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September 16th, 2009

One Year Ago This Week



A lot happened one year ago this week. It’s mind blowing to think about just how far our country’s financial system has come in just one year. In one year we have gone from the brink of collapse to the cusp of recovery.

On the week of September 15, 2008, the Dow Jones Industrial Average (DJIA) plummeted by more than 500 points on the news of Lehman Brothers’ bankruptcy, finishing at its lowest point in over two years. Yet, at the closing bell this afternoon, the DJIA soared to the highest mark in 11 months.

Going Back in Time

It was the failure of Bear Stearns in March 2008 that, in retrospect, represented the tip of the iceberg in terms of Wall Street failures. Just before Lehman collapsed, Fannie and Freddie were taken over by the government, and the fate of many of the country’s investment banks was unclear.

Lehman Brothers’ bankruptcy on September 15, 2008 served to truly expose the clear and present danger of what lurked just around the corner. Here’s a clip from the Wall Street Journal (hat tip: SmartMoney.com) shortly after the Lehman was closed for business:

The American financial system was shaken to its core on Sunday. Lehman Brothers Holdings Inc. filed for bankruptcy protection, and Merrill Lynch & Co. agreed to be sold to Bank of America Corp.

The U.S. government, which bailed out Fannie Mae and Freddie Mac a week ago and orchestrated the sale of Bear Stearns Cos. to J.P. Morgan Chase & Co. in March, played much tougher with Lehman. It refused to provide a financial backstop to potential buyers. Without such support, Barclays PLC and Bank of America, the two most interested buyers, walked away. Barclays said Monday it pulled out of the potential deal after deciding it wasn’t in the best interest of shareholders.

The Financial Times has created an interesting video on the Lehman debacle that, in their words, “examines how the bankruptcy brought chaos to the global markets.”

September 15, 2009

Economic recovery hasn’t come full circle just yet, but yesterday — exactly one year to the day that Lehman went bankrupt — Federal Reserve Chief Ben Bernanke — a man that has held his positions as leader of the central bank before and during the crisis — said that the recession is “is very likely over.”

The numbers and the facts may indicate that the recession “is very likely over,” but does your employment situation, bank account, and retirement fund say the same?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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