Inceptone

View Original

Market Crash: 2007 to 2010 - Great Financial Crisis

Sid Barthakur

If you zoom back and look at history, patterns arise, themes arise. That is true for every millennia, every century and every decade. Look at the roaring 20’s, depressions of the 30’s, go-go-years of the 60’s, and the 90’s came to be known as the Dot-com decade (at least the later part of it). The 2000’s kicked off not only a century but a millennium, and it was a remarkable decade indeed. The decade started with the bursting of the dot-com bubble, the 9/11 attacks, the war on terror, but what the decade would be remembered for (at least in the financial markets) will be the collapse of the housing bubble and the crashing of the stock market and the resulting of the great financial crisis towards the later part of the decade. Many market participants and observers would say that the financial system came close to collapse, and it would need unprecedented intervention by the governments and regulators to stabilize the markets.

In this post we’ll look at what happened not only during the dark days of the crisis, but also years that lead us to point of breakdown, along with the years that were spent in rebuilding after the breakdown.

Timeline

Contextual History

1968

  • 1968: As part of the Housing and Urban Development Act of 1968, Congress partitioned Fannie Mae into two entities: Fannie Mae & Ginnie Mae (Government National Mortgage Association)

1970

1977

  • 1977: Creation of private-label RMBS.

    • A team from Salomon Brothers worked with Bank of America to create the first residential-mortgage backed security that wasn't government-guaranteed.

    • Salomon Brothers' bond-trader by the name of Lewis Ranieri was instrumental in this effort. He coined the term "securitizing" during this period after joining the project in 1977.

1982

  • 1982: Garn-St. Germain Depository Institutions Act of 1982 - New federal laws passed in the 1980s deregulated savings and loan institutions (thrifts), allowing them to offer a wider array of products, expanding their lending authority, insuring their deposits through the FDIC and reducing regulatory oversight and capital requirements. Thrift institutions expanded into new and more complex types of transactions. Fraud increased, the real estate market collapsed, and many thrift institutions failed. The FDIC bailed out the failed thrifts with taxpayer dollars.

1983

  • 1983: Fannie Mae issued the first Collateralized Mortgage Obligations (CMOs).

1984

  • 1984: Secondary Mortgage Market Enhancement Act of 1984 (SMMEA) enacted

1994

  • 1994: Credit Default Swaps (CDS) came into existence in 1994 when they were invented by Blythe Masters from JP Morgan.

1999

  • 1999: The Gramm-Leach Bliley Act of 1999 - Repealed provisions of the Glass-Steagall Act of 1933, 12 U.S.C. § 227, that prohibited a single financial institution from conducting both commercial and investment banking operations. Deregulation allowed growth of giant financial institutions that merged investment banks and commercial banks, increasing complex, risky financial transactions without raising banks' capital reserve requirements.

2004

  • June 30, 2004: Federal Reserve makes its first interest rate change in this cycle by a 25 basis point hike in its benchmark interest rate to move interest rates higher starting from 1.25%

2005

  • May 19, 2005: Fund manager Michael Burry closed a credit default swap against subprime mortgage bonds with Deutsche Bank valued at $60 million – the first such CDS. He projected they would become volatile within two years of the low "teaser rate" of the mortgages expiring.

2006

  • 2006: Housing prices peaked.

    • After years of above-average price increases, housing prices peaked and mortgage loan delinquency rose, leading to the United States housing bubble. Due to increasingly lax underwriting standards, one-third of all mortgages in 2006 were subprime or no-documentation loans, which comprised 17 percent of home purchases that year.

  • Jun. 29, 2006: Federal Reserve makes its last interest rate change in this cycle by a 25 basis point hike in its benchmark interest rate to take the upper limit of interest rate to 5.25%

    • They took approximately 2 years to raise interest rates by a total of 4%

2007

2007 - FIRST HALF

  • February 27, 2007: Stock prices in China and the U.S. fell by the most since 2003 as reports of a decline in home prices and durable goods orders stoked growth fears, with Alan Greenspan predicting a recession.

    • Due to increased delinquency rates in subprime lending, Freddie Mac said that it will no longer buy the most risky subprime mortgages and mortgage-related securities.

  • April 2, 2007: New Century, an American real estate investment trust specializing in subprime lending and securitization, filed for Chapter 11 bankruptcy protection. This propagated the subprime mortgage crisis.

  • June 7, 2007: Bear Stearns informs investors that it is suspending redemptions from its High-Grade Structured Credit Strategies Enhanced Leverage Fund.

  • June 20, 2007: After receiving margin calls, Bear Stearns bailed out two of its hedge funds with $20 billion of exposure to collateralized debt obligations including subprime mortgages. Bear Stearns said that the problem was contained.

2007 - July

  • July 11, 2007: Standard and Poor’s ratings agency places 612 securities backed by subprime residential mortgages on a credit watch.

  • July 24, 2007: Countrywide Financial Corporation warns of  “difficult conditions.”

  • July 31, 2007: Bear Stearns liquidated the two hedge funds that invested in various types of mortgage-backed securities.

2007 - August

  • August 6, 2007: American Home Mortgage filed bankruptcy.

  • August 9, 2007: BNP Paribas blocked withdrawals from three of its hedge funds with a total of $2.2 billion in assets under management, due to "a complete evaporation of liquidity", making valuation of the funds impossible – a clear sign that banks were refusing to do business with each other.

  • August 16, 2007: Fitch Ratings cuts the credit rating of giant mortgage lender Countrywide Financial to its third-lowest investment-grade rating.

2007 - September

  • September 14, 2007: Northern Rock, a medium-sized and highly leveraged British bank, received support from the Bank of England. This led to investor panic and a bank run.

  • September 18, 2007: The Federal Open Market Committee (FOMC) began reducing the federal funds rate from its peak of 5.25% in response to worries about liquidity and confidence.

    • FOMC cuts rates by 0.50% from 5.25% to 4.75%.

  • September 28, 2007: NetBank suffered from bank failure and filed bankruptcy due to exposure to home loans.

2007 - October

  • October 9, 2007: Stock market indices reach record closing highs:

    • The Dow Jones Industrial Average (DJIA) hit its peak closing price of 14,164.53.

    • The S&P 500 Index closes at a record high of 1,565.15, the highest close prior to the financial crisis of 2007–2008. Two days later, the index hits an intraday record high of 1,576.09.

  • October 15, 2007: Citigroup, Bank of America, and JPMorgan Chase announced plans for the $80 billion Master Liquidity Enhancement Conduit to provide liquidity to structured investment vehicles. The plan was abandoned in December.

  • October 24, 2007: Merrill Lynch announced it would write-down $8.4 billion in losses associated with the subprime mortgage crisis.

  • October 30, 2007: Merrill Lynch terminates E. Stanley O'Neal as its chief executive.

  • October 31, 2007: FOMC cuts rates by 0.25% from 4.75% to 4.50%.

2007 - November

2007 - December

  • December 1, 2007: Officially recognized start date of the Great Recession

  • December 11, 2007: FOMC cuts rates by 0.25% from 4.50% to 4.25%.

  • December 12, 2007: The Federal Reserve instituted the Term auction facility to supply short-term credit to banks with sub-prime mortgages.

  • December 17, 2007: Delta Financial Corporation filed bankruptcy after failing to securitize subprime loans.

2008

2008 - January

  • January 11, 2008: Bank of America agreed to buy Countrywide Financial for $4 billion in stock.

  • January 18, 2008: Stock markets fell to a yearly low as the credit rating of Ambac, a bond insurance company was downgraded.

  • January 22, 2008: FOMC cuts rates by 0.75% from 4.25% to 3.50%.

  • January 30, 2008: FOMC cuts rates by 0.50% from 3.50% to 3.00%.

  • January 2008: U.S. stocks had the worst January since 2000 over concerns about the exposure of companies that issue bond insurance.

2008 - February

  • February 13, 2008: The Economic Stimulus Act of 2008 was enacted, which included a tax rebate.

  • February 22, 2008: The nationalisation of Northern Rock was completed.

2008 - March

  • March 5, 2008: The Carlyle Group receives a default notice after failing to meet margin calls on its mortgage bond fund.

  • March 16, 2008: Bear Stearns acquired by JPMorgan Chase in a shocking fire-sale facilitated by the Federal Reserve

  • March 18, 2008: In a contentious meeting, the Federal Reserve cut the federal funds rate by 75 basis points, its 6th cut in 6 months. It also allowed Fannie Mae & Freddie Mac to buy $200 billion in subprime mortgages from banks. Officials thought this would contain the possible crisis. The U.S. dollar weakened and commodity prices soared.

    • FOMC cuts rates by 0.75% from 3.00% to 2.25%.

2008 - APRIL

  • April 30, 2008: FOMC cuts rates by 0.25% from 2.25% to 2.00%.

2008 - June

  • Late June 2008: Despite the U.S. stock market falling to a 20% drop off its highs, commodity-related stocks soared as oil traded above $140/barrel for the first time and steel prices rose above $1,000 per ton. Worries about inflation combined with strong demand from China encouraged people to invest in commodities during the 2000s commodities boom.

2008 - July

2008 - September

  • September 7, 2008: The Federal Banking Agencies react to takeover of Fannie Mae and Freddie Mac.

  • September 14, 2008: Bank of America acquires Merrill Lynch.

    • Bank of America announced it was in talks to purchase Merrill Lynch for $38.25 billion in stock. Later that day, Merrill Lynch was sold to Bank of America for US$50 billion or $29 per share.

    • This price represented a 70.1% premium over the September 12 closing price.

    • This price was a discount of 61% from its September 2007 price.

  • September 15, 2008: Lehman Brothers files for Bankruptcy.

    • After the Federal Reserve declined to guarantee its loans as it did for Bear Stearns, Lehman Brothers files for bankruptcy protection.

    • Bankruptcy of Lehman Brothers led to a 504-point drop in the DJIA, its worst decline in seven years.

    • Lehman Brothers had been in talks to be sold to either Bank of America or Barclays but neither bank wanted to acquire the entire company.

    • To avoid bankruptcy, Merrill Lynch was acquired by Bank of America for $50 billion in a transaction facilitated by the government.

  • September 16, 2008: The Federal Reserve took over American International Group (AIG) with $85 billion in debt and equity funding.

    • The Reserve Primary Fund "broke the buck" as a result its exposure to Lehman Brothers securities.

    • The federal bailout gives the government a 79.9% stake in the company.

  • September 17, 2008: Investors withdrew $144 billion from U.S. money market funds, the equivalent of a bank run on money market funds, which frequently invest in commercial paper issued by corporations to fund their operations and payrolls, causing the short-term lending market to freeze. The withdrawal compared to $7.1 billion in withdrawals the week prior. This interrupted the ability of corporations to rollover their short-term debt. The U.S. government extended insurance for money market accounts analogous to bank deposit insurance via a temporary guarantee and with Federal Reserve programs to purchase commercial paper.

  • September 18, 2008: In a dramatic meeting, United States Secretary of the Treasury Henry Paulson and Chair of the Federal Reserve Ben Bernanke met with Speaker of the United States House of Representatives Nancy Pelosi and warned that the credit markets were close to a complete meltdown. Bernanke requested a $700 billion fund to acquire toxic mortgages and reportedly told them: "If we don't do this, we may not have an economy on Monday."

  • September 19, 2008: The Federal Reserve created the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility to temporarily insure money market funds and allow the credit markets to continue operating.

  • September 20, 2008: Paulson requested the U.S. Congress authorize a $700 billion fund to acquire toxic mortgages, telling Congress "If it doesn't pass, then heaven help us all."

  • September 21, 2008: Goldman Sachs and Morgan Stanley converted from investment banks to bank holding companies to increase their protection by the Federal Reserve.

  • September 22, 2008: MUFG Bank acquired 20% of Morgan Stanley.

  • September 23, 2008: Berkshire Hathaway made a $5 billion investment in Goldman Sachs.

  • September 26, 2008: Washington Mutual went bankrupt and was seized by the Federal Deposit Insurance Corporation (FDIC) after a bank run in which panicked depositors withdrew $16.7 billion in 10 days.

  • September 29, 2008: By a vote of 225–208, with most Democrats in support and Republicans against, the House of Representatives rejected the Emergency Economic Stabilization Act of 2008, which included the $700 billion Troubled Asset Relief Program. In response, the DJIA dropped 777.68 points, or 7%, its largest point drop in history. The S&P 500 Index fell 8.8% and the Nasdaq Composite fell 9.1%. Several stock market indices worldwide fell 10%. Gold prices soared to $900/ounce. The Federal Reserve doubled its credit swaps with foreign central banks as they all needed to provide liquidity. Wachovia reached a deal to sell itself to Citigroup; however, the deal would have made shares worthless and required government funding.

  • September 30, 2008: President George W. Bush addressed the country, saying "Congress must act. ...Our economy is depending on decisive action from the government. The sooner we address the problem, the sooner we can get back on the path of growth and job creation." The DJIA rebounded 4.7%.

2008 - October

  • October 1, 2008: The U.S. Senate passed the Emergency Economic Stabilization Act of 2008.

  • October 2, 2008: Stock market indices fell 4% as investors were nervous ahead of a vote in the U.S. House of Representatives on the Emergency Economic Stabilization Act of 2008.

  • October 3, 2008: The House of Representatives passed the Emergency Economic Stabilization Act of 2008. Bush signed the legislation that same day. Wachovia reached a deal to be acquired by Wells Fargo in a deal that did not require government funding.

  • October 6–10, 2008: From October 6, 2008 to 10, 2008, the Dow Jones Industrial Average (DJIA) closed lower in all five sessions. Volume levels were record-breaking. The DJIA fell over 1,874 points, or 18%, in its worst weekly decline ever on both a points and percentage basis. The S&P 500 fell more than 20%.

  • October 7, 2008: In the U.S., per the Emergency Economic Stabilization Act of 2008, the Federal Deposit Insurance Corporation (FDIC) increased deposit insurance coverage to $250,000 per depositor.

  • October 8, 2008: The Indonesian stock market halted trading after a 10% drop in one day.

  • October 11, 2008: The head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the "brink of systemic meltdown".

  • October 14, 2008: Having been suspended for three successive trading days (October 9, 10, and 13), the Icelandic stock market reopened on October 14, with the main index, the OMX Iceland 15, closing at 678.4, which was about 77% lower than the 3,004.6 at the close on October 8, after the value of the three big banks, which had formed 73.2% of the value of the OMX Iceland 15, had been set to zero, leading to the 2008–2011 Icelandic financial crisis. The Federal Deposit Insurance Corporation created the Temporary Liquidity Guarantee Program to guarantee the senior debt of all FDIC-insured institutions through June 30, 2009.

  • October 16, 2008: A rescue plan was unveiled for Swiss banks UBS AG and Credit Suisse.

  • October 24, 2008: Many of the world's stock exchanges experienced the worst declines in their history, with drops of around 10% in most indices. In the U.S., the DJIA fell 3.6%, although not as much as other markets. The United States dollar and Japanese yen and the Swiss franc soared against other major currencies, particularly the British pound and Canadian dollar, as world investors sought safe havens. A currency crisis developed, with investors transferring vast capital resources into stronger currencies, leading many governments of emerging economies to seek aid from the International Monetary Fund. Later that day, the deputy governor of the Bank of England, Charlie Bean, suggested that "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history." In a transaction pushed by regulators, PNC Financial Services agreed to acquire National City Corp.

2008 - November

  • November 6, 2008: The International Monetary Fund (IMF) predicted a worldwide recession of −0.3% for 2009. On the same day, the Bank of England and the European Central Bank, respectively, reduced their interest rates from 4.5% to 3%, and from 3.75% to 3.25%.

  • November 10, 2008: American Express converted to a bank holding company.

  • November 18, 2008: Ford, General Motors and Chrysler executives testify before Congress, requesting federal loans from TARP.

  • November 20, 2008: Iceland obtained an emergency loan from the International Monetary Fund (IMF) after the failure of banks in Iceland resulted in a devaluation of the Icelandic króna and threatened the government with bankruptcy.

  • November 25, 2008: The Term Asset-Backed Securities Loan Facility was announced.

  • November 29, 2008: Economist Dean Baker observed:

There is a really good reason for tighter credit. Tens of millions of homeowners who had substantial equity in their homes two years ago have little or nothing today. Businesses are facing the worst downturn since the Great Depression. This matters for credit decisions. A homeowner with equity in her home is very unlikely to default on a car loan or credit card debt. They will draw on this equity rather than lose their car and/or have a default placed on their credit record. On the other hand, a homeowner who has no equity is a serious default risk. In the case of businesses, their creditworthiness depends on their future profits. Profit prospects look much worse in November 2008 than they did in November 2007... While many banks are obviously at the brink, consumers and businesses would be facing a much harder time getting credit right now even if the financial system were rock solid. The problem with the economy is the loss of close to $6 trillion in housing wealth and an even larger amount of stock wealth.

2008 - December

  • December 6, 2008: The 2008 Greek riots began, sparked in part by economic conditions in the country.

  • December 16, 2008: Critical FOMC meeting. The Federal Reserve lowered federal funds rate by 0.75% to 0%.

  • December 20, 2008: The U.S. Treasury authorizes loans of up to $13.4 billion for General Motors and $4.0 billion for Chrysler from Troubled Asset Relief Program (TARP).

2009

2009 - January

  • January 6, 2009: Citi argued Singapore in 2009 would experience "the most severe recession in Singapore's history". In the end the economy grew in 2009 by 3.1% and in 2010

  • January 20–26, 2009: Collapse of the Government of Iceland:

    • The Icelandic financial crisis protests intensified.

    • Iceland's almost bankrupt economy caused the government to collapse.

2009 - February

  • February 13, 2009: Congress approved the American Recovery and Reinvestment Act of 2009, a $787 billion economic stimulus package.

    • President Barack Obama signed it the same day.

  • February 20, 2009: The DJIA closed at a 6-year low amidst worries that the largest banks in the United States would have to be nationalized.

  • February 27, 2009: The DJIA closed its lowest value since 1997 as the U.S. government increased its stake in Citigroup to 36%, raising further fears of nationalization and a report showed that GDP shrank at the sharpest pace in 26 years.

2009 - March

  • Early March 2009: The drop in stock prices was compared to that of the Great Depression.

  • March 3, 2009: Obama stated that "Buying stocks is a potentially good deal if you've got a long-term perspective on it".

  • March 6, 2009: The Dow Jones hit its lowest level of 6,443.27, a drop of 54% from its peak of 14,164 on October 9, 2007, over a span of 17 months, before beginning to recover.

  • March 10, 2009: Shares of Citigroup rose 38% after the CEO said that the company was profitable in the first two months of the year and expressed optimism about its capital position going forward. Major stock market indices rose 5-7%, marking the bottom of the stock market decline.

  • March 12, 2009: Stock market indices in the U.S. rose another 4% after Bank of America said it was profitable in January and February and would likely not need more government funding. Bernie Madoff was convicted.

  • First quarter of 2009: For the first quarter of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in Japan, 7.4% in the UK, 18% in Latvia, 9.8% in the Euro area and 21.5% for Mexico.

2009 - April

  • April 2, 2009: Unrest over economic policy and bonuses paid to bankers resulted in the 2009 G-20 London summit protests.

  • April 10, 2009: Time magazine declared "More Quickly Than It Began, The Banking Crisis Is Over."

  • April 29, 2009: The Federal Reserve projected GDP growth of 2.5–3% in 2010; an unemployment plateau in 2009 and 2010 around 10% with moderation in 2011; and inflation rates around 1–2%.

2009 - MAY

  • May 1, 2009: People protested economic conditions globally during the 2009 May Day protests.

  • May 20, 2009: President Obama signed the Fraud Enforcement and Recovery Act of 2009.

2009 - JUN

  • June 2009: The National Bureau of Economic Research (NBER) declared June 2009 as the end date of the U.S. recession. The Federal Open Market Committee release in June 2009 stated:

...the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

  • June 17, 2009: Barack Obama and key advisers introduced a series of regulatory proposals that addressed consumer protection, executive pay, bank capital requirements, expanded regulation of the shadow banking system and derivatives, and enhanced authority for the Federal Reserve to safely wind-down systemically important institutions.

2009 - SECOND HALF

  • December 11, 2009: United States House of Representatives passed bill H.R.4173, a precursor to what became the Dodd–Frank Wall Street Reform and Consumer Protection Act.

2010

2010 - First Half

  • January 22, 2010: President Obama introduced "The Volcker Rule" limiting the ability of banks to engage in proprietary trading, named after Paul Volcker, who publicly argued for the proposed changes. Obama also proposed a Financial Crisis Responsibility Fee on large banks.

  • January 27, 2010: President Obama declared:

    • "the markets are now stabilized, and we've recovered most of the money we spent on the banks."

  • First quarter 2010: Delinquency rates in the United States peaked at 11.54%.

  • April 15, 2010: U.S. Senate introduced bill S.3217, Restoring American Financial Stability Act of 2010.

  • May 2010: The U.S. Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule against proprietary trading was not part of the legislation.

2010 - Second Half

  • July 21, 2010: Dodd–Frank Wall Street Reform and Consumer Protection Act enacted.

  • September 12, 2010: European regulators introduced Basel III regulations for banks, which increased capital ratios, limits on leverage, narrowed the definition of capital to exclude subordinated debt, limited counter-party risk, and added liquidity requirements. Critics argued that Basel III didn't address the problem of faulty risk-weightings. Major banks suffered losses from AAA-rated created by financial engineering (which creates apparently risk-free assets out of high risk collateral) that required less capital according to Basel II. Lending to AA-rated sovereigns has a risk-weight of zero, thus increasing lending to governments and leading to the next crisis. Johan Norberg argued that regulations (Basel III among others) have indeed led to excessive lending to risky governments (see European sovereign-debt crisis) and the European Central Bank pursues even more lending as the solution.

  • November 3, 2010: To improve economic growth, the Federal Reserve announced another round of quantitative easing, dubbed QE2, which included the purchase of $600 billion in long-term Treasuries over the following eight months.

2011

  • March 2011: Two years after the nadir of the crisis, many stock market indices were 75% above their lows set in March 2009. Nevertheless, the lack of fundamental changes in banking and financial markets worried many market participants, including the International Monetary Fund.

  • 2011: Median household wealth fell 35% in the U.S., from $106,591 to $68,839 between 2005 and 2011.

2012

  • May 2012: The Manhattan District Attorney indicted Abacus Federal Savings Bank and 19 employees for selling fraudulent mortgages to Fannie Mae. The bank was exonerated in 2015. Abacus was the only bank prosecuted for misbehavior that precipitated the crisis.

  • July 26, 2012: During the European debt crisis, President of the European Central Bank Mario Draghi announced that "The ECB is ready to do whatever it takes to preserve the euro."

  • August 2012: In the United States, many homeowners still faced foreclosure and could not refinance or modify their mortgages. Foreclosure rates remained high.

  • September 13, 2012: To improve lower interest rates, support mortgage markets, and make financial conditions more accommodative, the Federal Reserve announced another round of quantitative easing, dubbed QE3, which included the purchase of $40 billion in long-term Treasuries each month.

2014

  • 2014: A report showed that the distribution of household incomes in the United States became more unequal during the post-2008 economic recovery, a first for the United States but in line with the trend over the last ten economic recoveries since 1949. Income inequality in the United States grew from 2005 to 2012 in more than 2 out of 3 metropolitan areas.

2015

  • June 2015: A study commissioned by the ACLU found that white home-owning households recovered from the financial crisis faster than black home-owning households, widening the racial wealth gap in the U.S.

2017

  • 2017: Per the International Monetary Fund, from 2007 to 2017, "advanced" economies accounted for only 26.5% of global GDP (PPP) growth while emerging and developing economies accounted for 73.5% of global GDP (PPP) growth.

Major Regulations concerning the 2008 Financial Crisis

Pre-Crisis Regulatory Changes

  • Securities Act of 1933

    • The first major federal legislation to regulate the offer and sale of securities.

  • Banking Act of 1933

    • Glass–Steagall legislation of the act

  • Securities Exchange Act of 1934

    • Instituted law governing the secondary trading of securities (stocks, bonds, and debentures) in the US.

    • Established the Securities and Exchange Commission (SEC).

  • Investment Company Act of 1940

  • Investment Advisers Act of 1940

  • Housing and Urban Development Act of 1968

  • Garn-St. Germain Depository Institutions Act of 1982

  • Alternative Mortgage Transaction Parity Act of 1982

  • Secondary Mortgage Market Enhancement Act of 1984

  • The Housing and Community Development Act of 1992

  • Gramm-Leach Bliley Act of 1999

    • Repeal of the Glass Steagall Act

  • Sarbanes-Oxley Act of 2002

Post-Crash Regulatory Changes

  • The Economic Stimulus Act of 2008

  • Housing and Economic Recovery Act of 2008

  • Emergency Economic Stabilization Act of 2008

  • American Recovery and Reinvestment Act of 2009

  • Fraud Enforcement and Recovery Act of 2009

  • Restoring American Financial Stability Act of 2010

  • Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

  • QE1

  • QE2

  • QE3

Financial Instruments

Financial Instruments that impacted the crisis:

  • ARM (Adjustable Rate Mortgages)

  • CDO (Collateralized Debt Obligations)

  • ABS (Asset-Backed Securities)

    • MBS (Mortgage-Backed Securities)

      • CMBS (Commercial Mortgage-Backed Securities)

      • RMBS (Residential Mortgage-Backed Securities)

  • CDS (Credit Default Swap)

References