2005 housing bubble burst (or market correction
Market trends
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...

) and the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....

 which developed during 2007 and 2008. It includes United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 enactment of government laws and regulations, as well as public and private actions which affected the housing industry and related banking and investment activity. It also notes details of important incidents in the United States, such as bankruptcies and takeovers, and information and statistics about relevant trends. For more information on reverberations of this crisis throughout the global financial system see Financial crisis of 2007–2010 or Global financial crisis of September–October 2008.

1938–1979

  • 1938: The Federal National Mortgage Association, or Fannie Mae, is established as part of Franklin D. Roosevelt
    Franklin D. Roosevelt
    Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

    's New Deal
    New Deal
    The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

    , to purchase mortgages guaranteed by the Veterans Administration
    United States Department of Veterans Affairs
    The United States Department of Veterans Affairs is a government-run military veteran benefit system with Cabinet-level status. It is the United States government’s second largest department, after the United States Department of Defense...

     and the Federal Housing Administration
    Federal Housing Administration
    The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...

    . This took the loans off the books of mortgage lenders, freeing up capital
    Financial capital
    Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....

     so that they could make more loans.McClean, Nocera, p 6
  • late 1960s: Fannie Mae is permitted to purchase 'conventional' mortgages (not just VA/FHA)McClean, Nocera, p23
  • late 1960s: Angelo Mozilo
    Angelo Mozilo
    Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...

     & Loeb found Countrywide Financial
    Countrywide Financial
    Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

    , and pioneer the nationwide non-bank mortgage lending business; in the beginning, Mozilo is extremely concerned with credit quality.McClean, Nocera, p22
  • 1968: Fannie Mae spins off Ginnie Mae as a separate entity. Ginnie will continue to have an explicit, written government guarantee for all its mortgage loans.McClean, Nocera, p7 Fannie Mae, however, is converted into to a stand-alone corporation, a government sponsored enterprise (GSE).
  • 1970: Federal Home Loan Mortgage Corporation (Freddie Mac) is created by an act of Congress as a government sponsored enterprise to buy mortgages from the Thrift
    Thrift
    Thrift may refer to:* A savings and loan association in the United States* Restrained or disciplined spending habits* Apache Thrift a remote procedure call framework developed at Facebook for "scalable cross-language services development"....

    /savings and loan industry; it is owned by the industry itself (until 1989)
  • The GSEs (Fannie and Freddie) have an 'implicit guarantee' from the government; that if they get into trouble, the government will bail them out. There is no written law or contract stating the government will do this; it is simply assumed by the industry, government officials, and investors. This implicit, unstated guarantee is what allows the debt of Fannie and Freddie to be moved off of the balance sheet of the government. This makes the National debt falsely appear to be lower than it really is, and artificially makes the budget look more balanced
    Balanced budget
    A balanced budget is when there is neither a budget deficit or a budget surplus – when revenues equal expenditure – particularly by a government. More generally, it refers to when there is no deficit, but possibly a surplus...

    . This arrangement will not be tested until 2008 (see below)See also On The Brink by Henry Paulson
  • 1970: Ginnie Mae creates the first mortgage backed security, based on FHA and VA mortgages. It guarantees them.McClean, Nocera, p 7
  • 1971: Freddie issues its first Mortgage Participation Certificate security. This is the first mortgage backed security made of ordinary mortgages.History of Freddie Mac.
  • 1970s: Private companies begin mortgage asset securitization with the creation of private mortgage pools in the 1970s.
  • 1974: Equal Credit Opportunity Act
    Equal Credit Opportunity Act
    The Equal Credit Opportunity Act is a United States law , enacted in 1974, that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age ; to the...

     imposes heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or ageRegulation B, Equal Credit Opportunity 12 CFR 202.14(b) as stated in Closing the Gap: A Guide to Equal Opportunity Lending, Federal Reserve System
    Federal Reserve System
    The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

     of Boston.
  • 1977: Community Reinvestment Act
    Community Reinvestment Act
    The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...

     is enacted to address historical discrimination in lending, such as 'redlining
    Redlining
    Redlining is the practice of denying, or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. The term "redlining" was coined in the late 1960s by John McKnight, a...

    '. 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.Text of Housing and Community Development Act of 1977—title Viii (Community Reinvestment).
  • 1977: Salomon Brothers
    Salomon Brothers
    Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

     attempts creation of a "private label" mortgage backed security (one that doesn't involve GSE mortgages). It fails in the marketplace.McClean, Nocera, p 12
  • Late 1970s: Lew Ranieri (Salomon
    Salomon Brothers
    Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

    ) and Larry Fink
    Laurence D. Fink
    Laurence D. "Larry" Fink is the chairman and chief executive officer of BlackRock, an American multinational investment management corporation. BlackRock is the largest money-management firm in the world.-Early life and education:...

     (First Boston
    First Boston
    First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...

    ) invent securitization
    Securitization
    Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

    ; mortgages are pooled and the pool is sliced into tranche
    Tranche
    In structured finance, a tranche is one of a number of related securities offered as part of the same transaction. The word tranche is French for slice, section, series, or portion, and is cognate to English trench . In the financial sense of the word, each bond is a different slice of the deal's...

    s, which are then sold to investors.McClean, Nocera, p 5Liar's Poker, Michael Lewis

1980–1989

  • 1980: The Depository Institutions Deregulation and Monetary Control Act
    Depository Institutions Deregulation and Monetary Control Act
    The Depository Institutions Deregulation and Monetary Control Act, a United States federal financial statute law passed in 1980, gave the Federal Reserve greater control over non-member banks.* It forced all banks to abide by the Fed's rules....

     (DIDMCA) of 1980 grants all thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts. The law also exempts federally chartered savings banks, installment plan sellers and chartered loan companies from state usury
    Usury
    Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...

     (unlimited high interest rates) limits.The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, Federal Deposit Insurance Corporation
    Federal Deposit Insurance Corporation
    The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

     "Bank Trends" Newsletter, March, 1998.
    The law also allowed home equity loan
    Home equity loan
    A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

    s to be treated just like mortgages.McClean, Nocera, p 29
  • 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.
  • 1981: Salomon Brothers
    Salomon Brothers
    Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

     transitions from a private partnership to a public corporation, the first of the Wall St. investment banks to do so. This shifts the risk of financial loss from the partners to shareholders, arguably increasing the appetite for risk.
  • 1981: David Maxwell becomes CEO of Fannie; he greatly increases the use of mortgage securities, forming an uneasy alliance with Ranieri and Fink
  • 1982: Reagan's Commission on Housing recommends the GSEs be separated from the government
  • 1982: Alternative Mortgage Transaction Parity Act of 1982
    Alternative Mortgage Transaction Parity Act of 1982
    The Alternative Mortgage Transaction Parity Act of 1982, also known as AMTPA, preempts state laws that restrict banks from making any mortgage except conventional fixed rate amortizing mortgages. AMTPA was contained in title VIII of the Garn–St...

     (AMTPA) preempts state laws allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payment
    Balloon payment
    When a debt is repaid in payments of varying amounts there are some colourful jargon terms used to describe the different loan structures. The term balloon payment arises because if you hold back most of a debt and pay it only towards the end of the agreement, both those last payments and the total...

    s, and negative amortization
    Negative amortization
    In finance, negative amortization, also known as NegAm, deferred interest or graduated payment mortgage, occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases...

     and "allows lenders to make loans with terms that may obscure the total cost of a loan".
  • 1983: The first collateralized mortgage obligation
    Collateralized mortgage obligation
    A collateralized mortgage obligation is a type of financial debt vehicle that was first created in 1983 by the investment banks Salomon Brothers and First Boston for U.S. mortgage lender Freddie Mac. A collateralized mortgage obligation (CMO) is a type of financial debt vehicle that was first...

     (CMO) is created by Larry Fink's team at First Boston
    First Boston
    First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...

    . It is made from Freddie Mac mortgages.McClean, Nocera, p 13
  • 1984: The Secondary Market Enhancement Act (SMMEA), partly formed by Ranieri's closeness with Reagan's staff, attempts to level the playing field on the mortgage securities market so that private mortgage-securities companies (like Salomon Brothers) will be able to be able to compete with the GSEs. The act also is the foundation of the credit ratings agencies importance in the market; the law limits pension funds & others so that they are only allowed to buy mortgage bonds that are rated highly by a NRSRO
    Nationally Recognized Statistical Rating Organization
    A Nationally Recognized Statistical Rating Organization is a credit rating agency that issues credit ratings that the U.S. Securities and Exchange Commission permits other financial firms to use for certain regulatory purposes...

    McClean, Nocera, 13-14
  • 1986: Tax Reform Act of 1986
    Tax Reform Act of 1986
    The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

     (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 loan
    Home equity loan
    A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

    s 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.Z.1 Historical Tables (1974) and current Z.1 release (2008), Table B.100, lines 31,48.
  • 1986: The Real Estate Mortgage Investment Conduit (REMIC) law is passed, as part of an uneasy alliance between Ranieri (of Salomon) and Maxwell (of Fannie). It prevents double-taxation of mortgage securities; the 'secondary market' for mortgages booms.McClean, Nocera, 16
  • 1987 The mezzanine CDO
    CDO
    CDO may refer to:* Cagayan de Oro, a city that lies along the northern coastline of Mindanao island, Philippines.* Canyon del Oro High School, a public school in Oro Valley, Arizona, USA....

     was invented at Drexel Burnham Lambert
    Drexel Burnham Lambert
    Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...

  • 1987: Maxwell of Fannie, fights bitterly with Wall Street and Congress about allowing GSEs to do REMICs. Lobbying and threats fly back and forth.McClean, Nocera, 17
  • 1985–1989: The effects of Tax Reform Act of 1986
    Tax Reform Act of 1986
    The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

    , the elimination of Regulation Q
    Regulation Q
    Regulation Q is Title 12, part 217 of the United States Code of Federal Regulations. It prohibits banks from paying interest on demand deposits in accordance with Section 11 of the Glass–Steagall Act ....

     which had capped interest rates banks were allowed to pay, imprudent lending during the late 1970s inflationary period
    Inflation
    In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

    , as well as other causes, led to asset-liability mismatch for many Savings and Loans.research.stlouisfed.org This de facto insolvency led to the Savings and Loan Crisis
    Savings and Loan crisis
    The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...

     and the failure and/or closure of half of all federally insured savings and loans. The number declined from 3,234 to 1,645.fdic.govfdic.gov
  • Late 1980s: Several groups lose big money on tranched mortgage securities, including Merrill Lynch. Market shrinks.McClean, Nocera, p 18
  • 1988: Guardian Savings and Loan issues the first 'subprime'-backed mortgage security. Long Beach Mortgage begins to move towards the subprime securitization market. Its employees will later go on to lead many other subprime companies.
  • 1989–1995: Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) established the Resolution Trust Corporation
    Resolution Trust Corporation
    The Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...

     (RTC), which closed hundreds of insolvent savings and loans holding $519 billion in assets. The law also moved regulatory authority to the Office of Thrift Supervision
    Office of Thrift Supervision
    The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...

     (OTS). The U.S. government ultimately appropriated $105 billion to resolve the S&L crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of $40 billion by the end of 1999.
  • The RTC decides to sell the massive amount of bad real estate debt it holds to investors. In order to do this, it decides to use the tools of securitization
    Securitization
    Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

     and structured finance
    Structured finance
    Structured finance is a broad term used to describe a sector of finance that was created to help transfer risk and avoid lawsStructured finance is a broad term used to describe a sector of finance that was created to help transfer risk and avoid laws...

    , such as overcollateralization, bond insurance
    Bond insurance
    Bond insurance is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security...

    , and subordination
    Subordination (finance)
    Subordination in banking and finance refers to the order of priorities in claims for ownership or interest in various assets.-Subordination of debt:...

    . This results in transforming the bad debt into various new products that had high enough ratings to attract investors.

1990–1995

  • 1990s: The first subprime bubble. Founding of subprime lenders New Century
    New Century
    New Century Financial Corporation was founded in 1995 by a trio of former managers at Option One Mortgage, including former CEO Brad Morrice and is headquartered in Irvine, California...

    , Option One, FirstPlus Financial, and the buyout of The Money Store. Famco and several other subprime lenders go bankrupt. Angelo Mozilo
    Angelo Mozilo
    Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...

     of Countrywide
    Countrywide
    Countrywide Ltd are the United Kingdom's largest estate agency group. It employs 10,000 personnel nationwide, working across 1,300 estate agency or lettings offices operating under 46 local high street brands, supplemented by 650 mortgage consultants and over 350 surveyors...

     privately calls subprime lenders 'crooks', but is forced to compete or lose market share.McClean, Nocera, p36, 87
  • 1990s: J.P. Morgan invents Value-at-Risk and credit default swap
    Credit default swap
    A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

    s; later misused tragically by other companies.McClean, Nocera, Chapter 4Fool's Gold, Gillian Tett
  • 1990: Fannie gets Paul Volcker
    Paul Volcker
    Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...

     to argue it doesn't need the same regulatory capital as banks.McClean, Nocera, p41
  • 1992: Federal Housing Enterprises Financial Safety and Soundness Act of 1992
    Federal Housing Enterprises Financial Safety and Soundness Act of 1992
    The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 . The Act established the Office of Federal Housing Enterprise Oversight within the United States Department of Housing and Urban Development...

     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
    Security (finance)
    A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

    ; Office of Federal Housing Enterprise Oversight
    Office of Federal Housing Enterprise Oversight
    The Office of Federal Housing Enterprise Oversight was an agency within the Department of Housing and Urban Development. It was charged with ensuring the capital adequacy and financial safety and soundness of two government sponsored enterprises—the Federal National Mortgage Association and the...

     (OFHEO) created to oversee them
  • 1992: Jim Johnson is new CEO at Fannie. Ramps up the 'cut them off at the knees' strategy against political enemies. Tactics include a massive lobbying
    Lobbying
    Lobbying is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by various people or groups, from private-sector individuals or corporations, fellow legislators or government officials, or...

     effort, neutering the OFHEO, creating a "partnership office" network to court the politically powerful with pork
    Pork
    Pork is the culinary name for meat from the domestic pig , which is eaten in many countries. It is one of the most commonly consumed meats worldwide, with evidence of pig husbandry dating back to 5000 BC....

    , giving high level employment to the well connected, giving out campaign contributions, creating a charity foundation, and threatening critics like FM Watch with retaliation. One of McClean & Nocera's sources compared Fannie's activities to Tammany Hall
    Tammany Hall
    Tammany Hall, also known as the Society of St. Tammany, the Sons of St. Tammany, or the Columbian Order, was a New York political organization founded in 1786 and incorporated on May 12, 1789 as the Tammany Society...

    .McClean, Nocera p40-45
  • 1993: The Federal Reserve Bank
    Federal Reserve Bank
    The twelve Federal Reserve Banks form a major part of the Federal Reserve System, the central banking system of the United States. The twelve federal reserve banks together divide the nation into twelve Federal Reserve Districts, the twelve banking districts created by the Federal Reserve Act of...

     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.Michael Flynn, Anatomy of a Breakdown; Concerted government policy helped trigger the financial meltdown—and will almost certainly extend it, Reason magazine
    Reason (magazine)
    Reason is a libertarian monthly magazine published by the Reason Foundation. The magazine has a circulation of around 60,000 and was named one of the 50 best magazines in 2003 and 2004 by the Chicago Tribune.- History :...

     magazine, January 2009.
    Closing the Gap: A Guide to Equal Opportunity Lending, Federal Reserve System
    Federal Reserve System
    The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

     of Boston, 1993.
  • 1994: Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
    Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 [IBBEA] amended the laws governing federally-chartered banks in order to restore the laws' competitiveness with the recently relaxed laws governing state-chartered banks. The goal was the return to a balance between the...

     (IBBEA) repeals the interstate provisions of the Bank Holding Company Act of 1956
    Bank Holding Company Act of 1956
    The Bank Holding Company Act of 1956 is a United States Act of Congress that regulates the actions of bank holding companies.The original law , specified that the Federal Reserve Board of Governors must approve the establishment of a bank holding company, and prohibited bank holding companies...

     that regulated the actions of bank holding companies.
  • 1994: J.P. Morgan & Blythe Masters
    Blythe Masters
    Blythe Sally Jess Masters is an economist and current head of Global Commodities at J.P. Morgan Chase. From 2004-2007, she was Chief Financial Officer of J.P...

     sell the first credit default swap
    Credit default swap
    A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

     to the European Bank for Reconstruction and Development, to insure Exxon
    Exxon
    Exxon is a chain of gas stations as well as a brand of motor fuel and related products by ExxonMobil. From 1972 to 1999, Exxon was the corporate name of the company previously known as Standard Oil Company of New Jersey or Jersey Standard....

    's JPM credit line, & free up JPM's capitalMcClean, Nocera, p 62Fool's Gold, Gillian Tett
  • 1995: New Community Reinvestment Act
    Community Reinvestment Act
    The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...

     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 allow community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities.

1995–2000

  • 1995–2001: Dot-com bubble
    Dot-com bubble
    The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...

     and collapse
  • circa 1996: President Clinton's "National Homeownership Strategy"McClean, Nocera, p 32
  • 1997: Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of private-label (non-GSE) subprime mortgage-backed securities, six times more than 1991's volume of $10 billion.
    • J.P. Morgan bundles credit default swap
      Credit default swap
      A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

      s into BISTRO
      Bistro
      A bistro, sometimes spelled bistrot, is, in its original Parisian incarnation, a small restaurant serving moderately priced simple meals in a modest setting. Bistros are defined mostly by the foods they serve. Home cooking with robust earthy dishes, and slow-cooked foods like cassoulet are typical...

      , the precursor of the Synthetic CDO
      Synthetic CDO
      A Synthetic CDO is a complex financial security used to speculate or manage the risk that an obligation will not be paid...

      . AIG
      AIG
      AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

       sells credit protection against BISTRO's super-senior tranche.McClean, Nocera, p 78Fool's Gold, by Gillian Tett
    • July: The Taxpayer Relief Act of 1997
      Taxpayer Relief Act of 1997
      The Taxpayer Relief Act of 1997 reduced several federal taxes in the United States.Subject to certain phase-in rules, the top capital gains rate fell from 28% to 20%. The 15% bracket was lowered to 10%....

       expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties.Russell Roberts, "How Government Stoked the Mania", Wall Street Journal, October 3, 2008.
    • November: Freddie Mac helped First Union Capital Markets and Bear Stearns & Co
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       launch the first publicly available securitization
      Security (finance)
      A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

       of CRA
      CRA
      -Organizations in California:* California Republican Assembly, a conservative California Republican activist group. It is the oldest and largest grassroots volunteer organization chartered by the California Republican Party...

       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.
    • The New York Fed
      Federal Reserve Bank of New York
      The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...

       persuades Wall Street to bail out Long-Term Capital Management
      Long-Term Capital Management
      Long-Term Capital Management L.P. was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute-return trading strategies combined with high leverage...

       (a hedge fund
      Hedge fund
      A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...

      ). Bear Stearns
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       declines, but every other major bank agrees. Some worry the Fed intervention creates moral hazard
      Moral hazard
      In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

      .Thomas J. McCool, Responses to Questions Concerning Long-Term Capital Management and Related Events, Government Accountability Office
      Government Accountability Office
      The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

      , February 23, 2000.
    • May: Brooksley Born
      Brooksley Born
      Brooksley E. Born is an American attorney and former public official who, from August 26, 1996, to June 1, 1999, was chairperson of the Commodity Futures Trading Commission , the federal agency which oversees the futures and commodity options markets...

       at the Commodity Futures Trading Commission
      Commodity Futures Trading Commission
      The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....

       wants to investigate over the Counter derivatives like credit default swap
      Credit default swap
      A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

      s; their lack of transparency, lack of regulation, and possible systemic risk. Alan Greenspan
      Alan Greenspan
      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

      , Robert Rubin
      Robert Rubin
      Robert Edward Rubin served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs eventually serving as a member of the Board, and Co-Chairman from 1990-1992...

      , and Arthur Levitt
      Arthur Levitt
      Arthur Levitt, Jr. was the twenty-fifth and longest-serving Chairman of the United States Securities and Exchange Commission from 1993 to 2001. Widely hailed as a champion of the individual investor, he has been criticized for not pushing for tougher accounting rules. Since May 2001 he has been...

       of Clinton's Working Group on Financial Markets
      Working Group on Financial Markets
      The Working Group on Financial Markets was created by Executive Order 12631, signed on March 18, 1988 by United States President Ronald Reagan.The Group was established explicitly in response to events in the financial markets surrounding October 19,...

      , and Larry Summers shut her down. She resigns soon after.The Warning: Brooksley Born's Battle With Alan Greenspan, Robert Rubin And Larry Summers by John Carney Oct. 21, 2009 businessinsider.com. This is a summary of the PBS Frontline documentary The Warning, featuring Brooksley Born
      Brooksley Born
      Brooksley E. Born is an American attorney and former public official who, from August 26, 1996, to June 1, 1999, was chairperson of the Commodity Futures Trading Commission , the federal agency which oversees the futures and commodity options markets...

      .
      "Concept Release Concerning Over-The-Counter Derivatives market", CFTC Release #4142-98, May 7, 1998.< Lindsey, Richard R. Testimony of Richard R. Lindsey, Director, Division of Market Regulation, Securities and Exchange Commission, July 24, 1998.The Reckoning: Taking Hard New Look at a Greenspan Legacy , October 8, 2008 New York Times, Peter S Goodman, via nytimes.com, accessed 2010 4 15
    • October: "Financial Services Modernization Act" killed in Senate because of no restrictions on Community Reinvestment Act-related community groups written into law
  • 1998–2008: Credit default swap
    Credit default swap
    A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

    s boom along with the products they insure; mortgage securities and CDO tranches. By November 2008, there are between $33 to $47 trillion CDS contracts; nobody can know for sure because the market is unregulated and non-transparent.

Bloomberg-Credit Swap Disclosure Obscures True Financial Risk
  • 1999:
    • 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: The Gramm-Leach-Bliley Act
      Gramm-Leach-Bliley Act
      The Gramm–Leach–Bliley Act , also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress...

       (Financial Services Modernization Act) passes. It repeals the Glass-Steagall Act
      Glass-Steagall Act
      The Banking Act of 1933, , was a law that established the Federal Deposit Insurance Corporation in the United States and introduced banking reforms, some of which were designed to control speculation. It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Senator...

       of 1933. It deregulates banking, insurance, securities, and the financial services industry, allowing financial institutions to grow very large. It also limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks. Congressmen key to the effort include Phil Gramm
      Phil Gramm
      William Philip "Phil" Gramm is an American economist and politician, who has served as a Democratic Congressman , a Republican Congressman and a Republican Senator from Texas...

      , Jim Leach
      Jim Leach
      James Albert Smith "Jim" Leach is a former member of the U.S. House of Representatives from Iowa. In August 2009, he became Chairman of the National Endowment for the Humanities ....

      , Thomas J. Bliley, Jr.
      Thomas J. Bliley, Jr.
      Thomas Jerome "Tom" Bliley, Jr. is a United States Republican politician and former U.S. Representative from the state of Virginia.-Background:...

      , Chuck Schumer, and Chris Dodd.
  • 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.

2001-2004

  • 2000–2003: Early 2000s recession
    Early 2000s recession
    The early 2000s recession was a decline in economic activity which occurred mainly in developed countries. The recession affected the European Union mostly during 2000 and 2001 and the United States mostly in 2002 and 2003. The UK, Canada and Australia avoided the recession for the most part, while...

     spurs government action to rev up economy.
  • 2000-2001: US Federal Reserve lowers Federal funds rate
    Federal funds rate
    In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...

     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.
  • 2001: Ex-Wall Streeter John Posner writes A Home Without Equity is just a Rental with Debt, criticizing the massive growth in home equity loan
    Home equity loan
    A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

    s and refinancing
    Refinancing
    Refinancing may refer to the replacement of an existing debt obligation with a debt obligation under different terms. The terms and conditions of refinancing may vary widely by country, province, or state, based on several economic factors such as, inherent risk, projected risk, political...

     for consumer purchases, amongst other things. Charles Kindleberger of Manias, Panics, and Crashes finds it insightful; it is largely ignored.A Home Without Equity is just a Rental with Debt, 2001, John Posner, SSRNSee also Charles R Morris, Two Trillion Dollar Meltdown, and David Faber's "And Then the Roof Caved In"
  • 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. Buying Subprime Securities. See Chart of Fannie Mae, Freddie Mac subprime securities purchases, 2002-2006, including as percentage of all such purchases, Washington Post, June 10, 2006.
    • Lenders began to offer loans to higher-risk borrowers, 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
      Flipping
      Flipping is a term used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling it for profit...

      ") 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.
    • Paul O'Neill (Secretary of the Treasury) is fired by Bush. Among other things, he had wanted to take action on executive compensation and corporate governance.The Price of Loyalty
      The Price of Loyalty
      The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill, is a 2004 book by Pulitzer Prize-winning author Ron Suskind. The book was the first to provide critical insight into the events that led up to the Iraq War...

      , Ron Suskind
      Ron Suskind
      Ron Suskind is a Pulitzer Prize winning American journalist and best-selling author. He was the senior national affairs writer for The Wall Street Journal from 1993 to 2000 and has published the books A Hope in the Unseen, The Price of Loyalty, The One Percent Doctrine, The Way of the World and...

    • June 17:Bush unveils his "Blueprint for the American Dream".McLean, Nocera, p168 He 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
      NeighborWorks America
      The Neighborhood Reinvestment Corporation, doing business as NeighborWorks America,is a Congressionally chartered nonprofit organization that supports community development in the United States. The organization provides grants and technical assistance to 235 U.S...

       with faith based organizations.Press Release, President Calls for Expanding Opportunities to Home Ownership, Remarks by the President, June 17, 2000.
  • 2003: Federal Reserve Chair Alan Greenspan
    Alan Greenspan
    Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

     lowers federal reserve’s key interest rate to 1%, the lowest in 45 years.
    • August: Borio and White of Bank of International Settlements speak at the Jackson Hole Economic Symposium. Their warnings about problems with collateralized debt obligations and rating agencies are rejected or ignored by attendees, including Alan Greenspan
      Alan Greenspan
      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

      .
    • September: Bush administration recommend moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury
      United States Department of the Treasury
      The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

      . The changes are blocked by Congress.Steven Labaton,New Agency Proposed to Oversee Freddie Mac and Fannie Mae, The New York Times
      The New York Times
      The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...

      , September 11, 2003.
  • 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
      Countrywide Financial
      Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

      , 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
      Mortgage fraud
      Mortgage fraud is crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth....

       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
    • October:SEC effectively suspends net capital rule
      Net capital rule
      The uniform net capital rule is a rule created by the U.S. Securities and Exchange Commission in 1975 to regulate directly the ability of broker-dealers to meet their financial obligations to customers and other creditors...

       for five firms—Goldman Sachs
      Goldman Sachs
      The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...

      , Merrill Lynch
      Merrill Lynch
      Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

      , Lehman Brothers
      Lehman Brothers
      Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

      , Bear Stearns
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       and Morgan Stanley
      Morgan Stanley
      Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....

      . 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.

2005

  • 2005:
    • circa 05-06: Head CDO trader at Deutsche Bank
      Deutsche Bank
      Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...

      , Greg Lippman, calls the CDO market a 'ponzi scheme'. With knowledge of management, he bets $5 billion against the housing market, while other desks at Deutsche Bank continue to sell mortgage securities to investors.Emails Show How Greg Lippmann Built Deutsche Bank's $5 Billion Subprime Short: "Duping CDO Fools" Courtney Comstock, businessinsider.com
    • The Securities and Exchange Commission ceases an investigation of Bear Stearns
      Bear Stearns
      The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

       "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear.Did Authorities Miss a Chance To Ease the Credit Crunch? by Michael Siconolfi. The Wall Street Journal Online, Dec 11, 2007 (via realestatejournal.com)
    • Robert Shiller
      Robert Shiller
      Robert James "Bob" Shiller is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management...

       gives talks warning about a housing bubble to the Office of the Comptroller of the Currency
      Office of the Comptroller of the Currency
      The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...

       and the Federal Deposit Insurance Corporation
      Federal Deposit Insurance Corporation
      The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

      . He is ignored, and would later call it an incidence of Groupthink
      Groupthink
      Groupthink is a psychological phenomenon that occurs within groups of people. It is the mode of thinking that happens when the desire for harmony in a decision-making group overrides a realistic appraisal of alternatives. Group members try to minimize conflict and reach a consensus decision without...

      . That same year, his second edition of Irrational Exuberance
      Irrational Exuberance (book)
      Irrational Exuberance is a March 2000 book written by Yale University professor Robert Shiller, named after Alan Greenspan's "irrational exuberance" quote. Published at the height of the dot-com boom, it put forth several arguments demonstrating how the stock markets were overvalued at the time...

       warns that the housing bubble might lead to a worldwide recession.Challenging the Crowd in Whispers, Not Shouts, Robert J Shiller, New York Times, 2008 Nov 1. As mentioned in Econned, by Yves Smith
    • January:
      • Federal Reserve Governor Edward Gramlich
        Edward Gramlich
        Edward M. Gramlich was a professor of economics at the University of Michigan and a former member of the Board of Governors of the Federal Reserve....

         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.
      • The Bank of International Settlements warns about the problems with structured financial products, and points out the conflict of interest of credit rating agencies
        Credit rating agency
        A Credit rating agency is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves...

         - that they are being paid by the same companies they are supposed to be objectively evaluating.
    • 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.Press release and letter released by a contingent of "House Democrats", April 13, 2005.
    • June: At Lehman Brothers, Mike Gelband & friends make a push to get out of the mortgage market and start shorting it. They are ignored and later fired. Dr Madelyn Antoncic, '2006 risk manager of the year', is shut out of meetings by CEO Dick Fuld and Joe Gregory; she is fired in 2007.
    • June: The International Swaps and Derivatives Association
      International Swaps and Derivatives Association
      The International Swaps and Derivatives Association is a trade organization of participants in the market for over-the-counter derivatives....

       smooths the process of creating credit default swaps against ABS CDOs; a boon for hedge funds.Yves Smith argues that the ISDA June 2005 decision worsened the credit crisis.... for example, hedge funds now had a huge incentive to help create more bad mortgages, so that they could bet against them (with CDSes) and make money when they failed. (See page 263 & elsewhere). For the ISDA press release from 2005, please see: SDA Publishes Template for Credit Default Swaps on Asset-Backed Securities, International Swaps and Derivatives Association, Jun 13 2005, accessed 2010 4 21. There is also an interesting article about the American Securitization Forum on Feb 6 2006, by Allison Pyburn,in the Asset Securitization Report. "The ABS CDS market was jump-started in June 2005, when the International Swaps and Derivatives Association released standard documentation for pay-as-you-go and cash settlement procedures. An army of investors swooped into the single name swap market, enticed by the opportunity to take a short position on the subprime housing sector."
    • August: Raghuram Rajan
      Raghuram Rajan
      Raghuram Govind Rajan is currently the Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. He is also an honorary economic adviser to Prime Minister of India Manmohan Singh and the current President of the American Finance...

       delivers his paper "Has Financial Development Made the World Riskier?", warning about credit default swaps, at the Jackson Hole Economic Symposium. His arguments are rejected by attendees, including Alan Greenspan
      Alan Greenspan
      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

      , Donald Kohn
      Donald Kohn
      Donald Lewis Kohn is an American economist who served as the former Vice Chairman of the Board of Governors of the Federal Reserve System. He is considered a moderate dove on fiscal policy. He retired after 40 years at the central bank in September, 2010.-Early life and family:Kohn was born in...

      , and Lawrence Summers
      Lawrence Summers
      Lawrence Henry Summers is an American economist. He served as the 71st United States Secretary of the Treasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United States National Economic Council for President Barack Obama until November 2010.Summers is the...

      .Mr. Rajan Was Unpopular (But Prescient) at Greenspan Party , Justin Lahart, Wall Street Journal, 2009 1 2. Accessed 2010 4 18. As mentioned in Econned by Yves Smith.Ignoring the Oracles: You Are With the Free Markets, or Against Them, Justin Lahart, Wall Street Journal blog, 2009 1 1, accessed 2010 4 18. as mentioned in Econned by Yves Smith
    • September: The Mortgage Insurance Companies of America send a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate.
    • 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.Les Christie, Real estate cools down, Prices in the first quarter fell 3% from the fourth quarter, CNN
      CNN
      Cable News Network is a U.S. cable news channel founded in 1980 by Ted Turner. Upon its launch, CNN was the first channel to provide 24-hour television news coverage, and the first all-news television channel in the United States...

       Money, May 16, 2006.

2006

    • 2006: Commerzbank
      Commerzbank
      Commerzbank AG is the second-largest bank in Germany, after Deutsche Bank, headquartered in Frankfurt am Main.-Activities:Commerzbank is mainly active in commercial bank, retail banking and mortgaging. It suffered reversals in investment banking in early 2000s and scaled back its Securities unit...

       begins to stop building its massive subprime positionIt's the economy, Dummkopf, Michael Lewis, Vanity Fair, 2011 Sep
    • Early: AIG
      AIG
      AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

       gets scared and stops selling credit protection against CDOs. The Monolines (AMBAC, MBIA) continue to sell, though.
    • May: The subprime lender Ameriquest
      Ameriquest
      ACC Capital Holdings was a national mortgage lender based in Orange, California. The company is the largest privately held retail mortgage lender in the United States and the largest subprime lender by volume...

       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.
    • Mayish: Merrill Lynch fires Jeff Kronthal, who had formerly worked under Lew Ranieri at Salomon Brothers, and his team, because they made a presentation outlining the risks of the mortgage CDO market.McLean, Nocera, p 167
    • Middle: Merrill Lynch
      Merrill Lynch
      Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

       CDO sales department has trouble selling the super senior
      Super senior
      A super senior is a student in an American four-year educational institution such as a high school or university who has been attending the institution for 5 or more years or has more than the usual number of credits required to graduate without achieving a diploma or bachelors...

       tranche of its CDOs. Instead, it sets up a group within Merrill to buy the tranches, so that the sales group can keep making bonuses.
    • Middle: Magnetar Capital
      Magnetar Capital
      Magnetar Capital is a hedge fund based in Evanston, Illinois. Among its many activities, the firm was actively involved in the collateralized debt obligation market during the 2006–2007 period...

       starts creating CDOs to fail on purpose, so that it can profit from the insurance (credit default swap
      Credit default swap
      A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

      s) it has bought against their failure. Their program is so large that it helps extend the credit bubble into 2007, thus making the crash worse.Propublica, Timeline of Magnetar's deals. see also Magnetar Capital
      Magnetar Capital
      Magnetar Capital is a hedge fund based in Evanston, Illinois. Among its many activities, the firm was actively involved in the collateralized debt obligation market during the 2006–2007 period...

       article references.
    • August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.
        • September 7: Nouriel Roubini
          Nouriel Roubini
          Nouriel Roubini is an American economist. He claims to have predicted both the collapse of the United States housing market and the worldwide recession which started in 2008. He teaches at New York University's Stern School of Business and is the chairman of Roubini Global Economics, an economic...

           warns the International Monetary Fund
          International Monetary Fund
          The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

           about a coming US housing bust, mortgage-backed securities failures, bank failures, and a recession. His work was based partly on his study of recent economic crises in Russia (1998), Argentina (2000), Mexico (1994)
          1994 economic crisis in Mexico
          The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....

          , and Asia (1997)Dr. Doom, Stephen Mihm, New York Times, 2008 Aug 15.
        • Fall 2006 J.P. Morgan CEO Jamie Dimon directs the firm to reduce its exposure to subprime mortgages.
        • December 2006 Goldman-Sachs claims after the fact that it began reducing its exposure to subprime mortgages at this point. It also begins betting against the housing market, while continuing to sell CDOs to its clients. Others claim these risk decisions were made in the spring and summer 2007.NY Times

      2007

      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
      Case–Shiller index
      The Standard & Poor's Case–Shiller Home Price Indices are constant-quality house price indices for the United States. There are multiple Case–Shiller home price indices: A national home price index, a 20-city composite index, a 10-city composite index, and twenty individual metro area...

       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.

      Lehman Brothers leaders Dick Fuld and Joe Gregory double down; in 2007 they fire their internal critics and spend billions of dollars on real estate investments that will, within a year, become worthless, including Archstone-Smith and McAllister Ranch.Devil's Casino, Vicky Ward
        • January 3: Ownit Mortgage Solutions Inc. files for Chapter 11; it owed Merrill Lynch
          Merrill Lynch
          Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

           around $93 million.
        • January 29: American Freedom Mortgage, Inc. files for Chapter 7 protection.
        • 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 8: HSBC
          HSBC
          HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...

           warns that bad debt provisions for 2006 would be 20% higher than expected to roughly $10.5bn (£5bn).
        • February 22: HSBC
          HSBC
          HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...

           fires head of its US mortgage lending business as losses reach $10.5bn.
        • February 26:Comments by former Federal Reserve Chairman, Alan Greenspan
          Alan Greenspan
          Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

          , set off market tremors.
            • February 27: Dow Jones drops 416 points (3.3%).
                • February–March: Subprime industry collapse; several subprime lenders declaring bankruptcy
                  Bankruptcy
                  Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

                  , announcing significant losses, or putting themselves up for sale. These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial
                  Countrywide Financial
                  Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

                • 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
                  Ben Bernanke
                  Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

                  , 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 crisisChairman Ben S. Bernanke, GSE Portfolios, Systemic Risk, and Affordable Housing, Speech before the Independent Community Bankers of America's Annual Convention and Techworld, Honolulu, Hawaii (via satellite), March 6, 2007.
                • 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
                  Federal Election Commission
                  The Federal Election Commission is an independent regulatory agency that was founded in 1975 by the United States Congress to regulate the campaign finance legislation in the United States. It was created in a provision of the 1975 amendment to the Federal Election Campaign Act...

                   as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services
                  United States House Committee on Financial Services
                  The United States House Committee on Financial Services is the committee of the United States House of Representatives that oversees the entire financial services industry, including the securities, insurance, banking, and housing industries...

                   which oversees Freddie Mac.Freddie Mac pays record $3.8 million fine, Settles allegations it made illegal contributions between 2000 and 2003, Associated Press
                  Associated Press
                  The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...

                  , April. 18, 2006.
                • June: "Shorts" actively prevent banks (like Bear Stearns) from helping homeowners avoid foreclosure. Shorts are hedge funds and proprietary bank traders like John Paulson, Kyle Bass, and Greg Lippman, who will profit from the housing crash. Harvey Pitt
                  Harvey Pitt
                  Harvey Pitt was the 26th chairman of the U.S. Securities and Exchange Commission , serving from 2001-2003. He led the SEC in restoring the U.S...

                   lobbies the SEC for shorts.

              The subprime crisis impact timeline lists dates relevant to the creation of a United States housing bubble
              United States housing bubble
              The United States housing bubble is an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and may not yet have hit bottom as of 2011. On December 30, 2008 the...

               and the 2005 housing bubble burst (or market correction
              Market trends
              A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...

              ) and the subprime mortgage crisis
              Subprime mortgage crisis
              The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....

               which developed during 2007 and 2008. It includes United States
              United States
              The United States of America is a federal constitutional republic comprising fifty states and a federal district...

               enactment of government laws and regulations, as well as public and private actions which affected the housing industry and related banking and investment activity. It also notes details of important incidents in the United States, such as bankruptcies and takeovers, and information and statistics about relevant trends. For more information on reverberations of this crisis throughout the global financial system see Financial crisis of 2007–2010 or Global financial crisis of September–October 2008.

              1938–1979

              • 1938: The Federal National Mortgage Association, or Fannie Mae, is established as part of Franklin D. Roosevelt
                Franklin D. Roosevelt
                Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...

                's New Deal
                New Deal
                The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

                , to purchase mortgages guaranteed by the Veterans Administration
                United States Department of Veterans Affairs
                The United States Department of Veterans Affairs is a government-run military veteran benefit system with Cabinet-level status. It is the United States government’s second largest department, after the United States Department of Defense...

                 and the Federal Housing Administration
                Federal Housing Administration
                The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...

                . This took the loans off the books of mortgage lenders, freeing up capital
                Financial capital
                Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....

                 so that they could make more loans.McClean, Nocera, p 6
              • late 1960s: Fannie Mae is permitted to purchase 'conventional' mortgages (not just VA/FHA)McClean, Nocera, p23
              • late 1960s: Angelo Mozilo
                Angelo Mozilo
                Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...

                 & Loeb found Countrywide Financial
                Countrywide Financial
                Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

                , and pioneer the nationwide non-bank mortgage lending business; in the beginning, Mozilo is extremely concerned with credit quality.McClean, Nocera, p22
              • 1968: Fannie Mae spins off Ginnie Mae as a separate entity. Ginnie will continue to have an explicit, written government guarantee for all its mortgage loans.McClean, Nocera, p7 Fannie Mae, however, is converted into to a stand-alone corporation, a government sponsored enterprise (GSE).
              • 1970: Federal Home Loan Mortgage Corporation (Freddie Mac) is created by an act of Congress as a government sponsored enterprise to buy mortgages from the Thrift
                Thrift
                Thrift may refer to:* A savings and loan association in the United States* Restrained or disciplined spending habits* Apache Thrift a remote procedure call framework developed at Facebook for "scalable cross-language services development"....

                /savings and loan industry; it is owned by the industry itself (until 1989)
              • The GSEs (Fannie and Freddie) have an 'implicit guarantee' from the government; that if they get into trouble, the government will bail them out. There is no written law or contract stating the government will do this; it is simply assumed by the industry, government officials, and investors. This implicit, unstated guarantee is what allows the debt of Fannie and Freddie to be moved off of the balance sheet of the government. This makes the National debt falsely appear to be lower than it really is, and artificially makes the budget look more balanced
                Balanced budget
                A balanced budget is when there is neither a budget deficit or a budget surplus – when revenues equal expenditure – particularly by a government. More generally, it refers to when there is no deficit, but possibly a surplus...

                . This arrangement will not be tested until 2008 (see below)See also On The Brink by Henry Paulson
              • 1970: Ginnie Mae creates the first mortgage backed security, based on FHA and VA mortgages. It guarantees them.McClean, Nocera, p 7
              • 1971: Freddie issues its first Mortgage Participation Certificate security. This is the first mortgage backed security made of ordinary mortgages.History of Freddie Mac.
              • 1970s: Private companies begin mortgage asset securitization with the creation of private mortgage pools in the 1970s.
              • 1974: Equal Credit Opportunity Act
                Equal Credit Opportunity Act
                The Equal Credit Opportunity Act is a United States law , enacted in 1974, that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age ; to the...

                 imposes heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or ageRegulation B, Equal Credit Opportunity 12 CFR 202.14(b) as stated in Closing the Gap: A Guide to Equal Opportunity Lending, Federal Reserve System
                Federal Reserve System
                The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

                 of Boston.
              • 1977: Community Reinvestment Act
                Community Reinvestment Act
                The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...

                 is enacted to address historical discrimination in lending, such as 'redlining
                Redlining
                Redlining is the practice of denying, or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. The term "redlining" was coined in the late 1960s by John McKnight, a...

                '. 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.Text of Housing and Community Development Act of 1977—title Viii (Community Reinvestment).
              • 1977: Salomon Brothers
                Salomon Brothers
                Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

                 attempts creation of a "private label" mortgage backed security (one that doesn't involve GSE mortgages). It fails in the marketplace.McClean, Nocera, p 12
              • Late 1970s: Lew Ranieri (Salomon
                Salomon Brothers
                Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

                ) and Larry Fink
                Laurence D. Fink
                Laurence D. "Larry" Fink is the chairman and chief executive officer of BlackRock, an American multinational investment management corporation. BlackRock is the largest money-management firm in the world.-Early life and education:...

                 (First Boston
                First Boston
                First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...

                ) invent securitization
                Securitization
                Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

                ; mortgages are pooled and the pool is sliced into tranche
                Tranche
                In structured finance, a tranche is one of a number of related securities offered as part of the same transaction. The word tranche is French for slice, section, series, or portion, and is cognate to English trench . In the financial sense of the word, each bond is a different slice of the deal's...

                s, which are then sold to investors.McClean, Nocera, p 5Liar's Poker, Michael Lewis

              1980–1989

              • 1980: The Depository Institutions Deregulation and Monetary Control Act
                Depository Institutions Deregulation and Monetary Control Act
                The Depository Institutions Deregulation and Monetary Control Act, a United States federal financial statute law passed in 1980, gave the Federal Reserve greater control over non-member banks.* It forced all banks to abide by the Fed's rules....

                 (DIDMCA) of 1980 grants all thrifts, including savings and loan associations, the power to make consumer and commercial loans and to issue transaction accounts. The law also exempts federally chartered savings banks, installment plan sellers and chartered loan companies from state usury
                Usury
                Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...

                 (unlimited high interest rates) limits.The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, Federal Deposit Insurance Corporation
                Federal Deposit Insurance Corporation
                The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

                 "Bank Trends" Newsletter, March, 1998.
                The law also allowed home equity loan
                Home equity loan
                A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

                s to be treated just like mortgages.McClean, Nocera, p 29
              • 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.
              • 1981: Salomon Brothers
                Salomon Brothers
                Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...

                 transitions from a private partnership to a public corporation, the first of the Wall St. investment banks to do so. This shifts the risk of financial loss from the partners to shareholders, arguably increasing the appetite for risk.
              • 1981: David Maxwell becomes CEO of Fannie; he greatly increases the use of mortgage securities, forming an uneasy alliance with Ranieri and Fink
              • 1982: Reagan's Commission on Housing recommends the GSEs be separated from the government
              • 1982: Alternative Mortgage Transaction Parity Act of 1982
                Alternative Mortgage Transaction Parity Act of 1982
                The Alternative Mortgage Transaction Parity Act of 1982, also known as AMTPA, preempts state laws that restrict banks from making any mortgage except conventional fixed rate amortizing mortgages. AMTPA was contained in title VIII of the Garn–St...

                 (AMTPA) preempts state laws allows lenders to originate mortgages with features such as adjustable-rate mortgages, balloon payment
                Balloon payment
                When a debt is repaid in payments of varying amounts there are some colourful jargon terms used to describe the different loan structures. The term balloon payment arises because if you hold back most of a debt and pay it only towards the end of the agreement, both those last payments and the total...

                s, and negative amortization
                Negative amortization
                In finance, negative amortization, also known as NegAm, deferred interest or graduated payment mortgage, occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases...

                 and "allows lenders to make loans with terms that may obscure the total cost of a loan".
              • 1983: The first collateralized mortgage obligation
                Collateralized mortgage obligation
                A collateralized mortgage obligation is a type of financial debt vehicle that was first created in 1983 by the investment banks Salomon Brothers and First Boston for U.S. mortgage lender Freddie Mac. A collateralized mortgage obligation (CMO) is a type of financial debt vehicle that was first...

                 (CMO) is created by Larry Fink's team at First Boston
                First Boston
                First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...

                . It is made from Freddie Mac mortgages.McClean, Nocera, p 13
              • 1984: The Secondary Market Enhancement Act (SMMEA), partly formed by Ranieri's closeness with Reagan's staff, attempts to level the playing field on the mortgage securities market so that private mortgage-securities companies (like Salomon Brothers) will be able to be able to compete with the GSEs. The act also is the foundation of the credit ratings agencies importance in the market; the law limits pension funds & others so that they are only allowed to buy mortgage bonds that are rated highly by a NRSRO
                Nationally Recognized Statistical Rating Organization
                A Nationally Recognized Statistical Rating Organization is a credit rating agency that issues credit ratings that the U.S. Securities and Exchange Commission permits other financial firms to use for certain regulatory purposes...

                McClean, Nocera, 13-14
              • 1986: Tax Reform Act of 1986
                Tax Reform Act of 1986
                The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

                 (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 loan
                Home equity loan
                A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

                s 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.Z.1 Historical Tables (1974) and current Z.1 release (2008), Table B.100, lines 31,48.
              • 1986: The Real Estate Mortgage Investment Conduit (REMIC) law is passed, as part of an uneasy alliance between Ranieri (of Salomon) and Maxwell (of Fannie). It prevents double-taxation of mortgage securities; the 'secondary market' for mortgages booms.McClean, Nocera, 16
              • 1987 The mezzanine CDO
                CDO
                CDO may refer to:* Cagayan de Oro, a city that lies along the northern coastline of Mindanao island, Philippines.* Canyon del Oro High School, a public school in Oro Valley, Arizona, USA....

                 was invented at Drexel Burnham Lambert
                Drexel Burnham Lambert
                Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was forced into bankruptcy in February 1990 by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. At its height, it was the...

              • 1987: Maxwell of Fannie, fights bitterly with Wall Street and Congress about allowing GSEs to do REMICs. Lobbying and threats fly back and forth.McClean, Nocera, 17
              • 1985–1989: The effects of Tax Reform Act of 1986
                Tax Reform Act of 1986
                The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

                , the elimination of Regulation Q
                Regulation Q
                Regulation Q is Title 12, part 217 of the United States Code of Federal Regulations. It prohibits banks from paying interest on demand deposits in accordance with Section 11 of the Glass–Steagall Act ....

                 which had capped interest rates banks were allowed to pay, imprudent lending during the late 1970s inflationary period
                Inflation
                In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

                , as well as other causes, led to asset-liability mismatch for many Savings and Loans.research.stlouisfed.org This de facto insolvency led to the Savings and Loan Crisis
                Savings and Loan crisis
                The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...

                 and the failure and/or closure of half of all federally insured savings and loans. The number declined from 3,234 to 1,645.fdic.govfdic.gov
              • Late 1980s: Several groups lose big money on tranched mortgage securities, including Merrill Lynch. Market shrinks.McClean, Nocera, p 18
              • 1988: Guardian Savings and Loan issues the first 'subprime'-backed mortgage security. Long Beach Mortgage begins to move towards the subprime securitization market. Its employees will later go on to lead many other subprime companies.
              • 1989–1995: Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) established the Resolution Trust Corporation
                Resolution Trust Corporation
                The Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...

                 (RTC), which closed hundreds of insolvent savings and loans holding $519 billion in assets. The law also moved regulatory authority to the Office of Thrift Supervision
                Office of Thrift Supervision
                The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...

                 (OTS). The U.S. government ultimately appropriated $105 billion to resolve the S&L crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of $40 billion by the end of 1999.
              • The RTC decides to sell the massive amount of bad real estate debt it holds to investors. In order to do this, it decides to use the tools of securitization
                Securitization
                Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

                 and structured finance
                Structured finance
                Structured finance is a broad term used to describe a sector of finance that was created to help transfer risk and avoid lawsStructured finance is a broad term used to describe a sector of finance that was created to help transfer risk and avoid laws...

                , such as overcollateralization, bond insurance
                Bond insurance
                Bond insurance is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security...

                , and subordination
                Subordination (finance)
                Subordination in banking and finance refers to the order of priorities in claims for ownership or interest in various assets.-Subordination of debt:...

                . This results in transforming the bad debt into various new products that had high enough ratings to attract investors.

              1990–1995

              • 1990s: The first subprime bubble. Founding of subprime lenders New Century
                New Century
                New Century Financial Corporation was founded in 1995 by a trio of former managers at Option One Mortgage, including former CEO Brad Morrice and is headquartered in Irvine, California...

                , Option One, FirstPlus Financial, and the buyout of The Money Store. Famco and several other subprime lenders go bankrupt. Angelo Mozilo
                Angelo Mozilo
                Angelo R. Mozilo was the chairman of the board and chief executive officer of Countrywide Financial until July 1, 2008. Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".-Life and career:...

                 of Countrywide
                Countrywide
                Countrywide Ltd are the United Kingdom's largest estate agency group. It employs 10,000 personnel nationwide, working across 1,300 estate agency or lettings offices operating under 46 local high street brands, supplemented by 650 mortgage consultants and over 350 surveyors...

                 privately calls subprime lenders 'crooks', but is forced to compete or lose market share.McClean, Nocera, p36, 87
              • 1990s: J.P. Morgan invents Value-at-Risk and credit default swap
                Credit default swap
                A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

                s; later misused tragically by other companies.McClean, Nocera, Chapter 4Fool's Gold, Gillian Tett
              • 1990: Fannie gets Paul Volcker
                Paul Volcker
                Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...

                 to argue it doesn't need the same regulatory capital as banks.McClean, Nocera, p41
              • 1992: Federal Housing Enterprises Financial Safety and Soundness Act of 1992
                Federal Housing Enterprises Financial Safety and Soundness Act of 1992
                The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 . The Act established the Office of Federal Housing Enterprise Oversight within the United States Department of Housing and Urban Development...

                 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
                Security (finance)
                A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

                ; Office of Federal Housing Enterprise Oversight
                Office of Federal Housing Enterprise Oversight
                The Office of Federal Housing Enterprise Oversight was an agency within the Department of Housing and Urban Development. It was charged with ensuring the capital adequacy and financial safety and soundness of two government sponsored enterprises—the Federal National Mortgage Association and the...

                 (OFHEO) created to oversee them
              • 1992: Jim Johnson is new CEO at Fannie. Ramps up the 'cut them off at the knees' strategy against political enemies. Tactics include a massive lobbying
                Lobbying
                Lobbying is the act of attempting to influence decisions made by officials in the government, most often legislators or members of regulatory agencies. Lobbying is done by various people or groups, from private-sector individuals or corporations, fellow legislators or government officials, or...

                 effort, neutering the OFHEO, creating a "partnership office" network to court the politically powerful with pork
                Pork
                Pork is the culinary name for meat from the domestic pig , which is eaten in many countries. It is one of the most commonly consumed meats worldwide, with evidence of pig husbandry dating back to 5000 BC....

                , giving high level employment to the well connected, giving out campaign contributions, creating a charity foundation, and threatening critics like FM Watch with retaliation. One of McClean & Nocera's sources compared Fannie's activities to Tammany Hall
                Tammany Hall
                Tammany Hall, also known as the Society of St. Tammany, the Sons of St. Tammany, or the Columbian Order, was a New York political organization founded in 1786 and incorporated on May 12, 1789 as the Tammany Society...

                .McClean, Nocera p40-45
              • 1993: The Federal Reserve Bank
                Federal Reserve Bank
                The twelve Federal Reserve Banks form a major part of the Federal Reserve System, the central banking system of the United States. The twelve federal reserve banks together divide the nation into twelve Federal Reserve Districts, the twelve banking districts created by the Federal Reserve Act of...

                 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.Michael Flynn, Anatomy of a Breakdown; Concerted government policy helped trigger the financial meltdown—and will almost certainly extend it, Reason magazine
                Reason (magazine)
                Reason is a libertarian monthly magazine published by the Reason Foundation. The magazine has a circulation of around 60,000 and was named one of the 50 best magazines in 2003 and 2004 by the Chicago Tribune.- History :...

                 magazine, January 2009.
                Closing the Gap: A Guide to Equal Opportunity Lending, Federal Reserve System
                Federal Reserve System
                The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

                 of Boston, 1993.
              • 1994: Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
                Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
                The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 [IBBEA] amended the laws governing federally-chartered banks in order to restore the laws' competitiveness with the recently relaxed laws governing state-chartered banks. The goal was the return to a balance between the...

                 (IBBEA) repeals the interstate provisions of the Bank Holding Company Act of 1956
                Bank Holding Company Act of 1956
                The Bank Holding Company Act of 1956 is a United States Act of Congress that regulates the actions of bank holding companies.The original law , specified that the Federal Reserve Board of Governors must approve the establishment of a bank holding company, and prohibited bank holding companies...

                 that regulated the actions of bank holding companies.
              • 1994: J.P. Morgan & Blythe Masters
                Blythe Masters
                Blythe Sally Jess Masters is an economist and current head of Global Commodities at J.P. Morgan Chase. From 2004-2007, she was Chief Financial Officer of J.P...

                 sell the first credit default swap
                Credit default swap
                A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

                 to the European Bank for Reconstruction and Development, to insure Exxon
                Exxon
                Exxon is a chain of gas stations as well as a brand of motor fuel and related products by ExxonMobil. From 1972 to 1999, Exxon was the corporate name of the company previously known as Standard Oil Company of New Jersey or Jersey Standard....

                's JPM credit line, & free up JPM's capitalMcClean, Nocera, p 62Fool's Gold, Gillian Tett
              • 1995: New Community Reinvestment Act
                Community Reinvestment Act
                The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods...

                 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 allow community groups that market loans to collect a broker's fee. Fannie Mae allowed to receive affordable housing credit for buying subprime securities.

              1995–2000

              • 1995–2001: Dot-com bubble
                Dot-com bubble
                The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...

                 and collapse
              • circa 1996: President Clinton's "National Homeownership Strategy"McClean, Nocera, p 32
              • 1997: Mortgage denial rate of 29 percent for conventional home purchase loans. Investors purchased more than $60 billion of private-label (non-GSE) subprime mortgage-backed securities, six times more than 1991's volume of $10 billion.
                • J.P. Morgan bundles credit default swap
                  Credit default swap
                  A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

                  s into BISTRO
                  Bistro
                  A bistro, sometimes spelled bistrot, is, in its original Parisian incarnation, a small restaurant serving moderately priced simple meals in a modest setting. Bistros are defined mostly by the foods they serve. Home cooking with robust earthy dishes, and slow-cooked foods like cassoulet are typical...

                  , the precursor of the Synthetic CDO
                  Synthetic CDO
                  A Synthetic CDO is a complex financial security used to speculate or manage the risk that an obligation will not be paid...

                  . AIG
                  AIG
                  AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

                   sells credit protection against BISTRO's super-senior tranche.McClean, Nocera, p 78Fool's Gold, by Gillian Tett
                • July: The Taxpayer Relief Act of 1997
                  Taxpayer Relief Act of 1997
                  The Taxpayer Relief Act of 1997 reduced several federal taxes in the United States.Subject to certain phase-in rules, the top capital gains rate fell from 28% to 20%. The 15% bracket was lowered to 10%....

                   expanded the capital-gains exclusion to $500,000 (per couple) from $125,000, encouraging people to invest in second homes and investment properties.Russell Roberts, "How Government Stoked the Mania", Wall Street Journal, October 3, 2008.
                • November: Freddie Mac helped First Union Capital Markets and Bear Stearns & Co
                  Bear Stearns
                  The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

                   launch the first publicly available securitization
                  Security (finance)
                  A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

                   of CRA
                  CRA
                  -Organizations in California:* California Republican Assembly, a conservative California Republican activist group. It is the oldest and largest grassroots volunteer organization chartered by the California Republican Party...

                   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.
                • The New York Fed
                  Federal Reserve Bank of New York
                  The Federal Reserve Bank of New York is one of the 12 Federal Reserve Banks of the United States. It is located at 33 Liberty Street, New York, NY. It is responsible for the Second District of the Federal Reserve System, which encompasses New York state, the 12 northern counties of New Jersey,...

                   persuades Wall Street to bail out Long-Term Capital Management
                  Long-Term Capital Management
                  Long-Term Capital Management L.P. was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute-return trading strategies combined with high leverage...

                   (a hedge fund
                  Hedge fund
                  A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...

                  ). Bear Stearns
                  Bear Stearns
                  The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

                   declines, but every other major bank agrees. Some worry the Fed intervention creates moral hazard
                  Moral hazard
                  In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

                  .Thomas J. McCool, Responses to Questions Concerning Long-Term Capital Management and Related Events, Government Accountability Office
                  Government Accountability Office
                  The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

                  , February 23, 2000.
                • May: Brooksley Born
                  Brooksley Born
                  Brooksley E. Born is an American attorney and former public official who, from August 26, 1996, to June 1, 1999, was chairperson of the Commodity Futures Trading Commission , the federal agency which oversees the futures and commodity options markets...

                   at the Commodity Futures Trading Commission
                  Commodity Futures Trading Commission
                  The U.S. Commodity Futures Trading Commission is an independent agency of the United States government that regulates futures and option markets....

                   wants to investigate over the Counter derivatives like credit default swap
                  Credit default swap
                  A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

                  s; their lack of transparency, lack of regulation, and possible systemic risk. Alan Greenspan
                  Alan Greenspan
                  Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

                  , Robert Rubin
                  Robert Rubin
                  Robert Edward Rubin served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs eventually serving as a member of the Board, and Co-Chairman from 1990-1992...

                  , and Arthur Levitt
                  Arthur Levitt
                  Arthur Levitt, Jr. was the twenty-fifth and longest-serving Chairman of the United States Securities and Exchange Commission from 1993 to 2001. Widely hailed as a champion of the individual investor, he has been criticized for not pushing for tougher accounting rules. Since May 2001 he has been...

                   of Clinton's Working Group on Financial Markets
                  Working Group on Financial Markets
                  The Working Group on Financial Markets was created by Executive Order 12631, signed on March 18, 1988 by United States President Ronald Reagan.The Group was established explicitly in response to events in the financial markets surrounding October 19,...

                  , and Larry Summers shut her down. She resigns soon after.The Warning: Brooksley Born's Battle With Alan Greenspan, Robert Rubin And Larry Summers by John Carney Oct. 21, 2009 businessinsider.com. This is a summary of the PBS Frontline documentary The Warning, featuring Brooksley Born
                  Brooksley Born
                  Brooksley E. Born is an American attorney and former public official who, from August 26, 1996, to June 1, 1999, was chairperson of the Commodity Futures Trading Commission , the federal agency which oversees the futures and commodity options markets...

                  .
                  "Concept Release Concerning Over-The-Counter Derivatives market", CFTC Release #4142-98, May 7, 1998.< Lindsey, Richard R. Testimony of Richard R. Lindsey, Director, Division of Market Regulation, Securities and Exchange Commission, July 24, 1998.The Reckoning: Taking Hard New Look at a Greenspan Legacy , October 8, 2008 New York Times, Peter S Goodman, via nytimes.com, accessed 2010 4 15
                • October: "Financial Services Modernization Act" killed in Senate because of no restrictions on Community Reinvestment Act-related community groups written into law
              • 1998–2008: Credit default swap
                Credit default swap
                A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

                s boom along with the products they insure; mortgage securities and CDO tranches. By November 2008, there are between $33 to $47 trillion CDS contracts; nobody can know for sure because the market is unregulated and non-transparent.

              Bloomberg-Credit Swap Disclosure Obscures True Financial Risk
              • 1999:
                • 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: The Gramm-Leach-Bliley Act
                  Gramm-Leach-Bliley Act
                  The Gramm–Leach–Bliley Act , also known as the Financial Services Modernization Act of 1999, is an act of the 106th United States Congress...

                   (Financial Services Modernization Act) passes. It repeals the Glass-Steagall Act
                  Glass-Steagall Act
                  The Banking Act of 1933, , was a law that established the Federal Deposit Insurance Corporation in the United States and introduced banking reforms, some of which were designed to control speculation. It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Senator...

                   of 1933. It deregulates banking, insurance, securities, and the financial services industry, allowing financial institutions to grow very large. It also limits Community Reinvestment Coverage of smaller banks and makes community groups report certain financial relationships with banks. Congressmen key to the effort include Phil Gramm
                  Phil Gramm
                  William Philip "Phil" Gramm is an American economist and politician, who has served as a Democratic Congressman , a Republican Congressman and a Republican Senator from Texas...

                  , Jim Leach
                  Jim Leach
                  James Albert Smith "Jim" Leach is a former member of the U.S. House of Representatives from Iowa. In August 2009, he became Chairman of the National Endowment for the Humanities ....

                  , Thomas J. Bliley, Jr.
                  Thomas J. Bliley, Jr.
                  Thomas Jerome "Tom" Bliley, Jr. is a United States Republican politician and former U.S. Representative from the state of Virginia.-Background:...

                  , Chuck Schumer, and Chris Dodd.
              • 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.

              2001-2004

              • 2000–2003: Early 2000s recession
                Early 2000s recession
                The early 2000s recession was a decline in economic activity which occurred mainly in developed countries. The recession affected the European Union mostly during 2000 and 2001 and the United States mostly in 2002 and 2003. The UK, Canada and Australia avoided the recession for the most part, while...

                 spurs government action to rev up economy.
              • 2000-2001: US Federal Reserve lowers Federal funds rate
                Federal funds rate
                In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...

                 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.
              • 2001: Ex-Wall Streeter John Posner writes A Home Without Equity is just a Rental with Debt, criticizing the massive growth in home equity loan
                Home equity loan
                A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. These loans are useful to finance major expenses such as home repairs, medical bills or college education...

                s and refinancing
                Refinancing
                Refinancing may refer to the replacement of an existing debt obligation with a debt obligation under different terms. The terms and conditions of refinancing may vary widely by country, province, or state, based on several economic factors such as, inherent risk, projected risk, political...

                 for consumer purchases, amongst other things. Charles Kindleberger of Manias, Panics, and Crashes finds it insightful; it is largely ignored.A Home Without Equity is just a Rental with Debt, 2001, John Posner, SSRNSee also Charles R Morris, Two Trillion Dollar Meltdown, and David Faber's "And Then the Roof Caved In"
              • 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. Buying Subprime Securities. See Chart of Fannie Mae, Freddie Mac subprime securities purchases, 2002-2006, including as percentage of all such purchases, Washington Post, June 10, 2006.
                • Lenders began to offer loans to higher-risk borrowers, 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
                  Flipping
                  Flipping is a term used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling it for profit...

                  ") 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.
                • Paul O'Neill (Secretary of the Treasury) is fired by Bush. Among other things, he had wanted to take action on executive compensation and corporate governance.The Price of Loyalty
                  The Price of Loyalty
                  The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill, is a 2004 book by Pulitzer Prize-winning author Ron Suskind. The book was the first to provide critical insight into the events that led up to the Iraq War...

                  , Ron Suskind
                  Ron Suskind
                  Ron Suskind is a Pulitzer Prize winning American journalist and best-selling author. He was the senior national affairs writer for The Wall Street Journal from 1993 to 2000 and has published the books A Hope in the Unseen, The Price of Loyalty, The One Percent Doctrine, The Way of the World and...

                • June 17:Bush unveils his "Blueprint for the American Dream".McLean, Nocera, p168 He 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
                  NeighborWorks America
                  The Neighborhood Reinvestment Corporation, doing business as NeighborWorks America,is a Congressionally chartered nonprofit organization that supports community development in the United States. The organization provides grants and technical assistance to 235 U.S...

                   with faith based organizations.Press Release, President Calls for Expanding Opportunities to Home Ownership, Remarks by the President, June 17, 2000.
              • 2003: Federal Reserve Chair Alan Greenspan
                Alan Greenspan
                Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

                 lowers federal reserve’s key interest rate to 1%, the lowest in 45 years.
                • August: Borio and White of Bank of International Settlements speak at the Jackson Hole Economic Symposium. Their warnings about problems with collateralized debt obligations and rating agencies are rejected or ignored by attendees, including Alan Greenspan
                  Alan Greenspan
                  Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

                  .
                • September: Bush administration recommend moving governmental supervision of Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury
                  United States Department of the Treasury
                  The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

                  . The changes are blocked by Congress.Steven Labaton,New Agency Proposed to Oversee Freddie Mac and Fannie Mae, The New York Times
                  The New York Times
                  The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...

                  , September 11, 2003.
              • 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
                  Countrywide Financial
                  Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

                  , 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
                  Mortgage fraud
                  Mortgage fraud is crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth....

                   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
                • October:SEC effectively suspends net capital rule
                  Net capital rule
                  The uniform net capital rule is a rule created by the U.S. Securities and Exchange Commission in 1975 to regulate directly the ability of broker-dealers to meet their financial obligations to customers and other creditors...

                   for five firms—Goldman Sachs
                  Goldman Sachs
                  The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...

                  , Merrill Lynch
                  Merrill Lynch
                  Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

                  , Lehman Brothers
                  Lehman Brothers
                  Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

                  , Bear Stearns
                  Bear Stearns
                  The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

                   and Morgan Stanley
                  Morgan Stanley
                  Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....

                  . 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.

              2005

              • 2005:
                • circa 05-06: Head CDO trader at Deutsche Bank
                  Deutsche Bank
                  Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...

                  , Greg Lippman, calls the CDO market a 'ponzi scheme'. With knowledge of management, he bets $5 billion against the housing market, while other desks at Deutsche Bank continue to sell mortgage securities to investors.Emails Show How Greg Lippmann Built Deutsche Bank's $5 Billion Subprime Short: "Duping CDO Fools" Courtney Comstock, businessinsider.com
                • The Securities and Exchange Commission ceases an investigation of Bear Stearns
                  Bear Stearns
                  The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

                   "pricing, valuation, and analysis" of mortgage-backed collateralized debt obligations. No action is taken against Bear.Did Authorities Miss a Chance To Ease the Credit Crunch? by Michael Siconolfi. The Wall Street Journal Online, Dec 11, 2007 (via realestatejournal.com)
                • Robert Shiller
                  Robert Shiller
                  Robert James "Bob" Shiller is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management...

                   gives talks warning about a housing bubble to the Office of the Comptroller of the Currency
                  Office of the Comptroller of the Currency
                  The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...

                   and the Federal Deposit Insurance Corporation
                  Federal Deposit Insurance Corporation
                  The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

                  . He is ignored, and would later call it an incidence of Groupthink
                  Groupthink
                  Groupthink is a psychological phenomenon that occurs within groups of people. It is the mode of thinking that happens when the desire for harmony in a decision-making group overrides a realistic appraisal of alternatives. Group members try to minimize conflict and reach a consensus decision without...

                  . That same year, his second edition of Irrational Exuberance
                  Irrational Exuberance (book)
                  Irrational Exuberance is a March 2000 book written by Yale University professor Robert Shiller, named after Alan Greenspan's "irrational exuberance" quote. Published at the height of the dot-com boom, it put forth several arguments demonstrating how the stock markets were overvalued at the time...

                   warns that the housing bubble might lead to a worldwide recession.Challenging the Crowd in Whispers, Not Shouts, Robert J Shiller, New York Times, 2008 Nov 1. As mentioned in Econned, by Yves Smith
                • January:
                  • Federal Reserve Governor Edward Gramlich
                    Edward Gramlich
                    Edward M. Gramlich was a professor of economics at the University of Michigan and a former member of the Board of Governors of the Federal Reserve....

                     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.
                  • The Bank of International Settlements warns about the problems with structured financial products, and points out the conflict of interest of credit rating agencies
                    Credit rating agency
                    A Credit rating agency is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves...

                     - that they are being paid by the same companies they are supposed to be objectively evaluating.
                • 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.Press release and letter released by a contingent of "House Democrats", April 13, 2005.
                • June: At Lehman Brothers, Mike Gelband & friends make a push to get out of the mortgage market and start shorting it. They are ignored and later fired. Dr Madelyn Antoncic, '2006 risk manager of the year', is shut out of meetings by CEO Dick Fuld and Joe Gregory; she is fired in 2007.
                • June: The International Swaps and Derivatives Association
                  International Swaps and Derivatives Association
                  The International Swaps and Derivatives Association is a trade organization of participants in the market for over-the-counter derivatives....

                   smooths the process of creating credit default swaps against ABS CDOs; a boon for hedge funds.Yves Smith argues that the ISDA June 2005 decision worsened the credit crisis.... for example, hedge funds now had a huge incentive to help create more bad mortgages, so that they could bet against them (with CDSes) and make money when they failed. (See page 263 & elsewhere). For the ISDA press release from 2005, please see: SDA Publishes Template for Credit Default Swaps on Asset-Backed Securities, International Swaps and Derivatives Association, Jun 13 2005, accessed 2010 4 21. There is also an interesting article about the American Securitization Forum on Feb 6 2006, by Allison Pyburn,in the Asset Securitization Report. "The ABS CDS market was jump-started in June 2005, when the International Swaps and Derivatives Association released standard documentation for pay-as-you-go and cash settlement procedures. An army of investors swooped into the single name swap market, enticed by the opportunity to take a short position on the subprime housing sector."
                • August: Raghuram Rajan
                  Raghuram Rajan
                  Raghuram Govind Rajan is currently the Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. He is also an honorary economic adviser to Prime Minister of India Manmohan Singh and the current President of the American Finance...

                   delivers his paper "Has Financial Development Made the World Riskier?", warning about credit default swaps, at the Jackson Hole Economic Symposium. His arguments are rejected by attendees, including Alan Greenspan
                  Alan Greenspan
                  Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

                  , Donald Kohn
                  Donald Kohn
                  Donald Lewis Kohn is an American economist who served as the former Vice Chairman of the Board of Governors of the Federal Reserve System. He is considered a moderate dove on fiscal policy. He retired after 40 years at the central bank in September, 2010.-Early life and family:Kohn was born in...

                  , and Lawrence Summers
                  Lawrence Summers
                  Lawrence Henry Summers is an American economist. He served as the 71st United States Secretary of the Treasury from 1999 to 2001 under President Bill Clinton. He was Director of the White House United States National Economic Council for President Barack Obama until November 2010.Summers is the...

                  .Mr. Rajan Was Unpopular (But Prescient) at Greenspan Party , Justin Lahart, Wall Street Journal, 2009 1 2. Accessed 2010 4 18. As mentioned in Econned by Yves Smith.Ignoring the Oracles: You Are With the Free Markets, or Against Them, Justin Lahart, Wall Street Journal blog, 2009 1 1, accessed 2010 4 18. as mentioned in Econned by Yves Smith
                • September: The Mortgage Insurance Companies of America send a letter to the Federal Reserve, warning about 'risky lending practices' in US real estate.
                • 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.Les Christie, Real estate cools down, Prices in the first quarter fell 3% from the fourth quarter, CNN
                  CNN
                  Cable News Network is a U.S. cable news channel founded in 1980 by Ted Turner. Upon its launch, CNN was the first channel to provide 24-hour television news coverage, and the first all-news television channel in the United States...

                   Money, May 16, 2006.

              2006

                • 2006: Commerzbank
                  Commerzbank
                  Commerzbank AG is the second-largest bank in Germany, after Deutsche Bank, headquartered in Frankfurt am Main.-Activities:Commerzbank is mainly active in commercial bank, retail banking and mortgaging. It suffered reversals in investment banking in early 2000s and scaled back its Securities unit...

                   begins to stop building its massive subprime positionIt's the economy, Dummkopf, Michael Lewis, Vanity Fair, 2011 Sep
                • Early: AIG
                  AIG
                  AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

                   gets scared and stops selling credit protection against CDOs. The Monolines (AMBAC, MBIA) continue to sell, though.
                • May: The subprime lender Ameriquest
                  Ameriquest
                  ACC Capital Holdings was a national mortgage lender based in Orange, California. The company is the largest privately held retail mortgage lender in the United States and the largest subprime lender by volume...

                   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.
                • Mayish: Merrill Lynch fires Jeff Kronthal, who had formerly worked under Lew Ranieri at Salomon Brothers, and his team, because they made a presentation outlining the risks of the mortgage CDO market.McLean, Nocera, p 167
                • Middle: Merrill Lynch
                  Merrill Lynch
                  Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

                   CDO sales department has trouble selling the super senior
                  Super senior
                  A super senior is a student in an American four-year educational institution such as a high school or university who has been attending the institution for 5 or more years or has more than the usual number of credits required to graduate without achieving a diploma or bachelors...

                   tranche of its CDOs. Instead, it sets up a group within Merrill to buy the tranches, so that the sales group can keep making bonuses.
                • Middle: Magnetar Capital
                  Magnetar Capital
                  Magnetar Capital is a hedge fund based in Evanston, Illinois. Among its many activities, the firm was actively involved in the collateralized debt obligation market during the 2006–2007 period...

                   starts creating CDOs to fail on purpose, so that it can profit from the insurance (credit default swap
                  Credit default swap
                  A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...

                  s) it has bought against their failure. Their program is so large that it helps extend the credit bubble into 2007, thus making the crash worse.Propublica, Timeline of Magnetar's deals. see also Magnetar Capital
                  Magnetar Capital
                  Magnetar Capital is a hedge fund based in Evanston, Illinois. Among its many activities, the firm was actively involved in the collateralized debt obligation market during the 2006–2007 period...

                   article references.
                • August: U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.
                    • September 7: Nouriel Roubini
                      Nouriel Roubini
                      Nouriel Roubini is an American economist. He claims to have predicted both the collapse of the United States housing market and the worldwide recession which started in 2008. He teaches at New York University's Stern School of Business and is the chairman of Roubini Global Economics, an economic...

                       warns the International Monetary Fund
                      International Monetary Fund
                      The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

                       about a coming US housing bust, mortgage-backed securities failures, bank failures, and a recession. His work was based partly on his study of recent economic crises in Russia (1998), Argentina (2000), Mexico (1994)
                      1994 economic crisis in Mexico
                      The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....

                      , and Asia (1997)Dr. Doom, Stephen Mihm, New York Times, 2008 Aug 15.
                    • Fall 2006 J.P. Morgan CEO Jamie Dimon directs the firm to reduce its exposure to subprime mortgages.
                    • December 2006 Goldman-Sachs claims after the fact that it began reducing its exposure to subprime mortgages at this point. It also begins betting against the housing market, while continuing to sell CDOs to its clients. Others claim these risk decisions were made in the spring and summer 2007.NY Times

                  2007

                  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
                  Case–Shiller index
                  The Standard & Poor's Case–Shiller Home Price Indices are constant-quality house price indices for the United States. There are multiple Case–Shiller home price indices: A national home price index, a 20-city composite index, a 10-city composite index, and twenty individual metro area...

                   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.

                  Lehman Brothers leaders Dick Fuld and Joe Gregory double down; in 2007 they fire their internal critics and spend billions of dollars on real estate investments that will, within a year, become worthless, including Archstone-Smith and McAllister Ranch.Devil's Casino, Vicky Ward
                    • January 3: Ownit Mortgage Solutions Inc. files for Chapter 11; it owed Merrill Lynch
                      Merrill Lynch
                      Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

                       around $93 million.
                    • January 29: American Freedom Mortgage, Inc. files for Chapter 7 protection.
                    • 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 8: HSBC
                      HSBC
                      HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...

                       warns that bad debt provisions for 2006 would be 20% higher than expected to roughly $10.5bn (£5bn).
                    • February 22: HSBC
                      HSBC
                      HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...

                       fires head of its US mortgage lending business as losses reach $10.5bn.
                    • February 26:Comments by former Federal Reserve Chairman, Alan Greenspan
                      Alan Greenspan
                      Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

                      , set off market tremors.
                        • February 27: Dow Jones drops 416 points (3.3%).
                            • February–March: Subprime industry collapse; several subprime lenders declaring bankruptcy
                              Bankruptcy
                              Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

                              , announcing significant losses, or putting themselves up for sale. These include Accredited Home Lenders Holding, New Century Financial, DR Horton and Countrywide Financial
                              Countrywide Financial
                              Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

                            • 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
                              Ben Bernanke
                              Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

                              , 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 crisisChairman Ben S. Bernanke, GSE Portfolios, Systemic Risk, and Affordable Housing, Speech before the Independent Community Bankers of America's Annual Convention and Techworld, Honolulu, Hawaii (via satellite), March 6, 2007.
                            • 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
                              Federal Election Commission
                              The Federal Election Commission is an independent regulatory agency that was founded in 1975 by the United States Congress to regulate the campaign finance legislation in the United States. It was created in a provision of the 1975 amendment to the Federal Election Campaign Act...

                               as a result of illegal campaign contributions, much of it to members of the United States House Committee on Financial Services
                              United States House Committee on Financial Services
                              The United States House Committee on Financial Services is the committee of the United States House of Representatives that oversees the entire financial services industry, including the securities, insurance, banking, and housing industries...

                               which oversees Freddie Mac.Freddie Mac pays record $3.8 million fine, Settles allegations it made illegal contributions between 2000 and 2003, Associated Press
                              Associated Press
                              The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...

                              , April. 18, 2006.
                            • June: "Shorts" actively prevent banks (like Bear Stearns) from helping homeowners avoid foreclosure. Shorts are hedge funds and proprietary bank traders like John Paulson, Kyle Bass, and Greg Lippman, who will profit from the housing crash. Harvey Pitt
                              Harvey Pitt
                              Harvey Pitt was the 26th chairman of the U.S. Securities and Exchange Commission , serving from 2001-2003. He led the SEC in restoring the U.S...

                               lobbies the SEC for shorts.McLean, Nocera, All the Devils are Here, 2010Gregory Zuckerman, the Greatest Trade Ever
                            • June 7: Bear Stearns & Co informs investors in two of its CDO hedge funds, the High-Grade Structured Credit Strategies Enhanced Leverage Fund and the High-Grade Structured Credit Fund that it was halting redemptions.Bear Stearns halts redemptions in third hedge fund, Reuters
                              Reuters
                              Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...

                              , August 1, 2007.
                            • June 20: Merrill Lynch
                              Merrill Lynch
                              Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

                               seizes $800 million in assets from Bear Stearn's hedge funds as the funds implode.
                            • June 25: FDIC Chair Shelia Bair cautioned against the more flexible risk management standards of the Basel II
                              Basel II
                              Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision...

                               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."Shelia Bair Remarks, 2007 Risk Management and Allocation Conference, Paris, France, June 25, 2007.
                            • July 19: Dow Jones Industrial Average
                              Dow Jones Industrial Average
                              The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...

                               closes above 14,000 for the first time in its history.Dow-Jones historical prices
                            • August: Worldwide "credit crunch" as subprime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas
                              BNP Paribas
                              BNP Paribas S.A. is a global banking group, headquartered in Paris, with its second global headquarters in London. In October 2010 BNP Paribas was ranked by Bloomberg and Forbes as the largest bank and largest company in the world by assets with over $3.1 trillion. It was formed through the merger...

                               to Bank of China
                              Bank of China
                              Bank of China Limited is one of the big four state-owned commercial banks of the People's Republic of China. It was founded in 1912 by the Government of the Republic of China, to replace the Government Bank of Imperial China. It is the oldest bank in 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.
                            • 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.
                            • August 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.mitsloan.mit.edu
                            • August 8: Mortgage Guaranty Insurance Corporation
                              Mortgage Guaranty Insurance Corporation
                              Mortgage Guaranty Insurance Corporation is a provider of private mortgage insurance in the United States....

                               (MGIC, Milwaukee, Wisconsin
                              Wisconsin
                              Wisconsin is a U.S. state located in the north-central United States and is part of the Midwest. It is bordered by Minnesota to the west, Iowa to the southwest, Illinois to the south, Lake Michigan to the east, Michigan to the northeast, and Lake Superior to the north. Wisconsin's capital is...

                              ) announces it will discontinue its purchase of Radian Group
                              Radian group
                              Radian Group Inc. is a credit enhancement company, offering mortgage insurance, financial guaranty insurance for public finance, asset-backed and structured finance transactions, reinsurance and other financial services...

                              MGIC May Abandon Radian, Forbes, 2007-08-10 after suffering a billion-dollar lossMilwaukee Journal-Sentinel, August 6, 2007 of its investment in Credit-Based Asset Servicing and Securitization (C-BASS, New York]).
                            • August 9: French investment bank BNP Paribas
                              BNP Paribas
                              BNP Paribas S.A. is a global banking group, headquartered in Paris, with its second global headquarters in London. In October 2010 BNP Paribas was ranked by Bloomberg and Forbes as the largest bank and largest company in the world by assets with over $3.1 trillion. It was formed through the merger...

                               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
                              European Central Bank
                              The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...

                              , 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
                              Injection (economics)
                              When a central bank makes a short term loan to a member institution it is said to be injecting liquidity. In the United States, the Federal Reserve maintains a target federal funds rate for banks to loan money overnight to each other. If the lending banks are unwilling to offer enough credit at...

                               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
                              Australia
                              Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

                              , and Canada
                              Canada
                              Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

                              .
                            • 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
                              Countrywide Financial
                              Bank of America Home Loans is the mortgage unit of Bank of America. Bank of America Home Loans is composed of:*Mortgage Banking, which originates purchases, securitizes, and services mortgages. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion...

                              , which is the largest mortgage lender in the United States, falls around 13% on the New York Stock Exchange
                              New York Stock Exchange
                              The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

                               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.Countrywide Taps $11.5 Billion Credit Line From Banks
                            • August 17: The Federal Reserve cuts the discount rate
                              Discount window
                              The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions...

                               by half a percent to 5.75% from 6.25% while leaving the federal funds rate
                              Federal funds rate
                              In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...

                               unchanged in an attempt to stabilize financial markets.
                            • August 31: President Bush
                              George W. Bush
                              George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

                               announces a limited bailout of U.S. homeowners unable to pay the rising costs of their debts. Ameriquest
                              Ameriquest
                              ACC Capital Holdings was a national mortgage lender based in Orange, California. The company is the largest privately held retail mortgage lender in the United States and the largest subprime lender by volume...

                              , once the largest subprime lender in the U.S., goes out of business;
                            • September 1–3: Fed Economic Symposium in Jackson Hole, WY addressed the housing recession that jeopardizes U.S. growth. Several critics argue that the Fed should use regulation and interest rates to prevent asset-price bubbles, blamed former Fed-chairman Alan Greenspan
                              Alan Greenspan
                              Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

                              's low interest rate policies for stoking the U.S. housing boom and subsequent bust,euractiv.com and Yale University economist Robert Shiller
                              Robert Shiller
                              Robert James "Bob" Shiller is an American economist, academic, and best-selling author. He currently serves as the Arthur M. Okun Professor of Economics at Yale University and is a Fellow at the Yale International Center for Finance, Yale School of Management...

                               warned of possible home price declines of fifty percent.
                            • 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
                              United States Department of Labor
                              The United States Department of Labor is a Cabinet department of the United States government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, re-employment services, and some economic statistics. Many U.S. states also have such departments. The...

                               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 12: Citibank borrows $3.375 billion from the Fed discount window, prompting then-President of the Federal Reserve Bank of NY Timothy Geithner to call the CFO of Citibank. Over four days in late August and early September, foreign banks borrowed almost $1.7 billion through the discount window.
                            • September 17: Former Fed Chairman Alan Greenspan
                              Alan Greenspan
                              Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

                               said "we had a bubble
                              Economic bubble
                              An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...

                               in housing"pbs.org 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
                              NetBank
                              NetBank, formerly named Atlanta Internet Bank and Net.B@nk , was a financial company engaged primarily in retail banking, mortgage banking, business finance and providing ATM and merchant processing services. NetBank was founded in February 1996 and completed its initial public offering of stock...

                               goes bankrupt, and the Swiss bank UBS
                              UBS AG
                              UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...

                               announces that it lost US$690 million in the third quarter.
                            • October 5: Merrill Lynch
                              Merrill Lynch
                              Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

                               announces a US$5.5 billion loss, revised to $8.4 billion on October 24, a sum that credit rating firm Standard & Poor's
                              Standard & Poor's
                              Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...

                               called "startling".
                            • October 10: Hope Now Alliance
                              Hope Now Alliance
                              The Hope Now Alliance is a cooperative effort between the US government, counselors, investors, and lenders to help homeowners who may not be able to pay their mortgages. Created in 2007 in response to the subprime mortgage crisis, the alliance claims to have helped over 1 million homeowners avoid...

                               is created by the US Government and private industry to help some sub-prime borrowers.fsround.org
                            • 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
                              Mortgage-backed security
                              A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...

                               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%.http://www.federalreserve.gov/newsevents/press/monetary/20071031a.htm
                            • End of October: Merrill Lynch
                              Merrill Lynch
                              Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

                              's board fires Stan O'Neal for trying to sell the company; they hire John Thain
                              John Thain
                              John Alexander Thain is an American businessman, investment banker, and currently chairman and CEO of the CIT Group.Thain was the last chairman and chief executive officer of Merrill Lynch before its merger with Bank of America...

                               who winds up having to sell it for a much lower price a year later.Crash of the Titans, Stephen Ferrell
                            • 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
                              Financial Accounting Standards Board
                              The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...

                               "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.Alan Bock, Market Failure? Try Yet Another Government Failure, LewRockwell.com
                              LewRockwell.com
                              LewRockwell.com is a 501 libertarian web magazine operated by Burton Blumert , Lew Rockwell , Eric Garris , and others associated with the Center for Libertarian Studies ; its motto is "anti-state, anti-war, pro-market"...

                              , October 1, 2008.
                            • December 6: President Bush
                              George W. Bush
                              George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

                               announces a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding adjustable rate mortgages (ARM
                              Adjustable rate mortgage
                              A variable-rate mortgage, adjustable-rate mortgage , or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. The loan may be offered at the lender's standard variable...

                              ). He also asked Members Of Congress to: 1. pass legislation to modernize the FHA
                              Federal Housing Administration
                              The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...

                              . 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.Fact Sheet: Helping American Families Keep Their Homes
                            • December 24: A consortium of banks officially abandons the U.S. government-supported "super-SIV
                              Structured investment vehicle
                              A structured investment vehicle was an operating finance company established to earn a spread between its assets and liabilities like a traditional bank...

                              " 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.

                          2008 in general

                          The monoline insurance companies (AMBAC
                          Ambac Financial Group
                          The Ambac Financial Group, Inc., generally known as Ambac , is an American holding company whose subsidiaries provide financial guarantee products, such as bond insurance and other financial services to clients in both the public and private sectors around the world...

                          , MBIA, ACA, &c) have written vast quantities of insurance against the failure of CDO tranches. Those tranches now begin to fail by the hundreds. The credit ratings agencies downgrade the monolines from AAA, but the monolines have a unique business model. If they don't have a AAA rating, then their main line of business (bond insurance
                          Bond insurance
                          Bond insurance is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security...

                          ) becomes impossible for them to perform. By 2009, the monolines have all crashed.'Monoline' insurers at risk of losing AAA credit rating, By Stephen Foley, 2008 Jan 18. The Independent (UK)Ambac Bailout May Cause Crisis, Axel Merk, Feb 27, 2008 safehaven.com
                          MBIA AMBAC timeline WSJ Marketbeat, 2008 2 4, By David Gaffen Kamakura Blog: Observations on the Monoline Meltdown 3/4/2010, Bob Selvaggio , Donald van Deventer. (this article has many opinions but also a good factual description of the monoline situation)Ambac's Downgrade May Put Cities at Risk , Associated Press, 20 Jan 2008 (via cnbc.com)

                          January 2008 to August 2008


                          Financial crisis escalates with collapse of major lenders and investors.
                            • January 2–21: January 2008 stock market downturn.
                            • January 24: The National Association of Realtors
                              National Association of Realtors
                              The National Association of Realtors , whose members are known as Realtors, is North America's largest trade association. representing over 1.2 million members , including NAR's institutes, societies, and councils, involved in all aspects of the residential and commercial real estate industries...

                               (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
                              Great Depression
                              The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

                              ."
                            • February 7: The market for auction rate securities freezes up -- investors decline to bid.
                            • March 1–June 18: 406 people are arrested for mortgage fraud
                              Mortgage fraud
                              Mortgage fraud is crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have been obtained had the lender or borrower known the truth....

                               in an FBI
                              Federal Bureau of Investigation
                              The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency . The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime...

                               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
                              Bear Stearns
                              The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

                               gets Fed funding as shares plummet.Reuters News
                            • March 16: Bear Stearns
                              Bear Stearns
                              The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

                               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.JPMorgan to Buy Bear for $2 a Share: Financial News - Yahoo! Finance
                            • May 6: UBS AG
                              UBS AG
                              UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...

                               Swiss bank announces plans to cut 5500 jobs by the middle of 2009.UBS to cut 5,500 jobs next year, Business Standard
                            • June 18: As the chairman of the Senate Banking Committee Connecticut's Christopher Dodd
                              Christopher Dodd
                              Christopher John "Chris" Dodd is an American lawyer, lobbyist, and Democratic Party politician who served as a United States Senator from Connecticut for a thirty-year period ending with the 111th United States Congress....

                               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
                              Kent Conrad
                              Kent Conrad is the senior United States Senator from North Dakota. He is a member of the North Dakota Democratic-NPL Party, the North Dakota affiliate of the Democratic Party...

                               and the head of head of Fannie Mae Jim Johnson
                              James A. Johnson (businessman)
                              James A. Johnson is a United States Democratic Party political figure, and the former CEO of Fannie Mae. He was the campaign manager for Walter Mondale's failed 1984 presidential bid and chaired the vice presidential selection committee for the presidential campaign of John Kerry...

                               also received mortgages on favorable terms due to their association with Countrywide CEO Angelo R. Mozilo.
                            • June 19: Cioffi and Tannin, managers of the Bear Stearns
                              Bear Stearns
                              The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...

                               CDO hedge funds that crashed in 2007, are arrested by the Federal Bureau of Investigation
                              Federal Bureau of Investigation
                              The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency . The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime...

                              . They are accused of misrepresenting their funds true condition to investors; both are acquitted.
                            • July 11 Indymac Bank, a subsidiary of Independent National Mortgage Corporation (Indymac), is placed into the receivership of the Federal Deposit Insurance Corporation
                              Federal Deposit Insurance Corporation
                              The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

                               by the Office of Thrift Supervision
                              Office of Thrift Supervision
                              The Office of Thrift Supervision was a United States federal agency under the Department of the Treasury that charters, supervises, and regulates all federally- and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of another federal agency...

                              . It was the fourth-largest bank failure
                              Bank run
                              A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...

                               in United States
                              United States
                              The United States of America is a federal constitutional republic comprising fifty states and a federal district...

                               history,


                          and the second-largest failure of a regulated thrift
                          Savings and loan association
                          A savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...

                          .
                          Before its failure, IndyMac Bank was the largest savings and loan association
                          Savings and loan association
                          A savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...

                           in the Los Angeles
                          Los Ángeles
                          Los Ángeles is the capital of the province of Biobío, in the commune of the same name, in Region VIII , in the center-south of Chile. It is located between the Laja and Biobío rivers. The population is 123,445 inhabitants...

                           area and the seventh-largest mortgage
                          Mortgage loan
                          A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...

                           originator in the United States.
                            • July 14: Barney Frank characterizes future prospects of Fannie Mae and Freddie Mac as "solid" going forward.
                            • 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
                              Housing and Economic Recovery Act of 2008
                              The Housing and Economic Recovery Act of 2008 designed primarily to address the subprime mortgage crisis. It authorized 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...

                              , which authorizes the Federal Housing Administration
                              Federal Housing Administration
                              The Federal Housing Administration is a United States government agency created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying...

                               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 2008

                            • September 7: Federal takeover of Fannie Mae and Freddie Mac
                              Federal takeover of Fannie Mae and Freddie Mac
                              The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury in September 2008. It was one financial event among many in the ongoing subprime mortgage crisis.On September 6, 2008,...

                              , 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.Duhigg, Charles, "Loan-Agency Woes Swell From a Trickle to a Torrent", The New York Times, Friday, July 11, 2008Peter J. Wallison, Charles W. Calomiris, AEI-The Last Trillion Dollar Commitment, American Enterprise Institute
                              American Enterprise Institute
                              The American Enterprise Institute for Public Policy Research is a conservative think tank founded in 1943. Its stated mission is "to defend the principles and improve the institutions of American freedom and democratic capitalism—limited government, private enterprise, individual liberty and...

                              , September 30, 2008.
                            • September 14: Merrill Lynch
                              Merrill Lynch
                              Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...

                               is sold to Bank of America
                              Bank of America
                              Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...

                               amidst fears of a liquidity crisis and Lehman Brothers
                              Lehman Brothers
                              Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

                               collapse
                            • September 15: Lehman Brothers
                              Lehman Brothers
                              Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

                               files for bankruptcy protectionGrown over 150 years, Lehman end came swiftly, International Herald Tribune
                            • September 16: Moody's
                              Moody's
                              Moody's Corporation is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized...

                               and Standard and Poor's
                              S&P 500
                              The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...

                               downgrade ratings on AIG
                              AIG
                              AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

                              's credit on concerns over continuing losses to mortgage-backed securities, sending the company into fears of insolvency
                              Insolvency
                              Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...

                              . In addition, the Reserve Primary Fund
                              Reserve Primary Fund
                              The Reserve Primary Fund was a large money market mutual fund.On September 16, 2008, during the Global financial crisis of September-October, 2008, it lowered its share price below $1 because of exposure to Lehman Brothers debt securities. This resulted in demands from investors to return their...

                               "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.WSJ-Bailout of Money Funds Seems to Stanch Outflow-September 20, 2008
                            • September 17: The US Federal Reserve lends $85 billion to American International Group (AIG)
                              AIG
                              AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...

                               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."NYT The Reckoning - As Crisis Spiraled, Alarm Led to Action
                            • September 19: Paulson financial rescue plan is unveiled after a volatile week in stock and debt markets.
                            • September 23: The Federal Bureau of Investigation
                              Federal Bureau of Investigation
                              The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency . The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime...

                               discloses that it had been investigating the possibility of fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers
                              Lehman Brothers
                              Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

                              , and insurer American International Group
                              American International Group
                              American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...

                              , bringing to 26 the number of corporate lenders under investigation.FBI Investigating Potential Fraud by Fannie Mae, Freddie Mac, Lehman, AIG, Associated Press
                              Associated Press
                              The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...

                              , September 23, 2008.
                            • September 25: Washington Mutual
                              Washington Mutual
                              Washington Mutual, Inc. , abbreviated to WaMu, was a savings bank holding company and the former owner of Washington Mutual Bank, which was the United States' largest savings and loan association until its collapse in 2008....

                               is seized by the Federal Deposit Insurance Corporation
                              Federal Deposit Insurance Corporation
                              The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

                              , and its banking assets are sold to JP MorganChase for $1.9 billion.
                            • September 29: Emergency Economic Stabilization Act
                              Emergency Economic Stabilization Act of 2008
                              The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 (Division A of , commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis...

                               is defeated 228-205 in the United States House of Representatives
                              United States House of Representatives
                              The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...

                              ; Federal Deposit Insurance Corporation
                              Federal Deposit Insurance Corporation
                              The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

                               announces that Citigroup Inc.
                              Citigroup
                              Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...

                               would acquire banking operations of Wachovia
                              Wachovia
                              Wachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...

                              .FDIC press release announcing takeover of Wachovia by Citigroup
                            • 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 purposes

                          October 2008

                            • 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
                              George W. Bush
                              George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

                               signs the Emergency Economic Stabilization Act, creating a $700 billion Troubled Assets Relief Program
                              Troubled Assets Relief Program
                              The Troubled Asset Relief Program is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008...

                               to purchase failing bank assets.Bush signs $700 billion bailout bill, National Public Radio, October 3, 2008 It contains 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 Citigrouphttp://www.washingtonpost.com/wp-dyn/content/article/2008/10/03/AR2008100301042.html
                            • 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.Tim Paradis, Stocks end worst week mixed after wild session, Associated Press
                              Associated Press
                              The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...

                              , October 10, 208.
                            • 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
                              Internal Revenue Service
                              The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

                               (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
                              White House
                              The White House is the official residence and principal workplace of the president of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., the house was designed by Irish-born James Hoban, and built between 1792 and 1800 of white-painted Aquia sandstone in the Neoclassical...

                               considers taking ownership stakes in private banks as a part of the bailout bill. Warren Buffett
                              Warren Buffett
                              Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...

                               and George Soros
                              George Soros
                              George Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...

                               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 2008

                            • November 4: Federal Reserve loans $133 billion through various credit facilities, 39% of which goes to two foreign institutions-German Irish Bank Depfa and Dexia Credit of Belgium.
                            • 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.
                            • 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.

                          2010

                          • April 16: The Securities and Exchange Commission sues Goldman Sachs
                            Goldman Sachs
                            The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...

                             for fraud, for allegedly having failed to disclose vital information to investors in one of its "Abacus" mortgage-backed CDOs in 2007. The CDO was allegedly 'designed to fail' by the hedge fund of John Paulson
                            John Paulson
                            John Alfred Paulson is an American hedge fund manager, he is the founder and President of Paulson & Co., a New York-based hedge fund....

                            , so that Paulson could make large profits by betting against it. Allegedly this was not disclosed to investors by Goldman, and they lost roughly a billion dollars, while Paulson & Co profited. SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages April 16, 2010, US Securities and Exchange CommissionFor Goldman, a Bet’s Stakes Keep Growing, By Louise Story and Gretchen Morgenson, New York Times, 2010 4 17. with Graham Bowley and Jack Ewing

                          . accessed 2010 4 17
                          • October: A foreclosures crisis occurs due to many foreclosures being carried out even without the necessary paper-work being in place, instead relying on "robo-signing" of the legal documents. Many demand that all foreclosures be halted nation-wide until the systemic issues of extrajudicial practices have come under control.

                          2011

                          January

                          The U.S. Financial Crisis Inquiry Commission
                          Financial Crisis Inquiry Commission
                          The Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the...

                           reported its findings in January 2011. It concluded that "the
                          crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting
                          recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the
                          financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.“Financial Crisis Inquiry Commission-Press Release-January 27, 2011

                          April

                          The US Senate Permanent Committee on Investigations releases the Levin-Coburn report, "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse
                          Wall Street and the Financial Crisis: Anatomy of a Financial Collapse
                          Wall Street and the Financial Crisis: Anatomy of a Financial Collapse is a report issued on April 13, 2011 by the United States Senate Permanent Subcommittee on Investigations. The 639 page report was issued under the chairmanship of Senators Carl Levin and Tom Coburn, and is colloquially known as...

                          ". It presents new details about the activities of Goldman Sachs, Deutsche Bank, Moody's, and other companies preceding the financial crisis.

                          Former NY Governor Eliot Spitzer
                          Eliot Spitzer
                          Eliot Laurence Spitzer is an American lawyer, former Democratic Party politician, and political commentator. He was the co-host of In the Arena, a talk-show and punditry forum broadcast on CNN until CNN cancelled his show in July of 2011...

                           says that if the Attorney General cannot bring a case against Goldman Sachs
                          Goldman Sachs
                          The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...

                          , after the revelation
                          Revelation
                          In religion and theology, revelation is the revealing or disclosing, through active or passive communication with a supernatural or a divine entity...

                          s of the Levin-Coburn report, then he should resign.

                          See also

                          • Credit rating agencies and the subprime crisis
                            Credit rating agencies and the subprime crisis
                            Credit rating agencies played a very important role at various stages in the subprime crisis. They have been highly criticized for understating the risk involved with new, complex securities that fueled the United States housing bubble, such as mortgage-backed securities and collateralized debt...

                          • Financial crisis of 2007–2010
                          • Global financial crisis in September 2008
                            Global financial crisis in September 2008
                            -Prelude:The subprime mortgage crisis reached a critical stage during the first week of September 2008, characterized by severely contracted liquidity in the global credit markets and insolvency threats to investment banks and other institutions....

                          • Global financial crisis in October 2008
                            Global financial crisis in October 2008
                            -Beginning of October:The policy response to the subprime crisis started in earnest after Lehman’s failure in mid September 2008, accelerated after February 2009, and has become very large by September 2009...

                          • Global financial crisis in November 2008
                            Global financial crisis in November 2008
                            -Reports of economic activity:October sales of cars and light trucks in the United States fell precipitously in 2008 when compared with sales in October 2007, with General Motors falling 45%, Ford falling 30%, Chrysler falling 35%, Toyota falling 23%, Honda falling 25%, and Nissan falling 33%. Much...

                          • Global financial crisis in December 2008
                            Global financial crisis in December 2008
                            -Reports of economic activity:On December 1, the National Bureau of Economic Research officially declared that the U.S. economy had entered recession in December 2007, a full year earlier....

                          • Global financial crisis in 2009
                            Global financial crisis in 2009
                            -2009:On the evening of January 18, the Danish Parliament agreed to a financial package worth 100 billion Danish kroner . In response, markets panicked yet again. On January 22, the editorial board of The Christian Science Monitor wrote that the four largest U.S...

                          • Timeline of the United States housing bubble
                            Timeline of the United States housing bubble
                            The United States housing bubble is not over. Housing prices peaked in early 2005, began declining in 2006 and may not yet have hit bottom.-1930s:*1933-1939 The New Deal is a group of new laws created to fix problems in the Great Depression economy, including methods to increase home...

                            for the pre-subprime crisis timeline

                          Further reading



                        External links

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