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A historic week in September

Timeline of the week’s events in the face of the worst financial crisis since the Great Depression:

Sunday September 14, 2008

·    Frantic talks during the weekend fail as Paulson states that there will be no bailout for Lehman. The bank is dumped by potential suitors such as Barclays   and effectively allowed to go bankrupt.

·    Stocks expected to tumble Monday, threatening the start of the next leg of the bear market.

Monday September 15th

·    Lehman declares bankruptcy; serious risk of default on counterparty derivatives results in central banks pumping in $100 billion into the money markets, which follows the announcement of $70 billion on Sunday as they attempt to contain the impact of Lehman's bankruptcy.

·    Bank of America  takeover of Merrill Lynch  for $50 billion, the world’s third-largest investment bank, to prevent a Lehman-style bankruptcy.

·    HBOS  Britain's biggest mortgage bank, crashes 30% after being targeted by short-selling hedge funds that sought a similar fate for the bank as Northern Rock. I was probably one of the first to break the news of a hedge fund assault on the bank, as a similar attack of March this year was still fresh in my mind, and therefore had a head start on the scrambling mainstream media that only started to connect the pieces together some 24 hours later.

·    The world’s largest insurer, AIG , seeks bailout cash, with speculation that the insurer seeks a loan of between $30 billion and $75 billions from the Fed.

·    Stock markets crash; Dow Jones ends down 504 points.

Tuesday September 16

·    Money markets freeze with the interbank rate (LIBOR) jumping to 6.75% due to the extreme risk of counterparty default.

·    No U.S. interest rate cut, despite calls and speculation that the Fed could cut by as much as 50 basis points.

·    AIG, the world’s biggest insurer, is bailed by the Fed for an initial $85 billion for an 80% stake in the insurer.

·    Stocks bounce on AIG bailout; Dow Jones rallies 142 points.

Wednesday September 17

·    HBOS is taken over by Lloyds TSB   for £12 billion amidst a stock price crash of 66% in three days. The shotgun wedding was to prevent another Northern Rock-style collapse and nationalization, precisely the possibility warned of on Monday. My analysis called for restrictions on short-selling to give distressed financial institutions room to breathe.

·    Gold as a safe haven soars by an historic one-day move of $85 following the news of the AIG nationalization and Lehman's continuing impact on counterparties, with no end in sight to the crisis.

·    Russians shut down their exchanges, fearful of a similar collapse to that which followed the LTCM crisis a decade earlier.

·    Stock market slide resumes as the market lines up the next financial dominos to fall; investors fearful of capital losses dump financials, and the Dow Jones ends down 450 points.

Thursday September 18

·    Lloyds TSB takeover of HBOS confirmed for £12 billion ($21 billion) or £2.32 per share in an all-stock deal.

·    Central banks around the world flood the markets with over $250 billion more cash as the interbank market’s freeze sees the money market rate surge to above 6.75%.

·    Morgan Stanley the big investment bank to be targeted, with expectations of a merger with Wachovia 

·    U.K. FSA announces a ban on short-selling of financial stocks. I suggested this as a necessary move some 24 hours earlier. This and the central bank extra liquidity is seen as extremely bullish on a short-term basis at least, as short covering will lead to a strong rally as well as speculators jumping on the band wagon.

·    U.S. stocks soar in late trading following speculation of further restrictions on short-selling and a huge bailout. The Dow Jones ends up 410 points.

Friday September 19th

·    U.S. Treasury announces the mother of all bailouts – Stocks soar across the board on the intention to allocate an initial $700 billion and probably countless trillions more to buy up much of the financial sectors’ bad illiquid debt. The U.K. FTSE rockets higher by 8%.

·    The SEC also expands short-selling restrictions to 799 financial stocks, which contributes to the short-covering rally that leaves the Dow Jones up 369 points.

·    Washington expands the "mother of all bailouts" by guaranteeing money market funds that invest in high-risk instruments like commercial paper

Is your bank safe?

The Fed's and other central banks’ action does not mean that all the banks have now been saved, as last week’s example of the world’s fourth-largest investment bank, Lehman, going bankrupt illustrates that literally many hundreds if not a thousand plus banks will go bust during the course of the worsening credit crisis, with all of the consequences for depositors. The following report by EWI presents a list of the 100 safest banks.

After all the money put in by the US government, the bailout plan is under scrutiny by FBI. The markets are still on a free fall and democracy as we know it had died. A new form of controlled democracy is on the rise.