Friday, June 12, 2009

What the @#$% Happened in September-November 2008: Part I

For your weekend reading pleasure.

These are the headlines and some snippets from the articles on the front pages of Investor's Business Daily in September, October and November 2008. This is Part I.

I saved the front pages of IBD newspaper which I was subscribing to at that time. Not for any particular reason, but even back then, I felt, as a lot of others did, something was irreparably, irreversibly changing in the U.S. financial market. It felt like the last days of the market, and maybe they were.

(I have a Dow Jones daily chart of September 08 in my other blog's post. It opens a new window.)

Since I'm reading off the physical newspaper pages, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

September 9, 2008 (Tuesday)
(S&P 500 Index 1,268, Dow Jones Industrial 11,511, Nasdaq 2,520)

  • U.S. Takeover of Fannie, Freddie Still Doesn't End Troubled Saga
  • Builders And Banks Rally Over Seizure of Freddie, Fannie
  • Fannie's stock tumbled 90%, Freddie 83%
  • Picture of anxious specialists on NYSE floor
  • Lehman Brothers Down On Uncertainty: the stock lost 13%
  • Delivery Firms Reduce Speed To Save Fuel: UPS eliminates left turn
  • S&P cuts Wamu to junk
  • Russian troops were still in Georgia
September 16, 2008 (Tuesday)
(S&P 1,192, Dow 10,917, Nasdaq 2,179)

  • Stocks Dive On Wall St. Woes, S&P Off 4.7% to 3-Year Low (1192.70)
  • Lehman Failure Tests Limits of U.S. Bailouts, "Moral hazard" seen as driving force behind credit system's excesses
  • Picture of a Lehman Brother's Market Maker with her hands over her brow
  • (Lehman Brothers filed for bankruptcy on September 15, Merrill Lynch sold to Bank of America.)
  • Crude Oil Plunges Below $100: the first sub-$100 since March 4.
  • The acquisition of Merrill "creates the premier financial company in the world. It was an opportunity of a lifetime." - Ken Lewis, Bank of America CEO and chairman
September 17, 2008 (Wednesday)
(S&P 1,213, Dow 11,059

  • AIG Falls As Rumors About Insurer Swirl; Many Banks Climb
  • AIG Falls Day and Night, Goldman Not So Golden
  • Fed Keeps Interest Rate Steady at 2% After Pushing $50 Bil To Banking System
  • Picture of Presidential helicopter flying over Galveston Texas, after Hurricane Ike
  • "The Fed's non-action [not cutting the rate further] suggests that things might have reached a bottom," said Richard Yamarone, Argus Research's director of economic research.
September 18, 2008 (Thursday)
(S&P 1,156, Dow 10,609, Nasdaq 2,098)

  • Stocks Dive Despite AIG Bailout, worldwide stock markets plunged
  • Credit Default Swaps At Meltdown's Heart, Everybody's A Suspect
  • Congress Consideres Ways To Aid Market And Ailing Economy
  • Chart of CDR Counterparty Risk Index showing huge spike on AIG bailout
  • Buyout rumors swirl around Morgan Stanley and WaMu
  • Fed Maneuvers Fail to Placate World Markets: Who's Holding Toxic Assets?
  • Treasury Steps In To Finance Fed: The first auction on Wed netted $40 bil. Treasury officials insisted the Fed isn't short of resources
  • Market Woes Whip Up Gold, Oil: gold blasted to its biggest one-day gain ever, vaulting $70 to settle at $850.50
  • SEC Clamps Down On Short Sales: new limits on naked short selling

September 19, 2008 (Friday)
(S&P 1,206, Dow 11,019, Nasdaq 2,199)

  • Market Takes Heart From Talk of Fund To Hold Bad Assets [That was the beginning of TARP]
  • Government May Absorb Banks' Sour Securities; S&L Crisis RTC Is the Model
  • Fed Adds $105 Bil To U.S. System, another $180 bil made available to lend to banks [Discount Window]
  • Congress Lies Low To Avoid Bailout Blame; Lawmakers fear wrath of voters as cost of crisis soars to $ 1 tril or more
  • Gold Surges, Reverses, Crashes on Treasury plan to create RTC-like entity. Gold fell $50 in one hour.
  • Shares of Morgan Stanley, Goldman Sachs went free-fall on Thursday, then violently reversed when the news of short sale ban in Britain reached the U.S. Morgan Stanley's share went to $11, ended the day at $22. Goldman Sachs, low $85, closed at $108.
  • Putnam's Prime Money Market Fund folded, a day after Reserve Primary Fund broke a buck
  • Picture of President Bush, making a statement regarding the Federal Reserve's action

September 22, 2008 (Monday) [but paper was issued on September 20, Saturday, as IBD always does)
(S&P 1,255, Dow 11,388, Nasdaq 2,273)

  • Paulson announces bailout plan on Friday, gives few details
  • Stocks Buy Into Rescue Plan, S&P Soars 4% as U.S. Acts. Government backs money funds ($50 billion), bans shorting financials (799 of them); big mortgage trust seen.
  • Questions Abound Over Bailout; Who, What And How Much? Devil will be in the details; Dems likely to demand aid for ailing homeowners.
  • "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it." - President Bush
  • "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy" - Treasury Secretary Hank Paulson
  • "We've got to deal with the foreclosure issue. This plan must include that." - Chris Dodd, Senate Banking Committee chairman
  • S&P 500 5-day chart titled "From Meltdown to Rebound" [hindsight is 20-20]

How's that for one week and a day?

The day I remember most vividly is September 18, Thursday (the news of the day under September 19, of course). The market was constantly selling off, and the selloff suddenly accelerated around 12:00pm. It was like a dark abyss opened up in front of you. Then, all of a sudden around 1:00pm, it violently reversed, paused for a while, then went crazy when the rumor of financial bailout by the government started to float in.

(I read on the net some time later that when that abyss opened up and Goldman's stock was free-falling, someone somewhere on the Goldman's floor played Star Spangled Banner on the internal broadcast system. Many traders stood up with their hand over their chest. "... and the home of the brave" - the music ended, and suddenly the market started to reverse to the wild cheers from everyone. Too good to be true, perhaps. But this is what I remembered reading.)

The next day, Friday, the market continue to go up thanks to bailout talk and ban on shorting (not just naked shorting) on financials, managed to end the week, up. I remember that day, too. The trading of SKF, double short financial ETF was suspended for several hours. When it opened, it gapped down to $87 from the previous close of $115, although it managed to end the day exactly at $100.


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