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Global Financial and Economic Crises

Global Economic Crisis

Project: Global Financial and Economic Crisis 2007-Present
Open-Content project managed by KJF, mtuck

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US banker Douglas McDermott says of the US-backed Venezuelan dictator Marcos Perez Jimenez, “You have the freedom here to do what you want with your money, and to me, that is worth all the political freedom in the world.” [Hunt, 9/1/2009, pp. 9]

Entity Tags: Marcos Perez Jimenez, Douglas McDermott

Timeline Tags: US International Relations, US-Venezuela (1948-2005)

Category Tags: Commentaries on Economic Issues, Other Events in Economic History

The insurance corporation AIG makes a profit for the second quarter of the year totaling $4.28 billion, a rise of 34 percent. However, when the results are published in August, AIG will not announce any writedowns in the value of subprime housing assets, even though analysts have said the company could lose as much as $3.25 billion in a worst-case scenario, and AIG’s stock closes at $66.48. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The profit of the insurance corporation AIG falls by 27 percent in the third quarter of 2007, to $3.09 billion. The decline is due to housing-related costs, including a $352 million fall in credit default swaps, which AIG sold to protect debt investors from losses. Despite the troubles, AIG says it is “highly unlikely” that it will be required to make payments on the derivatives. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Northern Rock, a large British bank specializing in mortgages, issues an upbeat set of trading results, saying the outlook for its business is “very positive.” It reveals it has sold a record volume of mortgages in the first half of 2007, up 47 percent on the same period a year before. This gives it a 19 percent share of the new mortgage market, making it the market leader in Britain. It also announces a small increase in interim profits and pledges to increase dividends by 30 percent. However, it notes that “sharp increases” in borrowing rates in the money markets are likely to make life more difficult and that changes in “interest rate and credit risk environments” will influence the size of its annual profits. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

Robert Lewis, the chief risk officer at insurance corporation AIG, says that virtually all of the company’s subprime mortgage holdings are safe unless the US housing market crashes to “depression proportions.” [Bloomberg, 9/16/2008]

Entity Tags: Robert Lewis, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Mervyn King, governor of the Bank of England, is first alerted to the problems at the troubled British mortgage giant Northern Rock. [Daily Telegraph, 2/26/2008] In a phone call with officials at the Financial Services Authority (FSA) and the Treasury, he is told about the potential impact of the global credit crunch on Northern Rock’s business. [BBC, 8/5/2008]

Entity Tags: Her Majesty’s Treasury, Financial Services Authority, Mervyn King, Northern Rock plc, Bank of England

Category Tags: Northern Rock, Britain, Failing Companies

Matt Ridley, a former chairman of the troubled British mortgage giant Northern Rock, asks Governor of the Bank of England Mervyn King about possible support to help Northern Rock overcome a difficult period. In addition, Ridley starts to look for a buyer for the distressed bank. [Daily Telegraph, 2/26/2008]

Entity Tags: Bank of England, Mervyn King, Matthew Ridley

Category Tags: Northern Rock, Britain, Failing Companies

British Chancellor Alistair Darling is informed of “quite substantial problems” at the troubled British mortgage giant Northern Rock. The notification comes from Sir Callum McCarthy, chairman of the Financial Services Authority. [Daily Telegraph, 2/26/2008]

Entity Tags: Alistair Darling, Financial Services Authority, Callum McCarthy

Category Tags: Northern Rock, Britain, Failing Companies

The rate at which British banks lend to each other—known as the London Interbank Offered Rate (Libor)—rises to its highest level in almost nine years. The three-month loan rate hits 6.7975 percent, which is even higher than the Bank of England’s emergency lending rate of 6.75 percent. This suggests that banks are reluctant to lend money to each other because of the emerging credit crisis. [BBC, 8/5/2008]

Category Tags: Other, Britain

Governor of the Bank of England Mervyn King writes to the Treasury Select Committee about current problems on financial markets. He tells it that the Bank will be prepared to provide emergency loans to any commercial bank that runs into short-term difficulties, provided this is because of temporary market conditions. However, he appears to rule out following the lead of the European Central Bank and US Federal Reserve in pumping huge sums into the banking system to ease problems with liquidity. [BBC, 9/13/2007; BBC, 8/5/2008]

Entity Tags: Bank of England, Mervyn King

Category Tags: Bailouts and Other Government Aid, Northern Rock, Britain, Failing Companies

News of the financial difficulties of troubled British mortgage giant Northern Rock breaks in the British media. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] The BBC reports that Northern Rock’s situation is so bad that it has asked for and been granted emergency financial support from the Bank of England, in the latter’s role as lender of last resort. BBC business editor Robert Peston says Northern Rock is not in danger of going bust and there is no reason for its customers to panic. However, he adds that “the fact it has had to go cap in hand to the Bank is the most tangible sign that the crisis in financial markets is spilling over into businesses that touch most of our lives.” [BBC, 9/13/2007]

Entity Tags: Robert Peston, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

Following a report that troubled British mortgage giant Northern Rock has asked the Bank of England for emergency funding (see September 13, 2007), a run on the bank begins. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] Northern Rock issues a statement confirming the emergency funding and blaming “extreme conditions” on financial markets. The Bank, the British Treasury, and the Financial Services Authority say they believe Northern Rock is solvent and that the standby funding facility will enable it to “fund its operations during the current period of turbulence in financial markets.” However, this does not reassure savers. The share price plunges 32 percent and depositors try to withdraw their savings. Queues form outside a number of branches, the bank’s website collapses, and its phone lines are jammed. Under current British legislation, savings are only protected up to £33,000 ($66,000). [BBC, 8/5/2008]

Entity Tags: Her Majesty’s Treasury, Financial Services Authority, Northern Rock plc, Bank of England

Category Tags: Northern Rock, Britain, Failing Companies

The Bank of England tries to find a buyer for the troubled British mortgage lender Northern Rock. It holds talks with Lloyds TSB, another large British bank, about possibly buying Northern Rock, but according to reports, by September 17 these discussions founder. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Her Majesty’s Treasury, Alistair Darling, Lloyds TSB Group

Category Tags: Northern Rock, Britain, Failing Companies

British Chancellor Alistair Darling intervenes in the crisis surrounding the troubled British mortgage giant Northern Rock. A run on the bank began three days ago (see September 14, 2007) and shows no sign of abating, as there are still queues outside a number of branches. Amid a further slide in the company’s share price and fears the run will undermine confidence in the whole banking system, Darling issues a statement saying the Treasury will guarantee all deposits held by Northern Rock. He says savers will not lose a penny and that his action is motivated by the “importance I place on maintaining a stable banking system.” The move appears to work and the queues outside branches will subside the next day. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Alistair Darling, Her Majesty’s Treasury, Northern Rock plc

Category Tags: Bailouts and Other Government Aid, Northern Rock, Britain, Failing Companies

The Bank of England says it will inject £10 billion ($20 billion) into the money markets to try to bring down the cost of inter-bank lending. The move is prompted by the financial crisis, which has recently engulfed leading British bank Northern Rock. One week ago, Bank of England governor Mervyn King had said the Bank would not make such an injection (see September 12, 2007). [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] “This represents a U-turn on support for money markets,” says Ian Kernohan, an analyst at Royal London Asset Management. He adds, “As every parent knows, it’s all very well to talk tough, but if you don’t follow up your credibility is damaged.” Calyon analyst Daragh Maher says: “Only one week ago, governor King was arguing against providing liquidity to money markets as this would risk causing greater problems further down the road. This strategy has come in for considerable criticism… [and the change announced today] will of course open it to further criticism that its earlier strategy was flawed and that this shift may be too little too late.” [Agence France-Presse, 9/19/2007]

Entity Tags: Ian Kernohan, Mervyn King, Bank of England, Daragh Maher

Category Tags: Bailouts and Other Government Aid, Britain

Governor of the Bank of England Mervyn King defends his handling of the banking crisis that has recently hit mortgage giant Northern Rock to members of parliament. Facing accusations of “being asleep at the wheel,” King says it would have been “irresponsible” to have intervened earlier to save Northern Rock. He also says that he would have liked to have offered financial support to the company in secret but that British and European regulations made this impossible. [BBC, 8/5/2008]

Entity Tags: Bank of England, Northern Rock plc, Mervyn King

Category Tags: Northern Rock, Britain, Failing Companies

Troubled British mortgage giant Northern Rock announces that it is canceling the dividend that it was due to pay shareholders in October. The dividend would have cost the bank £59 million ($118 million). In addition, the bank says that it is in preliminary talks with people who want to buy all or part of its business. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

The insurance giant AIG makes the biggest quarterly loss in its 89-year history, $5.29 billion. This is primarily due to an $11.1 billion writedown of derivatives known as credit default swaps. The loss will be announced on February 28, 2008 (see February 28, 2008). [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

British Chancellor Alistair Darling announces that the government’s scheme to protect savers with money deposited in British banks and building societies is being expanded to guarantee 100 percent of the first £35,000 ($70,000) of savings. Previously, a slightly lesser percentage of the first £33,000 a saver had on deposit was guaranteed. Darling adds that this is the first stage of a wider reform of the compensation system. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Alistair Darling, Her Majesty’s Treasury

Category Tags: Bailouts and Other Government Aid, Britain

The chief executive of the British Financial Services Authority, Hector Sants, tells a hearing of the Treasury Select Committee that the regulator did not expect distressed bank Northern Rock to run into trouble. He tells MPs, “In terms of the probability of this organization getting into difficulty, we had it as a low probability.” He also admits that there are “lessons to be learned” from the failed regulation of Northern Rock. [BBC, 8/5/2008]

Entity Tags: Hector Sants, Financial Services Authority

Category Tags: Northern Rock, Britain, Failing Companies

The British Treasury agrees to protect 100 percent of new savings deposited with distressed mortgage giant Northern Rock after September 19. The Treasury had issued a similar guarantee three weeks ago (see September 17, 2007), but that had only covered deposits made up to September 19. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Her Majesty’s Treasury

Category Tags: Bailouts and Other Government Aid, Northern Rock, Britain, Failing Companies

Following the announcement of poor results for the third quarter the day before (see July-September 2007), shares in the insurance corporation AIG fall to $56. Despite the problems, in a conference call the company says it is “comfortable” with businesses and investments tied to the US housing market. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Six days after its shares hit a 52-week low (see November 8, 2007), the insurance corporation AIG announces that it will spend $8 billion on repurchasing stock. However, this program will be halted early next year (see February 28, 2008). [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Troubled British mortgage giant Northern Rock announces that its chief executive, Adam Applegarth, has resigned. It originally says he will step down from his post after completing a review of the bank’s operations no later than the end of January 2008. However, he will actually leave early, in the middle of December. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Adam Applegarth

Category Tags: Northern Rock, Britain, Failing Companies

Troubled British mortgage lender Northern Rock names a consortium headed by Sir Richard Branson’s Virgin Group as the preferred bidder to purchase it. The bank is up for sale because it has been hit hard by the credit crisis and requires new funding. The Virgin offer includes the immediate repayment of £11 billion ($22 billion) of the £25bn ($50 billion) Northern Rock has borrowed from the Bank of England to help it through the crisis. The remainder is to be paid over the next three years. RAB Capital, which is the second-largest shareholder in Northern Rock with a stake of about 6.7 percent, says it will oppose the move from Virgin. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Northern Rock plc, RAB Capital plc, Virgin Group Ltd

Category Tags: Northern Rock, Britain, Failing Companies

Martin Sullivan, chief executive officer of insurance giant AIG, says writedowns the company has been forced to make on assets linked to the US housing market are “manageable.” “The effectiveness of our risk management efforts will show through in our results,” he adds, sending shares up more than 4 percent to $58.15. Joseph Cassano, head of the company unit that sells derivatives known as credit default swaps, says the value of such contracts declined by $1.1 billion in the first two months of the fourth quarter. [Bloomberg, 9/16/2008] Cassano’s statement is inaccurate, and AIG will later reveal the loss is close to $5 billion (see February 11, 2008).

Entity Tags: Martin Sullivan, AIG (American International Group, Inc.), Joseph Cassano

Category Tags: Failing Companies, USA, AIG

The Olivant group unveils its rescue proposal for the troubled British lender Northern Rock, which is up for sale because of problems it has encountered during the credit crisis. Olivant is led by Luqman Arnold, formerly head of British Abbey bank. The company says it could immediately repay up to £15 billion ($30 billion) of government money that Northern Rock has borrowed to help it through the crisis. However, Olivant will later complain about the negotiating process and will not submit a final bid. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Luqman Arnold, Northern Rock plc, Olivant Ltd

Category Tags: Northern Rock, Britain, Failing Companies

Distressed British mortgage giant Northern Rock is dropped from the FTSE 100 index of leading London-listed blue chip shares. The move comes as part of the biggest shake-up of the index since the crash of 2001, when the “dotcom” investment bubble burst. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

SRM Global, a hedge fund that controls 9.9 percent of shares in ailing British bank Northern Rock, warns Chancellor Alistair Darling not to consider nationalizing the bank for less than a fair price. In a letter sent shortly before Christmas, SRM says it has been advised that otherwise there would be a breach of the Human Rights Act and it would have a strong case to pursue ministers through the courts. [BBC, 8/5/2008]

Entity Tags: SRM Global, Her Majesty’s Treasury, Alistair Darling, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

Temasek Holdings, an arm of Singapore’s government, buys a large stake in the troubled US financial services company Merrill Lynch. It pays $48 per share, 13 percent less than the market value, and spends a total of $4.4bn. It also has an option to purchase a further $600m worth of shares by the end of March 2008, but agrees not to sell for a year. The asset manager Davis Selected Holdings also takes a smaller stake in Merrill Lynch. The shares purchased are newly issued, meaning the existing stockholders’ influence is diluted. However, the company needs the extra cash in order to cope with its losses on the subprime mortgage market. [Reuters, 12/25/2007] However, Merrill Lynch will sell more new shares for a lower price a few months later. This activates a clause in the agreement with Temasek saying it is entitled to a discount, totaling around 50 percent on the price of the shares sold in December 2007. Temasek reinvests this discount in additional Merrill Lynch shares (see July 29, 2008). [Agency France-Presse, 9/15/2008]

Entity Tags: Merrill Lynch, Davis Selected Advisers, Temasek Holdings

Category Tags: Western Purchases by Asians, USA

Insurance giant AIG makes a loss of $7.81 billion for the first quarter of 2008. In the previous quarter, it had lost over $5 billion, which at that time was its worst ever result (see October-December 2007). The loss will be announced in May (see May 8, 2008). [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

British Chancellor Alistair Darling tells the Financial Times that he is planning to give the Financial Services Authority (FSA) more power to deal with failing banks to avoid another crisis like the one that has engulfed Northern Rock (see September 14, 2007). He proposes giving the FSA the power to seize and protect customers’ cash if a bank gets into difficulties. [BBC, 8/5/2008]

Entity Tags: Alistair Darling, Her Majesty’s Treasury, Financial Services Authority

Category Tags: Other, Britain

Troubled British mortgage giant Northern Rock agrees to sell £2.2 billion (about $4.4 billion) of its mortgage assets to US investment bank JP Morgan. The assets represent about 2 percent of its mortgage portfolio and the price represents a 2.25 percent premium on the assets’ value. Northern Rock says it will use the funds to pay back some of the £25 billion ($50 billion) in emergency loans it has been given by the Bank of England to help it through the financial crisis. [BBC, 8/5/2008]

Entity Tags: JP Morgan Chase, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

The British Treasury signs Ron Sandler, an experienced banker, to head ailing mortgage giant Northern Rock in the event of its nationalization, according to media reports. [Daily Telegraph, 2/26/2008] Commercial companies are currently finalizing bids in an attempt to keep the bank private, but it will be nationalized the next month and Sandler will be appointed to run it. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Her Majesty’s Treasury, Ron Sandler

Category Tags: Northern Rock, Britain, Failing Companies

At a meeting with management, the largest two shareholders in the troubled British mortgage lender Northern Rock—hedge funds RAB Capital and SRM Global—put forward a proposal that will stop the bank’s management negotiating its sale without consent from its shareholders. The bank needs to be sold to a new owner because of problems it has encountered during the credit crisis, and both major shareholders are worried they will not get much for their holdings (see November 26, 2007 and Shortly Before December 25, 2007). However, the bank’s management argues that the proposal should be rejected, as it would make a sale harder, and the other shareholders follow their lead, opening the way for the bank to be sold. [BBC, 8/5/2008]

Entity Tags: SRM Global, RAB Capital plc, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

British Prime Minister Gordon Brown confirms that talks are taking place to secure a private sale of ailing mortgage bank Northern Rock. However, he also says he has not ruled out the possibility of nationalizing the bank. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Gordon Brown

Category Tags: Northern Rock, Britain, Failing Companies

British Chancellor Alistair Darling announces a plan to sell government-guaranteed bonds worth about £25 billion ($50 billion) to help the sale of stricken mortgage giant Northern Rock to a private investor. The proceeds from the sale of the bonds would be used to pay off emergency loans the bank has taken out from the Bank of England. The British treasury thinks the bonds would speed up a private sale of the troubled lender. Although Northern Rock shares rise by about 42 percent on the news, the bank will be nationalized the next month and the bonds will not be issued. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Alistair Darling, Her Majesty’s Treasury, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

The House of Commons’ Treasury Select Committee says that Britain’s Financial Services Authority (FSA) was guilty of a “systematic failure of duty” over the crisis at stricken mortgage giant Northern Rock. MPs say the financial watchdog should have spotted the bank’s “reckless” business plan. In addition, they call for the Bank of England to appoint a head of financial stability. The FSA says it has already admitted failings in relation to Northern Rock and insists it is “addressing” them. [BBC, 8/5/2008]

Entity Tags: Financial Services Authority, Treasury Select Committee, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

Sir Richard Branson’s Virgin Group submits a bid to take over the ailing British mortgage giant Northern Rock. Another bid is submitted by the bank’s own board of directors. These are the only two bids submitted by the deadline, as all the other potential buyers have already dropped out. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] Under the terms of its rescue plan, Virgin would inject £1.25 billion (about $2.5 billion) into the bank and take a stake of 55 percent in it. The bank would be rebranded as Virgin Money. Northern Rock’s managers say their proposal—which gained shareholder backing—includes raising at least £500 million (about $1 billion), reducing the assets on the bank’s balance sheet, and reorganizing its operations. The managers criticize Virgin’s bid over the job cuts it entails, although Virgin says they are needed in order to rapidly repay the government money propping the bank up. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Virgin Group Ltd

Category Tags: Northern Rock, Britain, Failing Companies

The British Office for National Statistics decides that £100 billion (about $200 billion) of debt owed by ailing mortgage giant Northern Rock will appear on government accounts, because of the government’s bailout of the bank. The move means the government may be at risk of breaking its rule to keep net debt below 40 percent of national income. The office stresses that the statistical change to public status should not be confused with nationalization, although the bank will actually be nationalized within days. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008]

Entity Tags: Office for National Statistics, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

The insurance corporation AIG submits a regulatory filing showing that its credit default swaps have declined four times more than previously announced (see December 5, 2007): by $4.88 billion in October and November of 2007. It also shows that AIG’s auditors have found a “material weakness” in the firm’s accounting for the contracts, and AIG does not know what they were worth at the end of 2007. The news means AIG shares suffer the worst one-day decline in two decades, falling 12 percent to $44.74. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The British Treasury says that it does not like either of two bids recently submitted for stricken lender Northern Rock (see February 4, 2008). The bank is being propped up by government loans and could be sold to a private buyer so that the government can get its money back. However, the Treasury is not satisfied with the bids and sees nationalization as a better outcome for the taxpayer. One of the consortia, led by Sir Richard Branson’s Virgin Group, is told that it is the front-runner to take control of the bank. The Treasury urges both Virgin and its rival bidder to offer more. [BBC, 8/5/2008]

Entity Tags: Virgin Group Ltd, Her Majesty’s Treasury, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

British Chancellor Alistair Darling rejects two bids to keep troubled lender Northern Rock in private hands and says the bank will be nationalized. Darling says that both bids would require a “very significant implicit subsidy” from the taxpayer, so the bank is to be placed into a “temporary period of public ownership.” Ron Sandler, a banking executive sounded out by the government in advance (see January 12, 2008), is placed in charge of the now state-owned bank. [Daily Telegraph, 2/26/2008; BBC, 8/5/2008] Shares in Northern Rock are suspended from trading the next day. Darling says the nationalized bank will operate “at arm’s length” from the government. Prime Minister Gordon Brown says the decision to nationalize is “the right move at the right time” and is one which “protects savers” and is in “the best interests of taxpayers.” Conservative Party shadow chancellor George Osborne tells MPs that Darling “is a dead man walking” and Conservative leader David Cameron demands Darling be fired over his handling of the nationalization. Sandler says it will take years for the bank to pay back its loans from the taxpayer, but declines to comment on potential job losses. [BBC, 8/5/2008]

Entity Tags: George Osborne, David Cameron, Ron Sandler, Her Majesty’s Treasury, Gordon Brown, Alistair Darling, Northern Rock plc

Category Tags: Failing Companies, Northern Rock, Britain

The British financial website “This is Money” warns about the stability of the Kaupthing Edge banking product. Kaupthing Edge is a brand used to attract depositors by the Icelandic Kaupthing Bank. In response to a reader’s question about the brand’s soundness, correspondent Alan O’Sullivan points out that the rating agency Moody’s has recently described Icelandic banks as “fragile” and that its borrowing costs have increased 400% in the last year. For this reason, analysts think it is far more likely to default than any other European bank. As a result, O’Sullivan recommends that savers do not maintain balances on accounts with the bank in excess of the maximum limit on deposit insurance. [This is Money, 2/22/2008] Kaupthing Bank will collapse seven and a half months later. [Reuters, 10/9/2008]

Entity Tags: Kaupthing Edge, Alan O’Sullivan, This is Money, Kaupthing Bank

Category Tags: Commentaries on Economic Issues, Iceland

Following the announcement of a major loss for the fourth quarter of 2007 (see October-December 2007), the insurance corporation AIG halts a program to buy back shares it announced the previous year (see November 14, 2007). In addition, the loss prompts AIG to say for the first time that realized losses in derivatives known as credit default swaps could affect operations during a quarter. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Joseph Cassano, head of the financial products unit at troubled insurance giant AIG, will leave the company, Chief Executive Officer Martin Sullivan says in a statement. Cassano’s unit was responsible for a recently announced $11.1 billion writedown due to credit default swaps (see October-December 2007), and he is stepping down with the company’s consent. Cassano had co-founded the unit in 1987 and built it into a business providing guarantees on more than $500 billion of assets at the end of 2007, including $61.4 billion in securities tied to subprime mortgages. At the same time, AIG says it has $14.5 billion to $19.5 billion in “excess capital.” [Bloomberg, 9/16/2008]

Entity Tags: Martin Sullivan, Joseph Cassano, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

To assist in the merger of Bear Stearns Companies, Inc. and JP Morgan Chase & Co., the US Federal Reserve authorizes the New York Fed to form Maiden Lane LLC, a Delaware limited liability company. Once established, Maiden Lane is extended credit by the Fed to acquire certain Bear Stearns assets. Maiden Lane funds the purchase of the Bear Stearns asset portfolio of mortgage related securities, residential and commercial mortgage loans, and associated hedges through senior and subordinate loans of approximately $29 billion from the New York Fed, and a much smaller amount, approximately $1.15 billion, from JP Morgan Chase. As of March 14, 2008, the asset portfolio has an estimated fair value of approximately $30 billion. [Federal Reserve Bank of New York, 3/2008]

Entity Tags: US Federal Reserve, Bear Stearns, Federal Reserve Bank of New York, Maiden Lane, JP Morgan Chase

Category Tags: Bailouts and Other Government Aid, USA

The United States Federal Reserve has lent Wall Street’s largest investment bank billions of dollars, as the credit crisis threatens to spiral into a full-blown banking crisis. In developments currently rocking the world’s financial markets, the Fed and rival Wall Street bank, JP Morgan Chase, are funneling emergency loans to Bear Stearns, whose exposure to battered credit markets has led to a crisis of confidence in its ability to continue trading. In accelerating numbers, clients and trading partners are pulling business from Bear Stearns, after rumors of its solvency began circulating. During a last-minute conference call with investors, management at the investment bank warned that its emergency lending facility with the Federal Reserve has failed to staunch the bleeding. “We have been subject to a significant amount of rumor and innuendo in the past week,” says Bear Stearns chief executive Alan Schwartz. “We attempted to provide some facts but, in the market environment, the rumors intensified and a lot of people wanted to act to protect themselves first from the possibility that the rumors were true, and wait till later for the facts.” Bear Stearns appears most fragile of Wall Street’s major investment banks, since the July 2007 collapse of two internal hedge funds, providing initial clues about the scale of the unfolding credit crisis. Shares across the banking sector plunge as analysts fear that the Fed’s willingness to intervene suggests that Bear’s future is pivotal to the banking system, and that its failure precipitates losses that may cascade through its trading partners. Bear Stearns stocks are in freefall, closing down 47 percent. Pierre Ellis at New York’s Decision Economics said, “Clearly the Fed is addressing what they feel is a systemic risk very aggressively.” [Belfast Telegraph, 3/15/2008]

Entity Tags: US Federal Reserve, Alan Schwartz, Bear Stearns, JP Morgan Chase, Pierre Ellis

Category Tags: Bailouts and Other Government Aid, USA

Recently nationalized British bank Northern Rock says it will cut about 2,000 jobs and reduce its residential mortgage lending by half. The job cuts, which account for about a third of its staff, will be made by 2011 under plans to turn around the ailing bank’s fortunes. The staff unions strongly protest the move. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

The British Financial Services Authority (FSA) admits failures in its supervision of recently nationalized mortgage giant Northern Rock. The FSA admits it is guilty of “a lack of adequate oversight and review” of the troubled bank, adding that too few regulators were assigned to monitor it. However, the FSA argues it should continue to have responsibility for regulating the banking system and says it will overhaul its procedures as a result of the weaknesses identified. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Financial Services Authority

Category Tags: Northern Rock, Britain, Failing Companies

The recently nationalized British bank Northern Rock publishes its results for 2007, showing a pre-tax loss of £167.6 million (about $335 million). The bank also says it will be “significantly loss-making” in 2008, but pledges to repay its £25 billion (about $50 billion) loan from the Bank of England by 2010. In addition, it reveals that former chief executive Adam Applegarth (see November 16, 2007) will get severance payments totaling £785,000 (about $1,570,000). [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Adam Applegarth

Category Tags: Northern Rock, Britain, Failing Companies

AIG makes a quarterly loss of $5.36 billion. This is its third such loss in a row, but is lower than the previous quarter’s loss (see January-March 2008). The loss will be announced on August 6. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The European Union (EU) says it will launch a full investigation into the British government’s nationalization and bailout of troubled mortgage lender Northern Rock. Under EU rules, public support can be allowed to stop firms from going bankrupt, but long-term government aid that is seen to undermine competition is not permitted. [BBC, 8/5/2008]

Entity Tags: European Union, Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

After announcing another record loss for the first quarter of 2008 (see January-March 2008), insurance giant AIG says it needs to raise $12.5 billion to protect against further possible writedowns due to problematic investments related to the US housing market. In addition, Standard and Poor’s and Fitch Ratings cut AIG’s credit rating after it announces the loss and the fact that it made more than $15 billion in first-quarter writedowns tied to credit default swaps and mortgage-backed securities. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Shareholders in the recently nationalized British bank Northern Rock launch a court challenge over compensation they are due to receive from the government. The UK Shareholders Association submits an application for a legal review into the terms of the bank’s nationalization. According to the association, about 7,000 shareholders back the action. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, UK Shareholders Association

Category Tags: Northern Rock, Britain, Failing Companies

State-owned British lender Northern Rock says that mortgages in arrears for at least three months have increased significantly over the last four months. On April 30 they accounted for 0.95 percent of its total lending, whereas on December 31 of the previous year they were only 0.57 percent of lending. The bank also says the British mortgage market remains “uncertain.” [BBC, 8/5/2008]

Entity Tags: Northern Rock plc

Category Tags: Northern Rock, Britain, Failing Companies

Maurice Greenberg, a former long-time chief executive officer of insurance giant AIG, says in a regulatory filing that the insurer is in “crisis.” This is because its shareholders have lost about $80 billion in the past year. [Bloomberg, 9/16/2008]

Entity Tags: Maurice Greenberg, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

At the annual shareholder meeting of the insurance giant AIG, Chief Executive Officer Martin Sullivan says he is “not discouraged,” despite the fact that the company has posted successive losses (see October-December 2007 and January-March 2008). Company chairman Robert Willumstad says the directors support the management, adding, “We think Martin’s the right guy.” Shares close at $39.44, a 46 percent drop over the past year. [Bloomberg, 9/16/2008]

Entity Tags: Robert Willumstad, Martin Sullivan, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Martin Sullivan, chief executive officer of insurance giant AIG, says the company needs to raise a total of $20 billion to cover potential losses related to credit default swaps. Sullivan made a similar announcement two weeks earlier, but the potential problem was substantially lower then (see May 8, 2008). Shares fall to their lowest level since 1998, closing at $38.12. [Bloomberg, 9/16/2008]

Entity Tags: Martin Sullivan, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

June 6, 2008: AIG Announces Regulatory Probe

Insurance corporation AIG says the US Securities and Exchange Commission and the Justice Department are probing the way it valued derivatives known as credit default swaps. AIG recently announced that it was having problems valuing the derivatives (see February 11, 2008). The company says it is cooperating with regulators, but shares in it fall 6.8 percent to $33.93. [Bloomberg, 9/16/2008]

Entity Tags: US Department of Justice, US Securities and Exchange Commission, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

June 15, 2008: AIG Boss Replaced

Martin Sullivan, chief executive officer of troubled insurance giant AIG, is fired and replaced by Robert Willumstad, formerly chairman of the company’s board of directors. Board member Stephen Bollenbach is also named lead independent director. The next day, Willumstad says “there will be no sacred cows” as he launches a companywide review of AIG’s operations. [Bloomberg, 9/16/2008] However, he will only remain in the position for three months (see September 18, 2008).

Entity Tags: AIG (American International Group, Inc.), Martin Sullivan, Robert Willumstad, Stephen Bollenbach

Category Tags: Failing Companies, USA, AIG

The Royal Bank of Scotland (RBS) predicts “a full-fledged crash in global stock and credit markets over the next three months as inflation paralyzes the major central banks.” RBS credit strategist Bob Janjuah says, “A very nasty period is soon to be upon us—be prepared.” Bolstering Janjuah’s dire predictions, the RBS bank research team warns that the Wall Street equities index, Standard & Poor’s (S&P) 500 index is likely to fall by more than 300 points to around 1050 by September as “all the chickens come home to roost” from what the Daily Telegraph describes as “the excesses of the global boom, with contagion spreading across Europe and emerging markets. Such a slide on world [markets] would amount to one of the worst bear markets over the last century.” Janjuah also warned of the credit crisis in 2007. RBS predicts that Wall Street would rally a little in early July before quickly fizzling out. “Globalization was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point,” Janjuah says. RBS debt market chief Kit Jukes says Europe will not be immune from the problems: “Economic weakness is spreading and the latest data on consumer demand and confidence are dire.” [Daily Telegraph, 6/19/2008]

Entity Tags: Bob Janjuah, Royal Bank of Scotland, Kit Jukes

Category Tags: Britain, Commentaries on Economic Issues

The leading British bank Barclays announces that it will issue new shares worth £4.5bn (about $9bn) to bolster its finances, which have been hit by losses on US mortgage-backed securities. Much of the new money will come from Asian investors, led by the state-run Qatar Investment Authority (QIA). The Qataris will invest £1.7bn (about $3.4bn), taking a 7.7 percent stake. [BBC, 6/25/2008] The QIA’s holding company is chaired by Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, Qatar’s prime minister, who is to invest another £533m (about $1bn) privately through a company named Challenger. [Daily Telegraph, 6/27/2008] The Japanese bank Sumitomo Mitsui will invest £500m (about $1bn) and existing shareholders are also to buy more shares. The China Development Bank will buy another £136m (about $270m) of shares, and the Singaporean investment fund Temasek will buy another £200m (about $390m) of them. [BBC, 6/25/2008]

Entity Tags: Barclays Bank, Qatar Investment Authority, China Development Bank, Temasek Holdings, Sumitomo Mitsui, Hamad Bin Jassim Bin Jabr Al-Thani, Challenger

Category Tags: Western Purchases by Asians, Britain

Troubled insurance giant AIG makes a record quarterly loss of $24.47 billion. The loss is caused by writedowns on assets linked to subprime mortgages and capital losses. This is the worst loss it has ever made, coming hard on the heels of losses in the previous three quarters (see October-December 2007, January-March 2008, and April-June 2008). Over the four quarters, the combined loss totals $42.5 billion. The company will be in such bad shape that the government has to take it over by the end of the quarter (see September 16, 2008). The loss will be announced on November 10 (see November 10, 2008). [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Recently nationalized British bank Northern Rock announces that its chief executive, Andy Kuipers, will leave the bank at the end of August 2008. Kuipers is the final member of its original board to leave the bank after the crisis that led to its nationalization. Northern Rock appoints the vice chairman of Barclays Bank, Gary Hoffman, as its new chief executive. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc, Gary Hoffman, Andy Kuipers

Category Tags: Northern Rock, Britain, Failing Companies

Temasek, an arm of the government of Singapore, increases its stake in troubled US financial services company Merrill Lynch. It had previously paid $5bn for new shares in the company (see December 25, 2007), but is now entitled to a discount on this totaling $2.5bn. It spends the discount returned to it by Merrill Lynch and an additional $900m on more shares in the company. Temasek pays around $24 per share, half of what it paid in December 2007. [Agency France-Presse, 9/15/2008; Bloomberg, 9/15/2008]

Entity Tags: Merrill Lynch, Temasek Holdings

Category Tags: Western Purchases by Asians, USA

State-owned British bank Northern Rock announces bigger-than-expected losses of £585.4 million (about $1.170 billion) for the first six months of the year. Much of the loss comes from the charges it takes to cover losses from struggling mortgage borrowers. However, it also managed to repay £9.4 billion (about $18.8 billion) of the emergency loan it had accepted from the Bank of England, reducing the amount owed to £17.5 billion (about $35 billion). The British government announces it will inject £3 billion (about $6 billion) to help the bank. [BBC, 8/5/2008]

Entity Tags: Northern Rock plc

Category Tags: Bailouts and Other Government Aid, Northern Rock, Britain, Failing Companies

The stock price of troubled insurer AIG falls 18 percent, closing at $23.84, following the announcement of a third straight quarterly loss the previous day (see April-June 2008). This is the largest fall since the company’s 1969 initial public offering, although this record will be broken next month (see September 9, 2008). In addition, Chief Executive Officer Robert Willumstad refuses to rule out raising more capital to supplement the $112.2 billion AIG held as of June 30. [Bloomberg, 9/16/2008]

Entity Tags: Robert Willumstad, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Shares in the insurance giant AIG fall 19 percent to $18.37. This is the company’s worst day of trading ever, beating the previous record set only a few weeks ago (see August 7, 2008). [Bloomberg, 9/16/2008; Bloomberg, 3/5/2009] The fall is caused by the news that the Korea Development Bank has backed away from a deal to purchase the ailing bank Lehman Brothers (see September 9, 2008), as this causes investors to become nervous about AIG’s ability to raise capital. [Bloomberg, 9/16/2008]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

Talks between Lehman Brothers and the Korea Development Bank end. The Koreans had been thinking about investing in the bank, enabling it to raise needed capital. However, they decide not to go through with the investment. [Bloomberg, 9/16/2008] Lehman Brothers files for liquidation five days later (see September 14, 2008).

Entity Tags: Lehman Brothers, Korea Development Bank

Category Tags: Failing Companies, Western Purchases by Asians, USA

The XL Leisure Group, the third largest package holiday company in Britain, collapses and goes into administration. The company attributes the failure to volatile jet fuel prices, which had increased by over US$80 million year-on-year, the economic downturn, and its inability to acquire new funding. The group had 21 aircraft and transported 2.3 million passengers in 2007. The failure leaves 1,700 staff looking for new jobs and around ninety thousand British tourists stranded abroad, only some of whom are insured for return flights. Two of the group’s subsidiaries, in France and Germany, are saved from collapse by a late sale to Straumur Investment Bank, which intends to keep them running. [BBC, 9/12/2008]

Entity Tags: Straumur Investment Bank, XL Leisure Group

Category Tags: Failing Companies, Britain

Bank of America concludes an agreement to buy the troubled financial services company Merrill Lynch. Bank of America will pay Merrill Lynch’s shareholders in shares, offering stock worth $29 per one share in Merrill Lynch, which is 70 percent more than Merrill Lynch’s current market price. The sale follows a 68 percent decline in Merrill Lynch’s share price during the year amid writedowns and credit losses of $52bn. [Agency France-Presse, 9/15/2008; Bloomberg, 9/15/2008]

Entity Tags: Bank of America, Merrill Lynch

Category Tags: Other, USA

Lehman Brothers, the fourth largest investment bank in the US, files for liquidation after huge losses in the mortgage market, a crippling loss of investor confidence, and its inability to find a buyer. Lehman’s collapse began as the mortgage market crisis unfolded in summer 2007, when its stock began a steady fall from a peak of $82 a share. Fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal. As its crisis deepened in 2007 and early 2008, the investment bank defied expectations more than once, as it had many times before, such as in 1998, when it teetered after a worldwide currency crisis, only to strongly rebound. Lehman managed to avoid the fate of fellow investment bank Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy in March 2008 (see March 15, 2008). By summer, however, Lehman’s roller-coaster ride began to have more downs than ups. A series of write-offs accompanied new offerings to seek capital to bolster its finances. [New York Times, 9/16/2008]

Entity Tags: Bear Stearns, Lehman Brothers

Category Tags: Failing Companies, USA

The share price in the insurance giant AIG collapses to $4.76 amid fears over the company’s credit rating, which is subsequently cut by Standard & Poor’s and Moody’s. This means that the company needs additional capital, and it is given permission by New York State to access $20 billion in its subsidiaries. In addition, Goldman Sachs and JPMorgan Chase work to prepare a potential $75 billion lifeline. [Bloomberg, 9/16/2008; Bloomberg, 3/5/2009] However, this is not enough, and the US government will be forced to seize control of AIG the next day (see September 16, 2008).

Entity Tags: AIG (American International Group, Inc.), Goldman Sachs, JP Morgan Chase

Category Tags: Failing Companies, USA, AIG

US taxpayers express their lack of support of the Troubled Asset Relief Program (TARP—see October 3, 2008) bailout bill to members of Congress, including Speaker of the House Nancy Pelosi (D-CA), Senate majority Leader Harry Reid (D-NV), and the Senate and House budget committee chairs—Chris Dodd (D-CT) and Barney Frank (D-NY), respectively—with phone calls, emails, and faxes, initially rallying the power and the numbers to defeat the bill that some call “a historic swindle.” [The Nation, 9/19/2008] According to the Congressional Quarterly, “[Senator Lindsey] Graham (R-FL) said that the deluge of public e-mails and telephone calls was comparable to several of the most contentious issues of the last decade.” Graham adds: “It’s somewhere between impeachment and immigration.… This is intense, but I’ve seen worse.” [Congressional Quarterly, 9/28/2008]

Entity Tags: Harry Reid, Lindsey Graham, Nancy Pelosi, Troubled Asset Relief Program, Barney Frank, Christopher Dodd

Category Tags: Bailouts and Other Government Aid, USA

AIG logo.AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]

Entity Tags: Henry Paulson, AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad, US Federal Reserve

Category Tags: Bailouts and Other Government Aid, Failing Companies, USA, AIG

The insurance corporation AIG, which was recently bailed out by the US government (see September 16, 2008), makes $18.7 billion in payments to other world banks. The payments are related to credit default swaps, and are made in the three weeks after the bailout to institutions such as Goldman Sachs and Société Générale. [Bloomberg, 3/5/2009]

Entity Tags: Société Générale, Goldman Sachs, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

September 18, 2008: AIG Boss Replaced Again

Edward Liddy is approved by the board of insurance giant AIG as its chief executive officer. Liddy replaces former boss Robert Willumstad, who had only been in the job for a few months (see June 15, 2008). [Bloomberg, 3/5/2009; Reuters, 4/17/2009] Liddy tells employees he intends to repay a two-year Federal Reserve loan that recently bailed the company out (see September 16, 2008) sooner than scheduled. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad

Category Tags: Failing Companies, USA, AIG

Mohammed bin Khalifa al-Thani, a member of the royal family of Qatar, pays $280.4 million for a 5% stake in the Icelandic Kaupthing Bank (see February 22, 2008). The bank’s shares have been falling on Iceland’s stock exchange, down 57% in the last twelve months, and the bank has been buying them back itself in an attempt to boost its stock price. The purchase makes al-Thani the third largest shareholder in the bank. [Forbes, 9/22/2008] Seventeen days later, the bank will be on the verge of collapse and will be seized by the government of Iceland. [Reuters, 10/9/2008]

Entity Tags: Kaupthing Bank, Mohammed bin Khalifa al-Thani

Category Tags: Western Purchases by Asians, Iceland

The government of Iceland takes a 75 percent stake in the country’s third-largest bank, Glitnir, after the bank runs into short-term funding problems. [BBC, 2/2/2009]

Entity Tags: Glitnir

Category Tags: Bailouts and Other Government Aid, Iceland

The recently bailed-out insurance company AIG makes the largest quarterly loss ever in the history of business. The $61.7 billion loss follows four other extremely high losses and is more than double what the insurer lost in the previous quarter (see October-December 2007, January-March 2008, April-June 2008, and July-September 2008). The result will be announced in March 2009 (see March 2, 2009). [Bloomberg, 3/5/2009; Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

China’s economic growth slumps to 6.8 percent in the fourth quarter of 2008, down from 9 percent in the third quarter. The decline is due to the global financial crisis, but is close to market expectations of 7 percent. The National Bureau of Statistics comments, “The international financial crisis is deepening and spreading with continuing negative impacts on the domestic economy.” This means that China’s annual economic growth is only 9 percent, the lowest level for seven years. In the previous five years annual growth had been over 10 percent, making China the third-largest economy in the world. Following the release of the figures in early 2009, many economists, especially those at Western banks, believe China will expand by no more than 5-6 percent in 2009, which would be the weakest performance since 1990. “We expect growth of 6.0 percent for 2009 as a whole, with risks still skewed to the downside,” Royal Bank of Canada says in a commentary. Others agree the economy will remain weak in the first half but think Beijing will hit its target of 8 percent growth for all of 2009 as November’s 4 trillion yuan ($585 billion) stimulus package and much easier monetary policy kick in. “The government has realized the fact that the economy is declining and regards the 8 percent target as a political task. Therefore, I think we can achieve the goal,” says Jin Yanshi, chief economist at Sinolink Securities in Shanghai. [Reuters, 1/22/2009]

Entity Tags: Jin Yanshi, Royal Bank of Canada

Category Tags: Other

House of Representatives bill 1424, known as the Troubled Asset Relief Program (TARP), passes by a slim margin in both Congressional houses, and is immediately signed into law by President Bush. [White House, 10/3/2008]

Entity Tags: George W. Bush, Troubled Asset Relief Program

Category Tags: Bailouts and Other Government Aid, USA

Edward Liddy, the recently installed chief executive officer of troubled insurer AIG, says the company soon plans to repay the bailout loan it received from the US Federal Reserve (see September 16, 2008). To do this, it intends to sell life insurance operations in the United States, Europe, Latin America, South Asia, and Japan. Liddy says AIG has been contacted by “numerous” potential bidders, adding, “The values that we will receive from the assets we intend to dispose will be more than enough to repay the Fed facility.” [Bloomberg, 3/5/2009; Reuters, 4/17/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The government of Iceland offers an unlimited guarantee for all savers in local banks. In addition, Iceland’s parliament passes emergency legislation enabling the government to intervene extensively in Iceland’s financial system. [BBC, 2/2/2009]

Category Tags: Bailouts and Other Government Aid, Iceland

Trading in Iceland’s six biggest financial shares is suspended on the OMX Nordic Exchange Iceland. [BBC, 2/2/2009]

Entity Tags: OMX Nordic Exchange Iceland

Category Tags: Other, Iceland

The government of Iceland takes control of the country’s second and third largest banks, Landsbanki and Glitnir; it already had a majority in Glitnir (see September 29, 2008). The financial crisis hit Icelandic banks so severely because they owe relatively more money than banks in other countries. When the crisis starts in earnest, they owe around six times the country’s total gross domestic product. Therefore, when the world’s credit markets dry up, they are unable to refinance their loans. [BBC, 2/2/2009]

Entity Tags: Landsbanki, Glitnir

Category Tags: Bailouts and Other Government Aid, Iceland

October 8, 2008: Size of AIG Bailout Increased

The troubled insurer AIG, which was recently bailed out by the US government (see September 16, 2008), is given more money. In the additional bailout, the government enables AIG to borrow an extra $37.8 billion, on top of the originally provided $85 billion. This addition is provided after customers pull out of AIG’s securities-lending program. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Bailouts and Other Government Aid, Failing Companies, USA, AIG

Following the seizure of two Icelandic banks by that country’s government (see October 7, 2008), the British government invokes anti-terrorism legislation to seize Icelandic assets in Britain. Iceland’s Prime Minister Geir Haarde criticizes Britain, saying he is upset and shocked that it has used “hostile” anti-terrorism legislation to freeze Icelandic banks’ assets. However, British Prime Minister Gordon Brown condemns Iceland’s handling of the collapse of its banks and its failure to guarantee British savers’ deposits. He says Iceland’s policies are “effectively illegal” and “completely unacceptable.” Iceland will later threaten legal action against Britain. [BBC, 2/2/2009]

Entity Tags: Gordon Brown, Geir Haarde

Category Tags: Other, Britain, Iceland

Iceland’s government takes control of the country’s biggest bank, Kaupthing. This follows a decision by the British government to invoke anti-terrorism legislation to freeze Icelandic assets in Britain (see October 8, 2008). [BBC, 2/2/2009]

Entity Tags: Kaupthing Bank

Category Tags: Bailouts and Other Government Aid, Iceland

October 10, 2008: AIG Criticized over Spending

The insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008), is criticized over post-bailout spending, on news it spent $200,000 on hotel rooms and $23,000 on spa services after it got the government loan. In addition, AIG says that, as of two days previously, it had borrowed $70.3 billion from the government. [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

New York Attorney General Andrew Cuomo says he is investigating what he calls “unwarranted and outrageous” spending by insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008). Cuomo says he is seeking a full accounting of bonuses, stock options, and other perks. He wants AIG to either recover or rescind the payments. [Reuters, 4/17/2009]

Entity Tags: Andrew Cuomo, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

October 20, 2008: New Banks Formed in Iceland

Iceland’s financial authorities formally announce the establishment of new Glitnir, Landsbanki, and Kaupthing banks. The old banks were taken over by the government two weeks previously as their condition had deteriorated due to the global credit crisis (see October 7, 2008 and October 8, 2008). [BBC, 2/2/2009]

Entity Tags: Glitnir, Landsbanki, Kaupthing Bank

Category Tags: Other, Iceland

Edward Liddy, chief executive officer of the recently bailed-out insurance corporation AIG (see September 16, 2008), says that the $122.8 billion already offered by the government “may not be enough” to stabilize the company. The size of the bailout and favorability of the terms will be increased the next month (see November 10, 2008). [Bloomberg, 3/5/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The Central Bank of Iceland raises its key interest rate to 18 percent from 12 percent due to problems in the country’s banking system. [BBC, 2/2/2009]

Entity Tags: Central Bank of Iceland

Category Tags: Other, Iceland

The US’s two most popular conservative radio hosts, Rush Limbaugh and Sean Hannity, are repeatedly labeling the current economic collapse the “Obama recession,” even though the recession has started already, and President-elect Barack Obama was only elected on November 4 and will not assume the presidency until January 20, 2009.
Blaming Obama for Wall Street Plunge - According to reports by progressive media watchdog site Media Matters, Hannity’s guest Dick Morris, a conservative political operative, tells a Fox News audience on November 6 that the stock market plunge is directly attributable to Obama’s election and his intention to “raise the capital gains tax.” Hannity calls the stock market plunge “the Obama tanking.” On the same day, Limbaugh says on his show: “We have the largest market plunge after an election in history. Thank you, man-child Barack Obama.” [Media Matters, 11/7/2008] Hannity says on November 11 that Obama’s election is directly responsible for plunging stock market performances, telling his listeners: “Wall Street keeps sinking. Could it be the Obama recession: The fear that taxes are gonna go up, forcing people to pull out of the market?” On November 12, Limbaugh echoes Hannity’s characterization, telling his listeners that, as reported by MSNBC’s Chris Matthews, “the recession isn’t President Bush’s fault. It’s the fault, catch this, of the president who hasn’t yet taken office. It’s an ‘Obama recession’; that’s what he’s calling it.” Matthews, clearly impatient with Limbaugh’s characterization, calls the host’s statement an example of “the bitter sore loser’s rhetoric we are hearing from the right these days.” [Media Matters, 11/12/2008]
Experts Credit Obama with Wall Street Stabilization - Experts refute Limbaugh’s and Hannity’s attribution of the nation’s economic calamity to Obama, with the Wall Street Journal giving Obama credit for a post-election upturn in the stock market and blaming “lame economic data” and the continuing “drumbeat of bailouts, potential bailouts, and worries about other bailouts” for the stock market’s poor performance. [Wall Street Journal, 11/12/2008] Fox News business commentator Eric Bolling credits Obama’s election with stabilizing the stock market until a dismal national employment report caused the market to drop again. And Fox Business Channel’s vice president, Alexis Glick, tells her audience on November 7: “I so did not believe that the market reaction over the past two days was about Obama. Wednesday morning we walked in, we saw the Challenger and Gray [planned layoff] numbers, we saw the ADP numbers, the weekly jobless claim numbers—yeah, well, they were basically in line, but we knew two days ago that this was going to be a bloody number. Frankly, we probably knew several months ago that it was going to be a bloody number.” The Wall Street Journal and New York Times both agree with Glick’s assessment. [Media Matters, 11/7/2008; New York Times, 11/7/2008]

Entity Tags: Alexis Glick, Media Matters, Barack Obama, Fox Business Channel, Eric Bolling, Dick Morris, New York Times, Chris Matthews, Fox News, Rush Limbaugh, Sean Hannity, Wall Street Journal

Timeline Tags: Domestic Propaganda, 2008 Elections, 2010 Elections

Category Tags: Commentaries on Economic Issues, USA, Commentaries and Criticisms, Bush Policies and Actions, Obama Policies and Actions

The troubled insurance giant AIG seeks a modification of a bailout it received from the US government in September (see September 16, 2008), according to reports. An additional loan following the initial bailout has already been made (see October 8, 2008). However, AIG now wants to alter the terms of the bailout, extending the duration and lowering the interest rate. Shares in the company close at $2.11. [Bloomberg, 3/5/2009] AIG will obtain the modification within a few days (see November 10, 2008).

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

The terms of the bailout given to troubled insurance giant AIG are modified, following calls from the insurer (see October 22, 2008 and November 7, 2008). The conditions of the government bailout were set in September (see September 16, 2008), but the interest rate is now lowered and the term is extended from two years to three. In addition, the rescue package grows to $150 billion, including a $60 billion loan, a $40 billion capital investment, and about $50 billion to buy mortgage-linked assets owned by AIG or guaranteed by it through credit default swaps. AIG also announces a record loss (see July-September 2008). [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Category Tags: Failing Companies, USA, AIG

To facilitate AIG’s ability to complete its corporate restructuring, the New York Federal Reserve, as authorized by the US Federal Reserve, creates Maiden Lane II LLC and Maiden Lane III LLC to fund the purchase of certain multi-sector collateralized debt obligations (CDOs) from certain AIG Financial Products Corporation (AIGFP) counterparts. The Asset Portfolio purchase will be made in two stages, with Maiden Lane II LLC lending AIG $26.8 billion on November 25, 2008, and Maiden Lane III LLC lending AIGFP and its counterparties $2.5 billion on December 18, 2008 (see March, 2008). [Federal Reserve Bank of New York, 11/10/2008]

Entity Tags: Federal Reserve Bank of New York, AIG (American International Group, Inc.), US Federal Reserve, Maiden Lane II, Maiden Lane III

Category Tags: Bailouts and Other Government Aid, USA, AIG, Failing Companies

After President Bush and US Treasury Secretary Henry Paulson push through a long-sought change in how bank mergers are taxed, Bloomberg News sues the Federal Reserve for failing to reveal loan recipients. The change will deprive US taxpayers of as much as $140 billion in tax revenue. As the economy continues its downward spiral into what is called the worse economic crisis since the Great Depression, sources say that a late September $700 billion bailout is “a quiet windfall for US banks.” [Washington Post, 11/10/2008] The legality of Treasury-negotiated equity deals for many US banks is questioned by tax attorneys, as well as nearly $2 trillion that Ben Bernanke of the Federal Reserve handed out in emergency loans before the $700 billion Troubled Asset Relief Program, or TARP, was enacted (see October 3, 2008). The Fed refuses to reveal which corporations received loans, or what collateral has been presented. Sources say that this secrecy is a legal violation. The Federal Reserve’s lending is significant because the central bank has stepped into a rescue role that was also the purpose of the TARP bailout plan, although without safeguards put into the TARP legislation by Congress. Total Fed lending topped $2 trillion for the first time and has risen by 140 percent, or $1.172 trillion, in the weeks since Fed governors relaxed the collateral standards on September 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank’s purchase of Fannie Mae and Freddie Mac bonds. [Bloomberg News, 11/10/2008; AlterNet, 11/14/2008]

Entity Tags: Henry Paulson, Troubled Asset Relief Program, Bloomberg News, Ben Bernanke, US Department of the Treasury, US Federal Reserve, George W. Bush

Category Tags: Bailouts and Other Government Aid, USA

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