Ten years ago to the day was the first major announcements that started the ball rolling on the Great Recession. HSBC reported that it’s bad debt charge would be 20% higher than expected at $10.5 Billion
“the bank said its own risk projections had failed to predict how many borrowers would fall behind on mortgages as interest rates climbed and saddled them with higher monthly payments.”
- Wednesday, June 2007: Two Bear Stearns-run hedge funds with large holdings of subprime mortgages run into large losses and are forced to dump assets. The trouble spreads to major Wall Street firms such as Merrill Lynch, JPMorgan Chase, Citigroup and Goldman Sachs which had loaned the firms money.
Here’s Ben Bernake telling everyone that all is fine.
Nothin to see here folks, just move along:
- Feb. 15, 2007 – “Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.”
- March 28, 2007 – “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
- May 17, 2007 – “All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.”
The crisis reached its peak on September 15 with a fury of events. Lehman Brothers filed for Chapter 11 bankruptcy protection, and Merrill Lynch was taken over by Bank of America for $50 billion. The Dow Jones Index suffered its worst single-day loss since the terror attacks of September 11, tumbling 777.68 points to close just over 10,000 points.