Defined as a 'severe shortage of money or credit', the global credit crunch become a harsh reality in August last year following sub-prime contagion in the months before as illustrated in the graph below.


We provide below a timeline of events that have impacted and shaped our investment market over the last 15 months, with the articles to follow providing great details of the crisis.

July 2007
18 July
Bear Stearns
Investment bank Bear Stearns informed investors that they were halting redemptions in two of their hedge funds and investors would receive very little, if any, of the money invested in these funds.

August 2007
August saw the world-wide ‘credit-crunch’ evolve, as subprime mortgage backed securities were discovered in portfolios of banks and hedge funds around the world from Bank of China to BNP Paribus. Intervention from the U.S. Federal Reserve, the European Central Bank,
the Bank of China and the Bank of Japan began.

8 August 
RBA increases cash rate
The Reserve Bank of Australia increased the cash rate by 25bp to 6.5 percent.

9 August 
BNP Paribus 
BNP Paribus informed investors they would not be able to take money out of two of its funds because they could not value the assets in them.

10 August
European Central Bank injects cash.
The European Central Bank injects 95bn Euros into the banking market to help improve liquidity.

17 August
U.S. Fed cuts discount rate
The US Federal Reserve cut the discount rate (the rate at which it lends to banks) by 50bp, warning that that credit crunch could be a risk
to economic growth.

September 2007
18 September
U.S. Fed cuts rates
The U.S. Federal Reserve follows their cut in the discount rate with a 50bp cut in the federal funds rate in an attempt to limit the damage to the economy from the housing credit crisis.

19 September
Bank of England
Having previously refused to inject any funding into the market, the Bank of England announces that it will auction £10bn.

October 2007
1 October 
UBS and Citigroup
Swiss Bank UBS is the first of the major investment banks to announce losses of $3.4bn from sub-prime related investments, resulting in the chairman and chief executive stepping down.
Later Citigroup unveils losses of $3.1bn and a fortnight later they are forced to write down a further $5.9bn. Within the next six months they state losses of $US40bn.

30 October
Merrill Lynch boss resigns
Merrill Lynch chief, Stan O’Neal, resigns after the investment bank reveals a $US7.9bn exposure to bad debt.

November 2007
1 November
U.S. Fed injects cash
The U.S. Federal Reserve injects $US41bn into money supply for banks to borrow at a low rate; the largest single expansion since $US50.38bn
on 19 September 2001. 
 
7  November 
RBA increases cash rate
The Reserve Bank of Australia increases the cash rate by 25bp to 6.75 percent.

6 December
President Bush announces plan
U.S. President George W Bush announces a plan to help more than one million homeowners facing foreclosure.
The Bank of England cuts interest rates by 25bp to 5.50 percent.

17 December
Central Banks provide further funding
The U.S. Federal Reserve auctions $US20bn and the Central European Bank, the following day, auctions $500bn to help commercial banks over the Christmas period.

January 2008
21 January
Global Stock markets experience their biggest falls since 11 September 2001.

22 January
U.S. Fed cuts rates
The U.S. Federal Reserve cuts their interest rate
by 75bp to 3.50 percent to try and prevent the economy falling into recession.

30 January
U.S. Fed cuts rates
The U.S. Federal Reserve cuts their interest rate by 50bp to 3.00 percent.

February 2008
6 February 
RBA increases cash rate
The Reserve Bank of Australia increases the cash rate by 25bp to 7.00 percent.

8 February
Bank of England cuts rates
The Bank of England cuts interest rates by 25bp to 5.25 percent.

March 2008
5 March 
RBA increases cash rate
The Reserve Bank of Australia increases the cash rate by 25bp to 7.25 percent.

7 March
U.S. Fed injects cash
The U.S. Federal Reserve makes $US200bn of funds available to banks and other institutions in their biggest intervention yet to try and improve liquidity.

17 March
Bear Stearns
Bear Stearns, the fifth largest bank in the US, is acquired by rival JP Morgan Chase for $US240m. A year earlier the bank had been worth $US18bn. U.S. Government is criticised for underwriting the deal.

18 March
U.S. Fed cuts rates
The U.S. Federal Reserve cuts their interest rate by 75bp to 2.25 percent.

April 2008
8 April
International Monetary Fund (IMF)
The IMF, which oversees the global economy, warns that the potential losses from the credit crunch could total more than $1 trillion.

10 April
Bank of England cuts rates
The Bank of England cuts interest rates by 25bp to 5.00 percent.

30 April
U.S. Fed cuts rates
The U.S. Federal Reserve cuts their interest rate by 25bp to 2.00 percent.

July 2008
13 July
Indy Mac
U.S. mortgage lender Indy Mac collapses, the second biggest bank to fail in US history.

14 July
Fannie Mae and Freddie Mac
Following panic in the previous week that America’s two largest lenders, Fannie Mae and Freddie Mac may collapse, financial authorities step in to assist.

September 2008
3 September 
RBA cuts cash rate
The Reserve Bank of Australia cuts the cash rate by 25bp to 7.00 percent from its 12 year high of 7.25 percent. It is the first rate cut in more
than six years.

7 September
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are rescued by the U.S. Government in one of the largest bailouts in U.S. history.

15 September
Lehman Brothers and Merrill Lynch
Having posted a three month loss to August of $US3.9.bn, the Wall Street bank Lehman Brothers files for Chapter 11 bankruptcy protection becoming the first major investment bank to collapse since the start of the credit crisis.
Merrill Lynch agrees to be taken over by the Bank of America for $US50bn.

17 September 
AIG
To avoid collapse and the potential cataclysmic effect on global markets, the U.S. Government announces a $US85bn emergency loan to AIG, once the world’s largest insurance company.

19 September
U.S. bail-out plan
U.S. Government announces a $US700bn bail-out package (subject to Congressional approval) aiming to restore stability in the ailing U.S. financial system.

29 September
U.S. bail out plan rejected
U.S. congress rejected the $US700 bail-out package sparking a major sell off in global financial markets.

October 2008
2 October
Revised bail-out plan
U.S. Senate approve a revised $US700bn rescue package.

3 October
Revised bail-out plan approved
U.S. congress pass the revised rescue package; however, it fails to calm global markets as fears grow over US recession and the biggest loss
of jobs in five years.

7 October 
RBA cuts cash rate
The Reserve Bank of Australia cuts the cash rate by 100bp to 6.00 percent - the biggest
cut since 1992.

8 October
Global central banks cut interest rates
Key global central banks led by the U.S. Federal Reserve, make co-ordinated interest rate cuts.

10 October
Australian share market posts record loss
Following two days of heavy falls on Wall Street the Australian share market posted its biggest one day fall since the October 1987 crash losing 8.3 percent. By week end, the Australian share market had fallen almost 16 percent.

11-12 October 
G7 meet
The G7 meet over the weekend to discuss the economic meltdown and agree that a coordinated global response is urgently required to deal with the most challenging global financial crisis in over 80 years.

Locally, the Australian Government announced that it would guarantee all savings deposits with institutions for the next three years as well as guarantee the loans used by Australian banks to raise capital on wholesale markets.

13 October
U.S. markets post biggest point gain in history
The Dow Jones Industrial Index closed 936 points higher or 11percent - its biggest point gain ever. It was a similar story in Europe with the FTSE climbing 8.25 percent following the announcement that European central banks world offer unlimited cash to free up the credit market.

15 October
U.S. markets suffer heavy losses
US Wall Street had its worst day since the 1987 stock market crash as bleak economic data fed worries that all the efforts to unlock credit markets may not stave off a severe recession. The Dow Jones Industrial index fell 733 points (7.8 percent) - its second largest point loss ever.

Tara Jones
Senior Consultant
mailto:tjones@moorestephens.com.au