Timeline: U.S. Credit Crunch & Financial Failures
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NEW YORK (CBS News) ― Wall Street and Main Street have been caught up in credit market turmoil, which began in 2007 with rising defaults on mortgages made to financially shaky borrowers and spread to corporate bonds and other kinds of debt.
The situation leaves many asking the question: How did all this all happen?
HOW THE FINANCIAL INDUSTRY FELL INTO TROUBLE...
Here's a look at actions and statements from key players in Washington related to the credit crunch:
May 17, 2007: Federal Reserve Chairman Ben Bernanke said growing number of mortgage defaults will not seriously harm the U.S. economy.
June 29, 2007: Banking regulators complete new guidelines calling on lenders to strictly evaluate borrowers' ability to repay home loans.
Aug. 7, 2007: Fed leaves key federal funds rate unchanged, says credit problems and housing slump pose increasing risks to U.S. economy.
Aug. 9, 2007: Fed pumps $24 billion into U.S. banking system through large purchases of securities, while European Central Bank makes record cash injection of $130 billion into its markets to shake off credit fears. Wall Street suffers its second-worst decline of the year as Dow Jones industrials drop by nearly 400 points.
Aug. 10, 2007: Fed pumps another $38 billion in temporary reserves into the U.S. financial system; government rejects request for mortgage finance giants Fannie Mae and Freddie Mac to take on more debt.
Aug. 17, 2007: Fed tries to stabilize financial markets by approving 0.5 percentage point cut in its discount rate on direct loans to banks.
Aug. 31, 2007: President Bush announces plan to use Federal Housing Administration, which insures loans for low-income borrowers, to offer government-guaranteed loans to around 80,000 homeowners in default.
Sept. 18, 2007: Fed cuts key federal funds rate by a half point to 4.75 percent.
Sept. 19, 2007: Government raises debt portfolio limits for Fannie and Freddie by more than 2 percent annually.
Sept. 20, 2007: Bush acknowledges "some unsettling times" in the housing and credit markets, while Treasury Secretary Henry Paulson signals the administration would consider allowing Fannie and Freddie to temporarily buy loans bigger than the current cap of $417,000.
Oct. 4, 2007: House approves tax break for homeowners who have mortgage debt forgiven as part of a foreclosure or loan renegotiation.
Oct. 10, 2007: Paulson announces a new mortgage industry coalition aimed at helping homeowners avoid foreclosure.
Oct. 11, 2007: House and Senate Democrats reach a compromise on legislation permitting Fannie and Freddie to increase mortgage holdings by 10 percent from current limit; Bush administration rejects that idea.
Oct. 15, 2007: Three largest banks - Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. - announce a plan organized by Treasury Department to buy securities hurt during the summer's mortgage turmoil.
Dec. 5, 2007: Congressional aides say the Bush administration has hammered out an industry agreement to freeze interest rates for certain subprime mortgages for five years.
Dec. 6, 2007: The Mortgage Bankers Association reports that home foreclosures hit an all time high in the third quarter.
Dec. 11, 2007: The U.S. Federal Reserve cuts its key interest rate by a quarter-point to 4.25 per cent, the third rate reduction in three months as the central bank tries to keep the country out of a recession. The reduction came as Fed officials signalled that further cuts are possible if a severe downturn in housing and a crisis in mortgage lending get worse.
Jan. 10, 2008: Federal Reserve Chairman Ben Bernanke pledges to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession.
Jan. 11, 2008: Bank of America Corporation soon will be the nation's biggest mortgage lender and loan servicer. The Charlotte, N.C.-based company announced that will buy Countrywide Financial for just over $4 billion in stock. The deal rescues the country's biggest mortgage lender and expands the financial services empire of the nation's largest consumer bank.
Jan. 15, 2008: The Federal Reserve, working to combat the effects of a serious credit crisis, says it auctioned $30 billion in money to commercial banks at an interest rate of 3.95 percent. It marked the third in a series of innovative auctions the Fed began last month as a way to provide cash-strapped banks with the reserves they need. The hope is that the increase in resources will keep banks lending to consumers and businesses and prevent the credit turmoil that hit in August from pushing the country into a recession.
Jan. 22, 2008: The Federal Reserve's unexpected slashing of a key interest rate by a bold three-quarters of a point appears to be having the desired effect on world markets. The move has sent Asian stocks up after two days of steep losses. Fears of a U.S. recession have battered the region's markets since the start of the year.
Jan. 24, 2008: Democratic and Republican congressional leaders reach a tentative deal on tax rebates of $300 to $1,200 per household and business tax cuts to jolt the slumping economy.
Jan. 29, 2008: The House overwhelmingly passes a $146 billion aid package that would speed rebates to most taxpayers. But the Senate could slow things, with lawmakers there backing a larger package that adds billions of dollars for senior citizens and the unemployed.
Jan. 30, 2008: The Fed cuts a key interest rate for the second time in just over a week, reducing the federal funds rate by a half point. The rate cut marked the fifth time that the Fed has cut the funds rate since Sept. 18 in response to the severe credit crisis which hit global markets in August. The action was expected to be quickly followed by cuts in banks' prime lending rate, the benchmark rate for millions of consumer and business loans.
Feb. 7, 2008: Congress passes an economic stimulus bill and the White House says President Bush will sign it. Rebate checks could start arriving in the homes of Americans in May, averaging $600 to $1,200 for most taxpayers. Disabled veterans, the elderly and other low-income people will get around $300.
Feb. 12, 2008: Homeowners threatened with foreclosure could get a 30-day reprieve under a plan announced by the Bush administration. "Project Lifeline" is meant to cover people with all types of mortgages, not just subprime loans that were the focus of previous relief efforts.
The Federal Reserve has auctioned another $30 billion in funds to commercial banks, meant to alleviate the credit crunch. It is the the fifth in a series of auctions that have pumped $130 billion into the nation's banking system.
March 3, 2008: Federal Reserve Chairman Ben Bernanke calls for additional relief and urges lenders to help distressed homeowners by lowering the amount of their loans. He says foreclosures are likely to keep rising even as the government and the housing industry begin relief efforts.
March 6, 2008: The Mortgage Bankers Association reports that home foreclosures hit an all-time high in the final quarter of 2007. Meantime, the Federal Reserve says the percent of equity homeowners have in their houses has fallen below 50 percent for the first time since 1945.
March 15, 2008: The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.
April 10, 2008: The Senate passes a bipartisan measure aimed at boosting the housing market and easing the threat of foreclosures. The plan combines large tax breaks for homebuilders and a $7,000 tax credit for people who buy foreclosed properties, as well as $4 billion in grants for communities to buy and fix up abandoned homes. The White House opposes the plan, saying parts of it would actually make the problem worse by depressing some home values.
April 30, 2008: Scrambling to shore up the faltering economy, the Federal Reserve cut interest rates to the lowest point in nearly four years Wednesday as the nation teetered on the edge of recession. Wall Street rallied at first but then pulled back, concerned that the reduction might be the last for a while.
May 2, 2008: The Federal Reserve and other regulators have begun steps to end "unfair and deceptive" credit card industry practices assailing consumers who are already struggling to cope in a bad economy. The proposed rules would be the biggest clampdown on the industry in decades.
June 17, 2008: The Federal Reserve has auctioned another $75 billion in loans to squeezed banks to help them overcome credit problems. The auction is the 14th since the program began in December.
July 11, 2008: A mortgage rescue to help struggling homeowners avoid foreclosure and get more affordable, safer loans has passed the Senate. The measure faces a bumpy road in the House. It includes a modernization of the Federal Housing Administration and would create tighter controls on mortgage giants Fannie Mae and Freddie Mac.
July 13, 2008: Scrambling to bolster eroding investor confidence, the Federal Reserve and the Treasury Department announce steps to brace slumping mortgage giants Fannie Mae and Freddie Mac. The plan is intended to signal the government is prepared to take all necessary steps to prevent the credit market troubles that erupted in 2007 with losses from subprime mortgages from engulfing financial markets.
July 14, 2008: The Federal Reserve adopts rules to give homebuyers more protection from shady lending practices. The board approves a plan that would crack down on the type of practices that have hurt many of the riskiest borrowers. Lenders wouldn't be able to make loans without proof of a borrower's income.
July 23, 2008: The House approves legislation to give the ailing housing market a boost. It targets help for 400,000 homeowners facing foreclosure while giving support to mortgage giants Fannie Mae and Freddie Mac. The highlights of the bill include: $300 billion to provide more affordable mortgages to troubled homeowners, nearly $4 billion in grants to help communities fix up foreclosed properties and a $7,500 tax credit for first-time homebuyers.
July 30, 2008: The Federal Reserve announces that it is extending emergency borrowing to Wall Street, and is also making other moves to ease the crippling credit crunch. The program will now be available through January 2009, rather than ending in mid-September as was originally planned.
July 30, 2008: President Bush signs a housing bill seen as the most significant in decades. The measure lets homeowners who can't afford their payments refinance into more affordable government-backed loans rather than lose their homes. As many as 400,000 struggling homeowners could stand to benefit.
Aug. 12, 2008: The Fed has auctioned another $25 billion in loans to U.S. banks, at a rate of 2.754 percent. In the latest auction, the Fed says it offered the loans for an extended period of 84 days, rather than the 28-day period for the previous loans.
Sept. 7, 2008: The Bush administration announced it was seizing the troubled mortgage giants Fannie Mae and Freddie Mac in a bid to help reverse a prolonged housing and credit crisis. Both Fannie Mae and Freddie Mac were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars.
Sept, 14, 2008: Lehman Brothers, burdened by $60 billion in soured real-estate holdings, filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court after attempts to rescue the 158-year-old firm failed.
Sept. 15, 2008: Bank of America Corp. announces it would acquire Merrill Lynch in an all-stock transaction that should lift the uncertainty shrouding the investment bank since the start of the credit crisis over a year ago. The $50 billion deal would create a bank that offers everything from fixed-income trading to credit card lending and will rival Citigroup Inc., the biggest U.S. bank in terms of assets.
Sept. 15, 2008: A stunning makeover of the Wall Street landscape sent stocks falling precipitously, with the Dow Jones industrials sliding 504.48 points in their worst point drop since the September 2001 terrorist attacks. Investors reacted badly to a shakeup of the financial industry that took out two storied names: Lehman Brothers and Merrill Lynch Co. Stocks also posted big losses in markets across much of the globe.
Sept. 16, 2008: The U.S. government announces an $85 billion emergency loan to rescue AIG, saying a disorderly failure of the company could hurt the already delicate financial markets and the economy.
Sept. 17, 2008: The Dow Jones industrial average lost about 450 points, giving it a shortfall of more than 800 so far for the week. Markets around the world shared in the confidence crisis, and Russia shut down its market for a third day following its worst plunge in share prices since 1998.
Sept. 18, 2008: The U.S. Federal Reserve, working with central banks in Europe, Canada and Asia, pumped as much as $180 billion into money markets to combat a seizing up of lending between banks.
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