Global financial crisis of September–October 2008


Global financial crisis of September–October 2008

The global financial crisis of September–October 2008 is a developing financial crisis which emerged the week of September 14, 2008. Beginning with failures of large financial institutions in the United States, it rapidly evolved into a global crisis resulting in a number of European bank failures and sharp reductions in the value of equities (stock) and commodities worldwide. The crisis has lead to a liquidity problem and the de-leveraging of world assets, which has further accelerated the problem. World political leaders have coordinated their efforts to reduce fears but the crisis is ongoing and continues to change. The crisis has roots in the subprime mortgage crisis and is an acute phase of the financial crisis of 2007–2008.

Week of September 14, 2008

Major financial firm crises

On Sunday, September 14, it was announced that Lehman Brothers would file for bankruptcy after the Federal Reserve Bank declined to participate in creating a financial support facility for Lehman Brothers. The same day, the sale of Merrill Lynch to Bank of America was announced. [http://www.nytimes.com/2008/09/15/business/15lehman.html "Lehman Files for Bankruptcy; Merrill Is Sold"] article by Andrew Ross Sorkin in "The New York Times September 14, 2008] The beginning of the week was marked by extreme instability in global stock markets, with dramatic drops in market values on Monday, September 15, and Wednesday, September 17. On September 16, the large insurer American International Group (AIG), a significant participant in the credit default swaps markets suffered a liquidity crisis following the downgrade of its credit rating. The Federal Reserve, at AIG's request, and after AIG has shown that it could not find lenders willing to save it from insolvency, created a credit facility for up to US$85 billion in exchange for an 79.9% equity interest, and the right to suspend dividends to previously issued common and preferred stock. [ See American International Group for details and citations.]

Money market funds insurance and short sales prohibitions

On September 16, the Reserve Primary Fund, a large money market mutual fund, lowered its share price below $1 because of exposure to Lehman debt securities. This resulted in demands from investors to return their funds as the financial crisis mounted. [http://www.nytimes.com/2008/09/18/business/yourmoney/18money.html "Money Market Funds Enter a World of Risk"] article by Tara Siegel Bernard in "The New York Times September 17, 2008] By the morning of September 18, money market sell orders from institutional investors totalled $0.5 trillion, out of a total market capitalization of $4 trillion, but a $105 billion liquidity injection from the Federal Reserve averted an immediate collapse. Gray, Michael. [http://www.nypost.com/seven/09212008/business/almost_armageddon_130110.htm "Almost Armageddon: Markets Were 500 Trades from a Meltdown] (September 21, 2008 ) New York Post] On September 19 the U.S. Treasury offered temporary insurance (akin to FDIC insurance of bank accounts) to money market funds. [http://www.treasury.gov/press/releases/hp1147.htm "Treasury Announces Guaranty Program for Money Market Funds"] ( September 19, 2008) Press Release. United States Department of the Treasury.] Toward the end of the week, short selling of financial stocks was suspended by the Financial Services Authority in the United Kingdom and by the Securities and Exchange Commission in the United States. [http://www.nytimes.com/2008/09/20/business/20sec.html "S.E.C. Issues Temporary Ban on Short-Selling"] article by Vikas Bajaj and Jonathan D. Glater in "The New York Times" September 19, 2008] Similar measures were taken by authorities in other countries.] Some restoration of market confidence occurred with the publicity surrounding efforts of the Treasury and the Securities Exchange Commission [ [http://www.nytimes.com/2008/09/20/business/economy/20cndleadall.html "Stocks Surge as U.S. Acts to Shore Up Money Funds and Limits Short Selling"] article by Graham Bowley in "The New York Times" September 19, 2008] [ [http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html "Congressional Leaders Were Stunned by Warnings"] article by David M. Herszenhorn in "The New York Times" September 19, 2008 ]

Troubled Asset Relief Program

On September 19, 2008, a plan intended to ameliorate the difficulties caused by the subprime mortgage crisis was proposed by the Secreatry of the Treasury, Henry Paulson. He proposed a Troubled Asset Relief Program (later incorporated into the Emergency Economic Stabilization Act of 2008) which would permit for the United States government to purchase illiquid assets (also termed "toxic assets") from financial institutions. [ [http://www.nytimes.com/2008/09/19/business/19fed.html "Vast Bailout by U.S. Proposed in Bid to Stem Financial Crisis"] article by Edmund L. Andrews in "The New York Times" September 18, 2008] [ [http://www.nytimes.com/2008/09/20/business/economy/20paulson.html "Paulson Argues for Need to Buy Mortgages"] article by David Stout in "The New York Times" September 19, 2008] The value of the securities is extremely difficult to determine. [http://www.nytimes.com/2008/09/25/business/25value.html "Plan’s Mystery: What’s All This Stuff Worth?"] article by Vikas Bajaj in "The New York Times" September 24, 2008] Consultations between the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Chairman of the U.S. Securities and Exchange Commission, Congressional leaders and the President of the United States moved forward plans to advance a comprehensive solution to the problems created by illiquid mortgage-backed securities. At the close of the week the Secretary of the Treasury and President Bush announced a proposal for the federal government to buy up to US$700 billion of illiquid mortgage backed securities with the intent to increase the liquidity of the secondary mortgage markets and reduce potential losses encountered by financial institutions owning the securities. The draft proposal of the plan was received favorably by investors in the stock market. Details of the bailout remained to be acted upon by Congress. [ [http://www.nytimes.com/2008/09/20/business/20fed.html "Bush Officials Urge Swift Action on Rescue Powers}"] article by Edmund L. Andrews in "The New York Times" September 19, 2008] [ [http://www.nytimes.com/2008/09/21/business/21draftcnd.html Draft Proposal for Bailout Plan] (September 21, 2008). "New York Times"] [ [http://www.nytimes.com/aponline/business/AP-Financial-Meltdown.html "Rescue Plan Seeks $700 Billion to Buy Bad Mortgages"] article by The Associated Press in "The New York Times" September 20, 2008 ] [ [http://www.nytimes.com/2008/09/21/business/21cong.html "$700 Billion Is Sought for Wall Street in Vast Bailout"] article by David M. Herszenhorn in "The New York Times" September 20, 2008 ]

Week of September 21, 2008

On Sunday, September 21, the two remaining investment banks, Goldman Sachs and Morgan Stanley, with the approval of the Federal Reserve, converted to bank holding companies, a status subject to more regulation, but with readier access to capital. [ [http://www.nytimes.com/2008/09/22/business/22bank.html "Shift for Goldman and Morgan Marks the End of an Era"] article by Andrew Ross Sorkin and Vikas Bajaj in "The New York Times" September 21, 2008] On September 21, Treasury Secretary Henry Paulson announced that the original proposal, which would have excluded foreign banks, had been widened to include foreign financial institutions with a presence in the US. The US administration was pressuring other countries to set up similar bailout plans. [Cite news
last = Schwartz
first = Nelson D.
coauthors = Carter Dougherty
title = Foreign Banks Hope Bailout Will Be Global
work = The New York Times
date = 2008-09-22
url = http://www.nytimes.com/2008/09/22/business/22global.html?hp
]

On Monday and Tuesday during the week of September 22, appearances were made by the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve before Congressional committees and on Wednesday a prime time presidential address was delivered by the President of the United States on television. Behind the scenes, negotiations were held refining the proposal which had grown to 42 pages from its original 3 and was reported to include both an oversight structure and limitations on executive salaries, with other provisions under consideration.

On September 25, agreement was reported by congressional leaders on the basics of the package; [ [http://www.nytimes.com/2008/09/26/business/26bush.html "Lawmakers Agree on Outline of Bailout"] article by David M. Herszenhorn in "The New York Times" September 25, 2008] however, general and vocal opposition to the proposal was voiced by the public. [ [http://www.nytimes.com/2008/09/25/business/25voices.html "Lawmakers’ Constituents Make Their Bailout Views Loud and Clear"] article by Sheryl Gay Stolberg in "The New York Times" September 24, 2008] On Thursday afternoon at a White House meeting attended by congressional leaders and the presidential candidates, John McCain and Barack Obama, it became clear that there was no congressional consensus, with Republican representatives and the ranking member of the Senate Banking Committee, Richard C. Shelby, strongly opposing the proposal. [ [http://www.nytimes.com/2008/09/26/business/26bailout.html "Talks Implode During Day of Chaos; Fate of Bailout Plan Remains Unresolved"] article by David M. Herszenhorn, Carl Hulse, and Sheryl Gay Stolberg in "The New York Times" September 25, 2008] The alternative advanced by conservative House Republicans was to create a system of mortgage insurance funded by fees on those holding mortgages; as the working week ended, negotiations continued on the plan, which had grown to 102 pages and included mortgage insurance as an option. [ [http://www.nytimes.com/2008/09/27/business/27repubs.html "Conservatives Viewed Bailout Plan as Last Straw"] article by Carl Hulse in "The New York Times" September 26, 2008] [ [http://www.nytimes.com/2008/09/27/business/27cong.html "Politics Take Hold of Bailout Proposal"] article by David M. Herszenhorn in "The New York Times September 26, 2008] [ [http://www.nytimes.com/2008/09/27/business/27plan.html "House Republicans Support a Plan That Would Insure Troubled Mortgages"] article by Edmund L. Andrews in "The New York Times" September 26, 2008] On Thursday evening Washington Mutual, the nation's largest savings and loan, was seized by the Federal Deposit Insurance Corporation and most of its assets transferred to JPMorgan Chase. [ [http://www.nytimes.com/2008/09/26/business/26wamu.html "Government Seizes WaMu and Sells Some Assets"] article by Eric Dash and Andrew Ross Sorkin in "The New York Times"] Wachovia, one of the largest US banks, was reported to be in negotiations with Citigroup and other financial institutions. [ [http://www.nytimes.com/2008/09/27/business/27bank.html "Wachovia, Looking for Help, Turns to Citigroup"] article by Ben White and Eric Dash in "The New York Times September 26, 2008]

Week of September 28, 2008

Early into Sunday morning an announcement was made by the United States Secretary of the Treasury and congressional leaders that agreement had been reached on all major issues: the total amount of $700 billion remained with provision for the option of creating a scheme of mortgage insurance. [ [http://www.nytimes.com/2008/09/28/business/28bailout.html "Breakthrough Reached in Negotiations on Bailout"] article by David M. Herszenhorn and Carl Hulse in "The New York Times" September 27, 2008]

It was reported on Sunday, September 28, that a rescue plan had been crafted for the British mortgage lender Bradford & Bingley. [ [http://www.nytimes.com/2008/09/29/business/worldbusiness/29britbank.html "Britain Close to Takeover of Another Lender"] article by Landon Thomas, Jr. in "The New York Times" September 28, 2008] Grupo Santander, the largest bank in Spain, was slated to take over the offices and savings accounts while the mortgage and loans business would be nationalized. [The Times. [http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4842950.ece "Taxpayers must risk billions for Bradford & Bingley"] article by Philip Webster, Patrick Hosking and Tim Reid in "The Times of London" September 29, 2008]

Fortis, a huge Benelux banking and finance company was partially nationalized on September 28, 2008, with Belgium, the Netherlands and Luxembourg investing a total of 11.2 billion euros (16.3 billion U.S. dollars) in the bank. Belgium will purchase 49% of Fortis's Belgian division, with the Netherlands doing the same for the Dutch division. Luxembourg has agreed to a loan convertible into a 49% share of Fortis's Luxembourg division. [cite news
url=http://www.bloomberg.com/apps/news?pid=20601087&sid=ahlKDjeO0Lik&refer=home
title=Fortis Gets EU11.2 Billion Rescue From Governments
publisher=Bloomberg
date=2008-09-29
accessdate=2008-09-29
first=Martijn
last=van der Starre
coauthors=Meera Louis
]

It was reported on Monday morning, September 29, that Wachovia, the 4th largest bank in the United States, would be acquired by Citigroup. [cite news
url=http://dealbook.blogs.nytimes.com/2008/09/29/citigroup-nears-a-deal-for-wachovia/index.html
title=Citigroup to Buy Wachovia Banking Operations
publisher=The New York Times blog Dealbook
date=2008-09-30
accessdate=2008-09-29
first=Andrew Ross
last=Sorkin
coauthors=
] [cite news
url=http://www.nytimes.com/2008/09/29/business/29bank.html
title=Citigroup and Wells Fargo Said to Be Bidding for Wachovia
publisher=The New York Times
date=2008-09-28
accessdate=2008-09-29
first=Andrew Ross
last=Sorkin
coauthors=Eric Dash
]

On Monday the German finance minister announced a rescue of Hypo Real Estate, a Munich-based holding company comprised of a number of real estate financing banks, but the deal collapsed on Saturday, 4 October.

The same day the government of Iceland nationalized Glitnir, Iceland’s third largest lender. [ [http://www.glitnir.is/english/about-glitnir/news/detail/item14983/The_government_of_Iceland_acquires_75_percent_share_in_Glitnir_Bank/ Glitnir, "About Glitnir, News: 29.09.2008, The government of Iceland acquires 75 percent share in Glitnir Bank"] ] [ [http://eng.forsaetisraduneyti.is/news-and-articles/nr/3016 Prime Minister's Office, "News and Articles: The Government of Iceland provides Glitnir with new equity (9/29/08)"] ]

Stocks fell dramatically Monday in Europe and the US despite infusion of funds into the market for short term credit. [cite news
url=http://www.ft.com/cms/s/0/d925b966-8dec-11dd-8089-0000779fd18c.html
title=Heavy stock losses after Fed action
publisher=The Financial Times
date=2008-09-29
accessdate=2008-09-29
first=Michael
last=Hunter
coauthors=Neil Dennis
] [cite news
url=http://www.ft.com/cms/s/0/f9525dd4-8d24-11dd-83d5-0000779fd18c.html
title=Central banks pump cash into system
publisher=The Financial Times
date=2008-09-29
accessdate=2008-09-29
first=James
last=Politi
coauthors=Krishna Guha, Daniel Dombey and Harvey Morris
] In the US the Dow dropped 777 points (6.98%), the largest one-day point-drop in history (but only the 17th largest percentage drop). [cite news| url = http://www.marketwatch.com/news/story/us-stocks-slide-dow-plunges/story.aspx?guid={7F45BE2A-0486-494E-B87C-76D9F2688338} | title = U.S. stocks slide, Dow plunges 777 points, as bailout fails|publisher=MarketWatch|date=2008-09-29|accessdate=2008-09-29] In Norway, the OBX Index of Oslo Stock Exchange dropped 8.3%, its third largest drop ever in one day. [cite news |first= Klever |last= Magnus |title= Verste dag på 17 år |url= http://www.na24.no/imarkedet/borskommentar/article2258169.ece |work= NA24 |publisher= |location= Oslo, Norway |page= |date=2008-09-29 |accessdate=2008-09-30 |language= Norwegian]

The U.S. bailout plan, now named the Emergency Economic Stabilization Act of 2008 and expanded to 110 pages was slated for consideration in the House of Representatives on Monday, September 29 as HR 3997 and in the Senate later in the week. [Information from C-Span September 29, 2008] [cite news
url=http://www.nytimes.com/2008/09/29/business/29bailout.html
title=Bailout Plan in Hand, House Braces for Tough Vote
publisher=The New York Times
date=2008-09-28
accessdate=2008-09-29
first=Carl
last=Hulse
coauthors=David M. Herszenhorn
] The plan failed after the vote being held open for 40 minutes in the House of Representatives, 205 for the plan, 228 against. [C-Span 2 PM 9/30/08] [cite news
url=http://www.nytimes.com/2008/09/30/business/30bailout.html
title=House Rejects Bailout Package, 228-205, But New Vote Is Planned; Stocks Plunge
publisher=The New York Times
date=2008-09-29
accessdate=2008-09-29
first=Carl
last=Hulse
coauthors=David M. Herszenhorn
] Meanwhile US stock markets suffered steep declines, the Dow losing 300 points in a matter of minutes, ending down 777.68, the Nasdaq losing 199.61, falling below the 2000 point mark, and the S.&P. 500 off 8.77% for the day. [cite news
url=http://www.nytimes.com/2008/09/30/business/30markets.html
title=For Stocks, Worst Single-Day Drop in Two Decades
publisher=The New York Times
date=2008-09-29
accessdate=2008-09-29
first=Michael M.
last=Grynbaum
coauthors=
] By the end of the day, the Dow suffered the largest drop in the history of the index. [cite news|url=http://money.cnn.com/2008/09/29/markets/markets_newyork/index.htm?postversion=2008092916|publisher=CNN Money|title=Stocks crushed|first=Alexandra|last=Twin|date=2008-09-29|accessdate=2008-09-29] The S&P 500 Banking Index fell 14% on September 29 with drops in the stock value of a number of US banks generally considered sound, including Bank of New York Mellon, State Street and Northern Trust; three Ohio banks, National City, Fifth Third, and KeyBank were down dramatically. [cite news
url=http://money.cnn.com/2008/09/29/news/companies/bank_failures/index.htm
title=Wondering which bank is next: Analysts brace for more bank failures after Wachovia sells out banking assets to Citi; bank stocks plunge after House rejects bailout bill.
publisher=CNN Money
date=2008-09-29
accessdate=2008-09-29
first=Aaron
last=Smith
coauthors=
] [cite news
url=http://www.nytimes.com/2008/09/30/business/30citi.html
title=With Wachovia Sale, the Banking Crisis Trickles Up
publisher=The New York Times
date=2008-09-29
accessdate=2008-09-29
first=Eric
last=Dash
coauthors=
]

On Tuesday, September 30, stocks rebounded but credit markets remained tight with the London Interbank Offered Rate (overnight dollar Libor) rising 4.7% to 6.88%. [cite news
url=http://www.ft.com/cms/s/0/17ce4468-8f22-11dd-946c-0000779fd18c.html
title=Banking’s crisis of confidence deepens
publisher=The Financial Times
date=2008-09-30
accessdate=2008-09-30
first=Krishna
last=Guha
coauthors=Harvey Morris and James Politi in Washington and Paul J Davies
]

On Tuesday, September 30, 9 billion was made available by the French, Belgian and Luxembourg governments to the French-Belgian bank Dexia. [cite news
url=http://www.ft.com/cms/s/0/116457fe-8ebc-11dd-946c-0000779fd18c.html
title=Dexia receives €6.4bn capital injection
publisher=The Financial Times
date=2008-09-30
accessdate=2008-09-30
first=Scheherazade
last=Daneshkhu
coauthors=Ben Hall
]

After Irish banks came under pressure on Monday, September 29, the Irish government undertook a two year "guarantee arrangement to safeguard all deposits (retail, commercial, institutional and inter-bank), covered bonds, senior debt and dated subordinated debt (lower tier II)" of 6 Irish banks: Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide and the EBS Building Society; the potential liability involved is about 400 billion dollars. [cite news
url=http://www.irishtimes.com/newspaper/ireland/2008/1001/1222724598521.html
title=Government statement (of the Government of Ireland)
publisher=The Irish Times
date=2008-10-01
accessdate=2008-10-01
first=
last=
coauthors=
]

The United States Senate's version of the $700 billion bailout plan, HR1424, modified to expand bank deposit guarantees to $250,000 and to include $100 billion in tax breaks for businesses and alternative energy, passed with bi-partisan support 74-25 on October 1st. [cite news
url=http://www.nytimes.com/2008/10/02/business/02bailout.html
title=Adding Sweeteners, Senate Passes Bailout Plan
publisher=The New York Times
date=2008-10-01
accessdate=2008-10-01
first=Carl
last=Hulse
coauthors=David M. Herszenhorn
] Reaction in the House was mixed, [cite news
url=http://www.nytimes.com/2008/10/02/business/02bailout.html
title=Senate to Vote Today on the Bailout Plan
publisher=The New York Times
date=2008-10-01
accessdate=2008-10-01
first=Carl
last=Hulse
coauthors=Robert Pear
] [cite news
url=http://www.bloomberg.com/apps/news?pid=20601087&sid=aQzP3B9VG90E
title=Senate Sets Financial-Rescue Vote, House Decision Likely Friday
publisher=Bloomberg
date=2008-10-01
accessdate=2008-10-01
first=James
last=Rowley
coauthors=Brian Faler
] but in a vote on Friday the House of Representatives passed the Emergency Economic Stabilization Act of 2008, as refashioned by the Senate, 263-171 in a bipartisan vote. [cite news
url=http://www.nytimes.com/2008/10/04/business/economy/04bailout.html
title=House Approves Bailout on Second Try
publisher=The New York Times
date=2008-10-03
accessdate=2008-10-03
first=David M.
last=Herszenhorn
coauthors=
]

Discussions were ongoing in Europe regarding possible remedies for financial instability in Europe leading up to a conference Saturday afternoon in Paris hosted by Nicolas Sarkozy, president of France. UniCredit of Italy was reported to be the latest bank to come under pressure. [cite news
url=http://www.nytimes.com/2008/10/02/business/worldbusiness/02regulate.html
title=European Officials Debate Need for a Bailout Package
publisher=The New York Times
date=2008-10-01
accessdate=2008-10-01
first=Stephen
last=Castel
coauthors=Katrin Bennhold
] During the night of October 2 Greece followed Ireland's lead and guaranteed all bank deposits. [cite news
url=http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4870873.ece
title=European bank rescue plan in tatters amid savings stampede
publisher=The Times
date=2008-10-03
accessdate=2008-10-03
first=Patrick
last=Hosking
coauthors=http://www.nytimes.com/2008/10/06/business/06bank.html?ref=todayspaper
]

On October 3 it was reported that Wachovia had rejected the previous offer from Citigroup in favor of acquisition by Wells Fargo, [cite news
url=http://www.nytimes.com/2008/10/04/business/04bank.html
title=Wells Fargo Swoops In
publisher=The New York Times
date=2008-10-03
accessdate=2008-10-04
first=Eric
last=Dash
coauthors=Ben White
] resulting in a legal dispute with Citigroup. [cite news
url=http://www.nytimes.com/2008/10/06/business/06bank.html
title=Weekend Legal Frenzy Between Citigroup and Wells Fargo for Wachovia
publisher=The New York Times
date=2008-10-05
accessdate=2008-10-06
first=Eric
last=Dash
coauthors=
]

In Britain, the Financial Services Authority announced on October 3 that effective Tuesday, October 7, the amount of the guarantee of bank deposits would be raised to £50,000 from £35,000. [cite news
url=http://www.ft.com/cms/s/0/25915358-9137-11dd-b5cd-0000779fd18c.html
title=Savings guarantee to rise to £50,000
publisher=The Financial Times
date=2008-10-03
accessdate=2008-10-03
first=Peter Thal
last=Larsen
coauthors=George Parker
] On Friday, October 3, the government of the Netherlands took over the Dutch operations of Fortis, replacing the bailout plan of September 28. [cite news
url=http://www.nytimes.com/2008/10/04/business/worldbusiness/04fortis.html
title=Netherlands Takes Over Some Fortis Operations
publisher=The New York Times
date=2008-10-03
accessdate=2008-10-03
first=Neson D.
last=Schwartz
coauthors=
]

Week of October 5

Over the weekend and on Monday a major banking and financial crisis emerged in Iceland with its currency the krona, dropping 30% against the euro. [cite news
url=http://www.guardian.co.uk/world/2008/oct/07/iceland.globaleconomy
title=Reykjavik battles to save economy
publisher=The Guardian
date=2008-10-07
accessdate=2008-10-06
first=David
last=Teather
coauthors=
] At a meeting on Monday night emergency legislation was passed granting broad powers to the government to seize and regulate banks. The Landsbanki and Glitnir were seized, while Kaupthing was subjected to a rescue plan. [cite news
url=http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4894904.ece
title=Terror as Iceland faces economic collapse
publisher=The Times
date=2008-10-07
accessdate=2008-10-07
first=Hildur
last=Sigurðardóttir
coauthors=Helen Power and Peter Stiff
]

On October 6, the Icelandic Financial Supervisory Authority decided temporarily to suspend from trading on regulated markets all financial instruments issued by Glitnir banki hf., Kaupþing banki hf., Landsbanki Íslands hf., Straumur-Burðarás fjárfestingarbanki hf., Spron hf., and Exista hf. [ [http://www.fme.is/?PageID=581&NewsID=328 The Financial Supervisory Authority - Iceland, "News: Temporary suspension from trading" (06.10.2008)] en icon]

Before the opening of the business day, October 6. BNP Paribas, the French bank, assumed control of the remaining assets of Fortis following Dutch nationalization of the operations of the bank in The Netherlands. [cite news
url=http://www.ft.com/cms/s/0/1523014a-9323-11dd-98b5-0000779fd18c.html
title=BNP to take control of Fortis
publisher=The Financial Times
date=2008-10-06
accessdate=2008-10-06
first=Micheal
last=Steen
coauthors=Joshua Chaffin and Peter Thal Larsen
] Denmark, Austria, and possibly GermanyClarifyme|date=October 2008, joined Ireland and Greece [cite news
url=http://en.wikinews.org/wiki/Greece_guarantees_bank_deposits
title=Greece guarantees bank deposits
publisher=Wikinews
date=2008-10-09
accessdate=2008-10-09
] in guaranteeing bank deposits on Monday, October 6. [cite news
url=http://www.nytimes.com/2008/10/06/business/06markets.html
title=Financial Crises Spread in Europe
publisher=The New York Times
date=2008-10-05
accessdate=2008-10-06
first=Carter
last=Dougherty
coauthors=Nelson Schwartz and Floyd Norris
] [cite news
url=http://www.ft.com/cms/s/0/d895ef54-92ef-11dd-98b5-0000779fd18c.html
title=Germany guarantees savings
publisher=The Financial Times
date=2008-10-05
accessdate=2008-10-06
first=Bertrand
last=Benoit
coauthors=James Wilson
] Following this, the FTSE100 index of leading British shares took its worst one-day hit in history [BBC. [http://news.bbc.co.uk/1/hi/business/7655288.stm Stocks slide despite reassurances] . retrieved 2008-10-06] . A banking Bill easing rescues is slated for introduction in the British Parliament on Tuesday, October 7. [cite news
url=http://business.timesonline.co.uk/tol/business/economics/article4888248.ece
title=German savings pledge raises stakes for Gordon Brown
publisher=The Times
date=2008-10-06
accessdate=2008-10-06
first=Francis
last=Elliott
coauthors=Christine Seib
] On 6 October German chancellor Angela Merkel pledged that the government would guarantee all German private bank savings. The government also announced a revised bailout plan for German mortgage lender Hypo Real Estate (HRE). [Deutsche Welle. http://www.dw-world.de/dw/article/0,2144,3694172,00.html German Government Under Pressure to Deliver on Crisis Promise] (English) Retrieved 2008-10-06] [Deutsche Welle. [http://www.dw-world.de/popups/popup_single_mediaplayer/0,,3692883_type_video_struct_1432,00.html?mytitle=Berlin%2Bhas%2BGiven%2Ba%2BBlanket%2BGuarantee%2Bfor%2Ball%2BPrivate%2BBank%2BSavings Berlin has Given a Blanket Guarantee for all Private Bank Savings] . (English) Retrieved 2008-10-06. (video, English) Merkel: "we also pledge that those who have conducted business irresponsibly will be held to account. The government will ensure that that happens."] [cite news
url=http://www.ft.com/cms/s/0/389588ae-93ce-11dd-9a63-0000779fd18c.html
title=Berlin shrugs off attacks on savings pledge
publisher=The Financial Times
date=2008-10-06
accessdate=2008-10-06
first=Bertrand
last=Benoitt
coauthors=George Parker
] On Monday, October 6, the Dow Jones Industrial Average closed below 10,000, a drop of 30% from its high above 14,000 a year earlier on October 9, 2007. [cite news
url=http://www.nytimes.com/2008/10/07/business/07markets.html
title=Chaotic Day Ends With Stocks Off 3.8%
publisher=The New York Times
date=2008-10-06
accessdate=2008-10-06
first=Micheal M.
last=Grynbaum
coauthors=
] In Brazil and Russia trading was suspended on Monday following dramatic drops in their markets. [cite news
url=http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4895024.ece
title=Banking crisis: the world takes fright
publisher=The Times
date=2008-10-07
accessdate=2008-10-07
first=Patrick
last=Hosking
coauthors=
]

On October 7, the Icelandic Financial Supervisory Authority took control of Landsbanki. [ [http://www.fme.is/?PageID=581&NewsID=331 The Financial Supervisory Authority - Iceland, "News: Based on New Legislation, the Icelandic Financial Supervisory Authority (IFSA) Proceeds to take Control of Landsbanki to ensure Continued Commercial Bank Operations in Iceland" (07.10.2008)] ] [ [http://www.landsbanki.is/english/aboutlandsbanki/pressreleases/?GroupID=720&NewsID=13284&y=0&p=1 Landsbanki Íslands, "Press release: Landsbanki's Operations Continued Under Unchanged Management" (October 07, 2008)] ] On the same day, the Central Bank of Iceland announced that Russia had agreed to provide a four-billion-euro loan, [ [http://www.sedlabanki.is/?PageID=287&NewsID=1869 Central Bank of Iceland, "The Foreign Exchange Reserves of the Central Bank of Iceland bolstered" (07.10.2008; No. 31/2008)] ] [ [http://www.sedlabanki.is/?PageID=287&NewsID=1874 Central Bank of Iceland, "Foreign exchange reserves" (07.10.2008; No. 33/2008)] ] however this was soon denied by Russian authorities, and the Icelandic Finance Minister had to correct the earlier announcement and now stated that discussions had been initiated with Russia on providing a loan to Iceland. This was also denied by Russian Deputy Finance Minister Dmitry Pankin. Late in the evening, however, Russia's Finance Minister Alexei Kudrin did concede that a request had been received, to which Russia was positive, and that discussions on financial matters would be conducted later in the week when an Icelandic delegation was expected to arrive in Moscow.cite news |first= Polya |last= lesova |authorlink= |title= Iceland takes dramatic steps to stabilize economy |url= http://www.marketwatch.com/news/story/icelands-economic-stabilization-efforts-melt-down/story.aspx?guid={B4AA0766-A3A9-41F6-92CF-BBF0406F8147}&dist=msr_11 |work= Russia Today |location= Moscow |date=2008-10-07 |accessdate=2008-10-07] Standard & Poor's also cut Iceland's foreign-currency sovereign credit rating from A-/A-2 to BBB/A-3 and local-currency sovereign credit rating from A+/A-1 to BBB+/A-2. S&P also lowered Iceland's banking industry country risk assessment from group 5 to group 8, worrying that "In a severe recession scenario, the cumulative amount of nonperforming and restructured loans could reach 35% to 50% of total outstanding loans in Iceland.

Several countries announced new or increased deposit guarantees: Taiwan outlined plans to double the guarantee to NT$3 million ($92,000) [International Herald Tribune. [http://www.iht.com/articles/ap/2008/10/07/business/AS-Taiwan-Banks.php Taiwan doubles bank deposit insurance] . Retrieved 2008-10-07] and the European Union agreed to increase guarantees across the EU to at least €50,000 per saver. Several EU states then announced increases on top of this minimum: Netherlands, Spain, Belgium, and Greece [cite news
url=http://en.wikinews.org/wiki/Greece_guarantees_bank_deposits
title=Greece guarantees bank deposits
publisher=Wikinews
date=2008-10-09
accessdate=2008-10-09
] each announced they would guarantee up to €100,000.cite news |authorlink=BBC news |title=Financial crisis at-a-glance: 7 Oct |url=http://news.bbc.co.uk/2/hi/business/7656212.stm
date=2008-10-07 |accessdate=2008-10-07
]

The government of Britain announced on Wednesday morning, October 8 that it would make £25 billion available as "Tier 1 capital" (preference share capital or "PIBS") to the following financial institutions: Abbey, Barclays, HBOS, HSBC Bank plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, and Standard Chartered. An additional £25 billion will be made available to other financial institutions, including British subsidiaries of foreign banks. "In reviewing these applications the Government will give due regard to an institution's role in the UK banking system and the overall economy". The plan included increased ability to borrow from the government, offered assistance in raising equity, and a statement of support for international efforts. [cite news
url=http://www.guardian.co.uk/business/2008/oct/08/creditcrunch.banking1/article4895024.ece
title=Treasury's official announcement on the banks
publisher=The Guardian
date=2008-10-08
accessdate=2008-10-08
first=HM Treasury
last=
coauthors=
] The plan has been characterized as partial nationalization. [cite news
url=http://www.guardian.co.uk/business/2008/oct/08/creditcrunch.banking
title=Government to spend £50bn to part-nationalise UK's banks
publisher=The Guardian
date=2008-10-08
accessdate=2008-10-08
first=Graeme
last=Wearden
coauthors=
]

On Wednesday, October 8, the European Central Bank, Bank of England, Federal Reserve, Bank of Canada, Swedish Riksbank and Swiss National Bank all announced simultaneous cuts of 0.5% to their base rates at 11:00 UTC. [cite web|url=http://www.federalreserve.gov/newsevents/press/monetary/20081008a.htm|title=Federal Reserve and other central banks announce reductions in policy interest rates|accessdate=2008-10-08] [cite web|url=http://www.bankofcanada.ca/en/press/2008/pr08-21.html|title=Central banks announce reductions in policy interest rates|accessdate=2008-10-08|date=2008-10-08] [cite web|url=http://www.ecb.int/home/html/index.en.html|title=ECB homepage|date=2008-10-08|accessdate=2008-10-08] [cite web|url=http://news.bbc.co.uk/2/hi/business/7658958.stm|title=BBC News - Central banks cut interest rates|accessdate=2008-10-08] Shortly afterwards, the Central Bank of the People's Republic of China also cut interest rates. [ [http://english.people.com.cn/90001/90776/90884/6511768.html China's central bank cuts reserve requirement ratio, interest rate to stimulate economy] , People's Daily Online, Retrieved 2008-10-08 ] On October 8 there were sharp losses on stock markets worldwide with a loss of over 9% in Japan. Trading was suspended in Russia and Indonesia after steep morning losses. In the United States, following the funds cut by the Federal Reserve, stocks were volatile, finishing down. [cite news
url=http://www.nytimes.com/2008/10/09/business/09markets.html
title=For Dow, Final Swing Was Down
publisher=The New York Times
date=2008-10-08
accessdate=2008-10-08
first=David
last=Jolly
coauthors=Bettina Wassener and Keith Bradsher
] On October 8 the Federal Reserve loaned AIG $37.8 billion, in addition to the previous loan of $85 billion. [cite news
url=http://www.nytimes.com/2008/10/09/business/economy/09insure.html?hp
title=Fed Gives A.I.G. $37.8 Billion Loan
publisher=The New York Times
date=2008-10-08
accessdate=2008-10-08
first=Associated Press
last=
coauthors=
]

On Wednesday night, October 8, the Central Bank of Iceland abandoned its attempt to peg the Icelandic króna at 131 króna to the euro after trying to set this peg on Monday, October 6. [cite web|url=http://www.forbes.com/home/2008/10/08/iceland-sovereign-currency-markets-currency-cx_po_1008markets28.html|title=Iceland Teeters On Bankruptcy|publisher=Forbes|date=2008-10-09|accessdate=2008-10-08] By Thursday October 9, the Icelandic króna was trading at 340 to the euro when the government suspended all trade in the currency. [cite web|url=http://www.investmentmarkets.co.uk/20081009-2520.html|title=Trade halted on Icelandic krona|publisher=Investment markets|last=Frei|first=Elaine|date=2008-10-09|accessdate=2008-10-08]

On Thursday, October 9, the Icelandic Financial Supervisory Authority took control of the country's biggest bank Kaupþing banki hf.. [ [http://www.fme.is/?PageID=581&NewsID=340 The Financial Supervisory Authority - Iceland, "News: Based on New Legislation, the Icelandic Financial Supervisory Authority (FME) Proceeds to take Control of Kaupþing to ensure Continued Commercial Bank Operations in Iceland" (09.10.2008)] ] [ [http://www.kaupthing.com/pages/164?path=K/133944/PR/200810/1258139.xml Kaupthing Bank, "Press release: Kaupthing Bank turns to the Icelandic FSA" (2008.10.09)] ] [cite news
url=http://www.nytimes.com/2008/10/09/business/worldbusiness/09icebank.html
title=In Flailing Iceland, Disbelief and Regret
publisher=The New York Times
date=2008-10-09
accessdate=2008-10-09
first=Eric
last=Pfanner
coauthors=
] This occurred when the Kaupthing Board resigned and asked the national authorities to take control. This came about when "Britain transferred control of the business of Kaupthing Edge, its Internet bank, to ING Direct and put Kaupthing's UK operations into administration" placing Kaupthing in technical default according to loan agreements. [cite web|url=http://www.reuters.com/article/innovationNews/idUSTRE4981SV20081009?sp=true|title=Shellshocked Iceland takes control of biggest bank|publisher=Reuters|date=2008-10-09|accessdate=2008-10-08] This marked an escalating row between Iceland and the United Kingdom over the growing crisis. All trade was also suspended on the Iceland Stock Exchange until Monday October 13. [cite web|url=http://uk.reuters.com/article/businessNews/idUKTRE4986YE20081009|title=Iceland takes over biggest bank|publisher=Reuters|date=2008-10-09|accessdate=2008-10-08]

On Thursday, October 9, the one-year anniversary of the Dow's peak, the cost of short term credit rose while there were heavy losses in the United States stock market; the Dow dropped below 8600, reaching a five year low. It was the first time since August 2003 that the Dow closed below 9000; losses were moderate in Europe. [cite news
url=http://www.nytimes.com/2008/10/10/business/10markets.html
title=Stocks Plunge Again; Dow Under 8,600
publisher=The New York Times
date=2008-10-09
accessdate=2008-10-09
first=David
last=Jolly
coauthors=Bettina Wassener
] The following day, Friday, October 10, there were large losses in Asian and European markets [cite news
url=http://www.nytimes.com/2008/10/11/business/11markets.html
title=Global Markets Dive in Relentless Selloff
publisher=The New York Times
date=2008-10-10
accessdate=2008-10-10
first=David
last=Jolly
coauthors=Bettina Wassener
] Yamato Life filed for bankruptcy. Beset by falling commodities prices, Russia's stock markets remained closed on October 10. The Russian Parliament passed a plan authorizing lending of $36 billion gained from global oil sales to banks which met creditworthiness requirements. Special attention is being paid to shoring up Rosselkhozbank, the bank which provides credit to the reviving agricultural sector. The amount of funds available is limited due to falling oil prices. [cite news
url=http://www.nytimes.com/2008/10/11/business/worldbusiness/11moscow.html
title=Russia Approves Loan Plan to Ease Credit Crunch
publisher=The New York Times
date=2008-10-10
accessdate=2008-10-10
first=Andrew E.
last=Kramer
coauthors=
] [cite news
url=http://www.nytimes.com/2008/10/11/business/worldbusiness/11ruble.html
title=Russia to Spend Billions Buying Shares on Stock Exchanges to Bolster Confidence
publisher=The New York Times
date=2008-10-10
accessdate=2008-10-11
first=Andrew E.
last=Kramer
coauthors=
] The government of the United States, as authorized by the Emergency Economic Stabilization Act, announced plans to infuse funds into banks by purchasing equity interests in them, in effect, partial nationalization, as done in Britain. The Treasury secretary Henry M. Paulson Jr. met Friday in Washington with world financial leaders. [cite news
url=http://www.nytimes.com/2008/10/11/business/11markets.html
title=U.S. Proceeds With Plan for Equity Stakes in Banks
publisher=The New York Times
date=2008-10-10
accessdate=2008-10-10
first=Graham
last=Bowley
coauthors=David Jolly
] A meeting of international financial leaders hosted by President Bush at the White House in Washington is planned on Saturday to attempt to coordinate global response to the financial crisis. The annual meetings of both the International Monetary Fund and World Bank will be held in Washington over the weekend. [cite news
url=http://www.nytimes.com/2008/10/10/business/worldbusiness/10global.html
title=As Credit Crisis Spreads, Global Approach Weighed
publisher=The New York Times
date=2008-10-09
accessdate=2008-10-10
first=Mark
last=Landler
coauthors=Edmund L. Andrews
]

On Friday, October 10th, stock markets crashed across Europe and Asia. London, Paris and Frankfurt dropped 10% within an hour of trading and again when Wall Street opened for trading. Global markets have experienced their worst weeks since 1987 and some indexes, S&P 500, since the Wall Street Crash of 1929. [http://www.ft.com/cms/s/0/a0eac1e2-96f0-11dd-8cc4-000077b07658.html]

On October 10th, within the first five minutes of the trading session on Wall Street, the Dow Jones Industrial Average plunged 697 points, falling below 7900 to its lowest level since March 17, 2003. Later in the afternoon, the Dow made violent swings back and forth across the breakeven line, toppling as much as 600 points and rising 322 points. The Dow ended the day losing only 128 points, or 1.49%. The total loss for the week was 1,874 points, or 18%. Trading on New York Stock Exchange closed for the week with the Dow at 8,451, down 1,874 points, or 18% for the week, and after 8 days of losses, 40% down from its record high October 9, 2007. Trading on Friday was marked by extreme volatility with a steep loss in the first few minutes followed by a rise into positive territory, closing down at the end of the day. [cite news
url=http://www.nytimes.com/2008/10/11/business/11markets.html
title=Whiplash Ends a Roller Coaster Week
publisher=The New York Times
date=2008-10-10
accessdate=2008-10-11
first=Vikas
last=Bajaj
] President George W. Bush reassured investors that the government will solve the financial crisis gripping world economies. [cite web|url=http://money.cnn.com/2008/10/10/markets/markets_newyork/index.htm?postversion=2008101011|title=Vertigo on Wall Street|date=October 10, 2008|publisher=CNNMoney|accessdate=2008-10-10]

The bonds of the bankrupt Lehman Brothers were auctioned on Friday, October 10. They sold for a little over 8 cents on the dollar. Many of the bonds of Lehman Brothers were insured with credit default swaps. There is apprehension that payments to the holders of Lehman bonds may severely damage the firms or hedge funds which issued the swaps. Anticipated claims are estimated to be several hundred billion dollars. [cite news
url=http://www.nytimes.com/2008/10/11/business/11credit.html
title=Insurance on Lehman Debt Is the Industry’s Next Test
publisher=The New York Times
date=2008-10-10
accessdate=2008-10-11
first=Mary William
last=Walsh
coauthors=
]

As meetings proceeded with global financial leaders in Washington on Saturday, October 11, the United States government announced a change in emphasis in its rescue efforts from buying illiquid assets to recapitalizing banks, including strong banks, in exchange for preferred equity; and purchase of mortgages by Fannie Mae and Freddie Mac. These remedies can be put into effect quicker than the prior plan which was estimated to take a month to set into operation. [cite news
url=http://www.nytimes.com/2008/10/12/business/12imf.html
title=White House Overhauling Rescue Plan
publisher=The New York Times
date=2008-10-11
accessdate=2008-10-11
first=Edmund L.
last=Andrews
coauthors=Mark Landler
]

Key risk indicators in September 2008

Key risk indicators became highly volatile during September 2008, a factor leading the U.S. government to pass the Emergency Economic Stabilization Act of 2008. The “TED spread” is a measure of credit risk for inter-bank lending. It is the difference between: 1) the risk-free three-month U.S. treasury bill rate; and 2) the three-month London InterBank Offered Rate (LIBOR), which represents the rate at which banks typically lend to each other. A higher spread indicates banks perceive each other as riskier counterparties. The t-bill is considered "risk-free" because the full faith and credit of the U.S. government is behind it; theoretically, the government could just print money so that the principal is fully repaid at maturity. The TED spread reached record levels in late September 2008. The diagram indicates that the Treasury yield movement was a more significant driver than the changes in LIBOR. A three month t-bill yield so close to zero means that people are willing to forgo interest just to keep their money (principal) safe for three months – a very high level of risk aversion and indicative of tight lending conditions. Driving this change were investors shifting funds from money market funds (generally considered nearly risk free but paying a slightly higher rate of return than t-bills) and other investment types to t-bills. These issues are consistent with the September 2008 aspects of the subprime mortgage crisis which prompted the Emergency Economic Stabilization Act of 2008 signed into law by the U.S. President on October 2, 2008.

In addition, an increase in LIBOR means that financial instruments with variable interest terms are increasingly expensive. For example, car loans and credit card interest rates are often tied to LIBOR; some estimate as much as $150 trillion in loans and derivatives are tied to LIBOR. [ [http://www.marketwatch.com/news/story/libor-jump-ted-spread-show/story.aspx?guid={3632A7B4-4B54-4AF5-86C2-78EFA350E927} Markewatch Article - LIBOR Jumps to Record] ] Higher interest rates place additional downward pressure on consumption, increasing the risk of recession.

Global responses

On September 15, 2008 China cut its interest rate for the first time since 2002.Fact|date=September 2008 Indonesia reduced its overnight repo rate, at which commercial banks can borrow overnight funds from the central bank, by two percentage points to 10.25 percent. The Reserve Bank of Australia injected nearly $1.5 billion into the banking system, nearly three times as much as the market's estimated requirement. The Reserve Bank of India added almost $1.32 billion, through a refinance operation, its biggest in at least a month. [cite news|url=http://www.iht.com/articles/2008/09/16/business/cbanks.php|title=Asian central banks spend billions to prevent crash|publisher=International Herald Tribune|date=2008-09-16|accessdate=2008-09-21]

In Taiwan, the central bank on September 16, 2008 said it would cut its required reserve ratios for the first time in eight years. The central bank added $3.59 billion into the foreign-currency interbank market the same day. Bank of Japan pumped $29.3 billion into the financial system on September 17, 2008 and the Reserve Bank of Australia added $3.45 billion the same day. The European Central Bank injected $99.8 billion in a one-day money-market auction. The Bank of England pumped in $36 billion. Altogether, central banks throughout the world added more than $200 billion from the beginning of the week to September 17. []

On September 29, 2008 the Belgian, Luxembourg and Dutch authorities partially nationalized Fortis. The German government bailed out Hypo Real Estate. [cite news |first= |last= |authorlink= |coauthors= |title=Germany Rescues Hypo Real Estate |url=http://www.dw-world.de/dw/article/0,2144,3692522,00.html |work=Deutsche Welle |publisher= |date=2008-10-06 |accessdate= ]

US responses

The Federal Reserve, Treasury, and Securities and Exchange Commission took several steps on September 19 to intervene in the crisis. To stop the potential run on money market mutual funds, the Treasury also announced on September 19 a new $50 billion program to insure the investments, similar to the Federal Deposit Insurance Corporation (FDIC) program. Part of the announcements included temporary exceptions to section 23A and 23B (Regulation W), allowing financial groups to more easily share funds within their group. The exceptions would expire on January 30, 2009, unless extended by the Federal Reserve Board. [ [http://www.federalreserve.gov/newsevents/press/monetary/20080919c.htm (Press Release) FRB: Board Approves Two Interim Final Rules] , Federal Reserve Bank, September 19, 2008.] The Securities and Exchange Commission announced termination of short-selling of 799 financial stocks, as well as action against naked short selling, as part of its reaction to the mortgage crisis. [Boak, Joshua ( [Chicago Tribune). [http://www.mercurynews.com/markets/ci_10513612 "SEC temporarily suspends short selling"] , San Jose Mercury News, September 19, 2008.]

Loans to banks for asset-backed commercial paper

During the week ending September 19, 2008, money market mutual funds had begun to experience significant withdrawals of funds by investors. This created a significant risk because money market funds are integral to the ongoing financing of corporations of all types. Individual investors lend money to money market funds, which then provide the funds to corporations in exchange for corporate short-term securities called asset-backed commercial paper (ABCP). However, a potential bank run had begun on certain money market funds. If this situation had worsened, the ability of major corporations to secure needed short-term financing through ABCP issuance would have been significantly affected. To assist with liquidity throughout the system, the Treasury and Federal Reserve Bank announced that banks could obtain funds via the Federal Reserve's Discount Window using ABCP as collateral. [Bull, Alister. [http://www.reuters.com/article/ousiv/idUSN1926607920080919 "Fed says to make loans to aid money market funds"] , Reuters, September 19, 2008.] Gullapalli, Diya and Anand, Shefali. [http://wsj.com/article/SB122186683086958875.html?mod=article-outset-box "Bailout of Money Funds Seems to Stanch Outflow"] , The Wall Street Journal, September 20, 2008.]

Federal Reserve actions to lower interest rates and stimulate the economy

- * Part of a coordinated global rate cut of 50 basis point by main central banks. [http://news.bbc.co.uk/2/hi/business/7658958.stm]

- See more detailed US federal discount rate chart: [http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html]

Legislation

The Secretary of the United States Treasury, Henry Paulson and President George W. Bush proposed legislation for the government to purchase up to US$700 billion of "troubled mortgage-related assets" from financial firms in hopes of improving confidence in the mortgage-backed securities markets and the financial firms participating in it. [] Discussion, hearings and meetings among legislative leaders and the administration later made clear that the the proposal would undergo significant change before it could be approved by Congress. [ [http://clerk.house.gov/evs/2008/roll674.xml House of Representatives Roll Call vote results] . Library of Congress THOMAS website. Retrieved on September 29, 2008.] On October 1, a revised compromise version was approved by the Senate with a 74-25 vote, the sole Senator not to vote was cancer-stricken Ted Kennedy of Massachusetts. The bill, HR1424 was passed by the House on October 3, 2008 and signed into law.

Fed response

In an effort to increase available funds for commercial banks and lower the fed funds rate, on September 29 the U.S. Federal Reserve announced plans to double its Term Auction Facility to $300 billion. Because there appeared to be a shortage of U.S. dollars in Europe at that time, the Federal Reserve also announced it would increase its swap facilities with foreign central banks from $290 billion to $620 billion. [ [http://www.thestreet.com/story/10439813/2/fed-pumps-huge-wads-of-cash-into-system.html] ]

References

External links and further reading

* cite news | first = Joe | last= Nocera | coauthors= Andrew Ross Sorkin, Diana B. Henriques, Edmund L. Andrews | title= 36 Hours of Alarm and Action as Crisis Spiraled | date= 2008-10-01 | publisher= | url = http://www.nytimes.com/2008/10/02/business/02crisis.html?hp=&pagewanted=all
work = New York Times| pages = | accessdate = 2008-10-02
(Background on development of the Treasury proposal to Congress)
* [http://www.nytimes.com/interactive/2008/09/27/business/economy/20080927_WEEKS_TIMELINE.html "Five Weeks of Financial Turmoil"] Multimedia "The New York Times"
* [http://www.nytimes.com/interactive/2008/10/11/business/20081011_BEAR_MARKETS.html "How This Bear Market Compares"] Multimedia "The New York Times"


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