!! History Commons Alert, Exciting News

Context of 'September 9, 2008: Talks on Korean Rescue of Lehman Brothers End'

This is a scalable context timeline. It contains events related to the event September 9, 2008: Talks on Korean Rescue of Lehman Brothers End. You can narrow or broaden the context of this timeline by adjusting the zoom level. The lower the scale, the more relevant the items on average will be, while the higher the scale, the less relevant the items, on average, will be.

The United States Federal Reserve has lent Wall Street’s largest investment bank billions of dollars, as the credit crisis threatens to spiral into a full-blown banking crisis. In developments currently rocking the world’s financial markets, the Fed and rival Wall Street bank, JP Morgan Chase, are funneling emergency loans to Bear Stearns, whose exposure to battered credit markets has led to a crisis of confidence in its ability to continue trading. In accelerating numbers, clients and trading partners are pulling business from Bear Stearns, after rumors of its solvency began circulating. During a last-minute conference call with investors, management at the investment bank warned that its emergency lending facility with the Federal Reserve has failed to staunch the bleeding. “We have been subject to a significant amount of rumor and innuendo in the past week,” says Bear Stearns chief executive Alan Schwartz. “We attempted to provide some facts but, in the market environment, the rumors intensified and a lot of people wanted to act to protect themselves first from the possibility that the rumors were true, and wait till later for the facts.” Bear Stearns appears most fragile of Wall Street’s major investment banks, since the July 2007 collapse of two internal hedge funds, providing initial clues about the scale of the unfolding credit crisis. Shares across the banking sector plunge as analysts fear that the Fed’s willingness to intervene suggests that Bear’s future is pivotal to the banking system, and that its failure precipitates losses that may cascade through its trading partners. Bear Stearns stocks are in freefall, closing down 47 percent. Pierre Ellis at New York’s Decision Economics said, “Clearly the Fed is addressing what they feel is a systemic risk very aggressively.” [Belfast Telegraph, 3/15/2008]

Entity Tags: US Federal Reserve, Alan Schwartz, Bear Stearns, JP Morgan Chase, Pierre Ellis

Timeline Tags: Global Economic Crises

Troubled insurance giant AIG makes a record quarterly loss of $24.47 billion. The loss is caused by writedowns on assets linked to subprime mortgages and capital losses. This is the worst loss it has ever made, coming hard on the heels of losses in the previous three quarters (see October-December 2007, January-March 2008, and April-June 2008). Over the four quarters, the combined loss totals $42.5 billion. The company will be in such bad shape that the government has to take it over by the end of the quarter (see September 16, 2008). The loss will be announced on November 10 (see November 10, 2008). [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Talks between Lehman Brothers and the Korea Development Bank end. The Koreans had been thinking about investing in the bank, enabling it to raise needed capital. However, they decide not to go through with the investment. [Bloomberg, 9/16/2008] Lehman Brothers files for liquidation five days later (see September 14, 2008).

Entity Tags: Lehman Brothers, Korea Development Bank

Timeline Tags: Global Economic Crises

Lehman Brothers, the fourth largest investment bank in the US, files for liquidation after huge losses in the mortgage market, a crippling loss of investor confidence, and its inability to find a buyer. Lehman’s collapse began as the mortgage market crisis unfolded in summer 2007, when its stock began a steady fall from a peak of $82 a share. Fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal. As its crisis deepened in 2007 and early 2008, the investment bank defied expectations more than once, as it had many times before, such as in 1998, when it teetered after a worldwide currency crisis, only to strongly rebound. Lehman managed to avoid the fate of fellow investment bank Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy in March 2008 (see March 15, 2008). By summer, however, Lehman’s roller-coaster ride began to have more downs than ups. A series of write-offs accompanied new offerings to seek capital to bolster its finances. [New York Times, 9/16/2008]

Entity Tags: Bear Stearns, Lehman Brothers

Timeline Tags: Global Economic Crises

The share price in the insurance giant AIG collapses to $4.76 amid fears over the company’s credit rating, which is subsequently cut by Standard & Poor’s and Moody’s. This means that the company needs additional capital, and it is given permission by New York State to access $20 billion in its subsidiaries. In addition, Goldman Sachs and JPMorgan Chase work to prepare a potential $75 billion lifeline. [Bloomberg, 9/16/2008; Bloomberg, 3/5/2009] However, this is not enough, and the US government will be forced to seize control of AIG the next day (see September 16, 2008).

Entity Tags: AIG (American International Group, Inc.), Goldman Sachs, JP Morgan Chase

Timeline Tags: Global Economic Crises

AIG logo.AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]

Entity Tags: Henry Paulson, AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad, US Federal Reserve

Timeline Tags: Global Economic Crises

The insurance corporation AIG, which was recently bailed out by the US government (see September 16, 2008), makes $18.7 billion in payments to other world banks. The payments are related to credit default swaps, and are made in the three weeks after the bailout to institutions such as Goldman Sachs and Société Générale. [Bloomberg, 3/5/2009]

Entity Tags: Société Générale, Goldman Sachs, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

September 18, 2008: AIG Boss Replaced Again

Edward Liddy is approved by the board of insurance giant AIG as its chief executive officer. Liddy replaces former boss Robert Willumstad, who had only been in the job for a few months (see June 15, 2008). [Bloomberg, 3/5/2009; Reuters, 4/17/2009] Liddy tells employees he intends to repay a two-year Federal Reserve loan that recently bailed the company out (see September 16, 2008) sooner than scheduled. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.), Edward Liddy, Robert Willumstad

Timeline Tags: Global Economic Crises

Edward Liddy, the recently installed chief executive officer of troubled insurer AIG, says the company soon plans to repay the bailout loan it received from the US Federal Reserve (see September 16, 2008). To do this, it intends to sell life insurance operations in the United States, Europe, Latin America, South Asia, and Japan. Liddy says AIG has been contacted by “numerous” potential bidders, adding, “The values that we will receive from the assets we intend to dispose will be more than enough to repay the Fed facility.” [Bloomberg, 3/5/2009; Reuters, 4/17/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

October 8, 2008: Size of AIG Bailout Increased

The troubled insurer AIG, which was recently bailed out by the US government (see September 16, 2008), is given more money. In the additional bailout, the government enables AIG to borrow an extra $37.8 billion, on top of the originally provided $85 billion. This addition is provided after customers pull out of AIG’s securities-lending program. [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

October 10, 2008: AIG Criticized over Spending

The insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008), is criticized over post-bailout spending, on news it spent $200,000 on hotel rooms and $23,000 on spa services after it got the government loan. In addition, AIG says that, as of two days previously, it had borrowed $70.3 billion from the government. [Reuters, 4/17/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

New York Attorney General Andrew Cuomo says he is investigating what he calls “unwarranted and outrageous” spending by insurance giant AIG, which was recently bailed out by the US government (see September 16, 2008). Cuomo says he is seeking a full accounting of bonuses, stock options, and other perks. He wants AIG to either recover or rescind the payments. [Reuters, 4/17/2009]

Entity Tags: Andrew Cuomo, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Edward Liddy, chief executive officer of the recently bailed-out insurance corporation AIG (see September 16, 2008), says that the $122.8 billion already offered by the government “may not be enough” to stabilize the company. The size of the bailout and favorability of the terms will be increased the next month (see November 10, 2008). [Bloomberg, 3/5/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The troubled insurance giant AIG seeks a modification of a bailout it received from the US government in September (see September 16, 2008), according to reports. An additional loan following the initial bailout has already been made (see October 8, 2008). However, AIG now wants to alter the terms of the bailout, extending the duration and lowering the interest rate. Shares in the company close at $2.11. [Bloomberg, 3/5/2009] AIG will obtain the modification within a few days (see November 10, 2008).

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The terms of the bailout given to troubled insurance giant AIG are modified, following calls from the insurer (see October 22, 2008 and November 7, 2008). The conditions of the government bailout were set in September (see September 16, 2008), but the interest rate is now lowered and the term is extended from two years to three. In addition, the rescue package grows to $150 billion, including a $60 billion loan, a $40 billion capital investment, and about $50 billion to buy mortgage-linked assets owned by AIG or guaranteed by it through credit default swaps. AIG also announces a record loss (see July-September 2008). [Bloomberg, 3/5/2009]

Entity Tags: AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Henry Paulson, the former secretary of the treasury, explains how the recession and market destruction came about on his watch. Part of his problem was his admitted lack of knowledge about regulation and regulatory authorities. “I easily could imagine and expected there to be financial turmoil,” he says. “But the extent of it, okay, I was naive in terms of—I knew a lot about regulation but not nearly as much as I needed to know, and I knew very little about regulatory powers and authorities. I just had not gone into it in that kind of detail. This’ll be the longest we’ve gone in recent history without there being turmoil, and given all the innovation in the private pools of capital and the over-the-counter derivatives and the excesses around the world, we figured that when there was turmoil, and these things were tested for the first time by stress, it would be more significant than anything else. I said at the time, I have a concern that every rally we’re going to have in the financial markets will be a false rally until we break the back of the price correction in real estate. And these things are never over until you have a couple of institutions go that surprise everyone. Bear Stearns can hardly be a shock (see March 15, 2008). But having said that, it’s one thing to see it intellectually and it’s another to see where we are.” [Vanity Fair, 2/2009]

Entity Tags: Bear Stearns, Henry Paulson, US Department of the Treasury, Bush administration (43)

Timeline Tags: Global Economic Crises

US Treasury Secretary Timothy Geithner announces a much bigger plan to rescue the US financial system than previously predicted or envisioned, including a much greater government role in markets and banks since the 1930s (see March 15, 2008). Although the administration provides few details, one central portion of the plan that investors most desired to learn about creates bad banks that rely on taxpayer and private investor funds to purchase and hold bad assets racked up by the banks from subprime mortgages, derivatives, and credit defaults. An additional focal point of the plan stretches the final $350 billion that the Treasury may use for the bailout, relying on the Fed’s capability to create money. This last tranche of funding allows the government to be involved in the management of markets and banks. For example, with the credit markets, the administration and the Fed propose to expand a lending program that spends as much as $1 trillion as a replacement for the $1.2 trillion decline between 2006 and 2008 for the issuance of securities backed primarily by consumer loans. The third component of the plan gives banks new capital to lend, but banks that receive new government assistance will have to cut the salaries and perks of their executives and limit dividends and corporate acquisitions. Banks must also publicly declare more information about their lending practices. With the newly proposed Treasury requirements, banks will have to give monthly statements on how many new loans they make, yet the plan stops short of ordering banks to issue new loans or requiring them to account in detail for the federal money. The Obama administration’s commitment to flood the banking system with funds will combine the $350 billion left in the bailout fund; the rest of the money will be from private investors and the Federal Reserve. Some market observers, along with some federal legislators and economists, criticize the plan for its lack of details. [New York Times, 2/10/2009]

Entity Tags: Obama administration, US Federal Reserve, US Department of the Treasury, Timothy Geithner

Timeline Tags: Global Economic Crises

Citigroup CEO Vikram Pandit is in talks with the US government to increase the amount of public ownership of the bank in a move both politicians and bank bosses hope will avert the need for the ailing corporation to be taken into FDIC receivership (see March 15, 2008). Talks commenced after Citigroup shares dropped more than 20 percent in late trading on Friday, leaving the business with a share value of $10.6 billion, with balance sheet assets of $1.95 trillion. Government receivership of Citigroup is seen as politically unpalatable, and US taxpayers could conceivably own up to 40 percent of Citigroup. Economists see government takeover of the corporation as evidence of other major banks struggling with insolvency. The failure of major banks will have calamitous repercussions. The US treasury says it remains committed to helping the banking industry recover without taking complete control. “Because our economy functions better when financial institutions are well managed in the private ­sector, the strong presumption… is that banks should remain in private hands,” the Treasury Department said in a joint statement with the Federal Reserve. Speculation that a major Wall Street institution could be taken into public ownership toppled the market on Friday, February 20; likely targets were heavily rumored to be Citigroup and Bank of America. Bank of America lost nearly half its share value in three days before rallying late Friday afternoon. The latest talks center on a Treasury Department proposal to convert preference shares in Citigroup into new ordinary shares. This move would not involve additional taxpayer funds, but taxpayers would surrender the guaranteed dividends that come with preference stock, as well as some degree of protection in the event of a corporate collapse. Serious questions remain, such as the price at which new shares are issued. Estimates of the size of the government’s eventual stake range from 25 percent to 40 percent. With this move, Barack Obama’s administration would become a major presence on Citigroup’s ordinary share register, thus diluting the interests of existing investors, and heightening fears of political pressure being brought on US banks. Some analysts suggest that banks relying on taxpayer bail-outs are being encouraged to focus lending and liquidity on the national US market. [Guardian, 2/23/2009]

Entity Tags: Obama administration, Citigroup, Vikram Pandit, US Department of the Treasury, US Federal Reserve

Timeline Tags: Global Economic Crises

On the same day AIG announces the biggest loss ever in corporate history (see October-November 2008), the bailout of the troubled insurer is again increased and its terms eased. First, the US Treasury and Federal Reserve announce a plan to spend up to $30 billion more on preferred shares. However, the Treasury says the dividend on preferred stock, previously 10 percent, might fall. In addition, the bailout’s terms and conditions are altered to give the insurer a billion-dollar-a-year break on interest and dividend payments. [Bloomberg, 3/5/2009; Reuters, 4/17/2009] The size of the bailout, initially $85 billion, has now more than doubled, and the terms have been eased repeatedly (see September 16, 2008, October 8, 2008, and November 10, 2008).

Entity Tags: US Federal Reserve, AIG (American International Group, Inc.), US Department of the Treasury

Timeline Tags: Global Economic Crises

Having received over $170 billion in taxpayer bailout funds in the last five months, troubled insurance giant American International Group (AIG) pays executives nearly $200 million in bonuses. The largest are bonus payouts that cover AIG Financial Products executives who sold risky credit default swap contracts that caused huge losses for the insurer (see September 16, 2008). Despite a request by US Treasury Secretary Timothy Geithner for the insurance conglomerate to curtail future bonus pay—and AIG’s agreement to do so—the global insurer cuts bonus checks on Sunday, March 15, 2009, in order to meet a bonus payment agreement deadline. The Treasury Department has publicly acknowledged that the government does not have the legal authority to block current bonus payments, although AIG stated in early March that it suffered its largest corporate loss in history, when it reported fourth quarter 2008 losses of $61.7 billion.
Treasury Tried to Prevent Payments - An anonymous Obama administration official says that on March 11 Geithner called AIG Chairman Edward Liddy demanding that the CEO renegotiate the insurer’s present bonus structure. In a letter, Liddy informed Geithner that outside lawyers had advised AIG that the company could face lawsuits, should they not make the contractually obligated payments. “AIG’s hands are tied,” Liddy wrote, although acknowledging that, with the company’s fiduciary situation, he found it “distasteful and difficult” to approve and pay the bonuses. He wrote that the early 2008 bonus payments agreement was entered into prior to the company being forced last fall to obtain the first taxpayer bailout because of the company’s severe financial distress.
Some Monies Already Paid Out - A white paper generated by AIG asserted that the firm had already distributed $55 million in “retention pay” to nearly 400 AIG Financial Products employees. According to the white paper, the global entity “will labor to reduce 2009 bonus payment amounts,” trimming payouts by at least 30 percent this year. [Associated Press, 3/15/2009]

Entity Tags: Edward Liddy, AIG (American International Group, Inc.), Timothy Geithner, US Department of the Treasury

Timeline Tags: Global Economic Crises

US President Barack Obama attacks the payment of over $200 million in bonuses to top AIG employees (see March 15, 2009). As the company is being propped up by the government using public money (see September 16, 2008, October 8, 2008, and November 10, 2008), Obama calls the bonuses an “inappropriate use of taxpayer funds.” [Reuters, 4/17/2009]

Entity Tags: Barack Obama, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The US House of Representatives passes a bill imposing a 90 percent tax on bonuses paid to AIG executives. The bonuses were set to be paid in December 2008 and earlier in the month, but there has been a public outcry against them, as the company had to be bailed out by the taxpayer six months ago (see September 16, 2008 and March 15, 2009). [Reuters, 4/17/2009] However, President Obama soon challenges the bill’s legality, saying: “I think that as a general proposition, you don’t wanna be passing laws that are just targeting a handful of individuals. You wanna pass laws that have some broad applicability. And as a general proposition, I think you certainly don’t wanna use the tax code to punish people.” The Democratic leadership in the Senate then says that it will wait and see what happens, instead of immediately acting on the bill forwarded by the House of Representatives. This effectively shelves the bill, although several of the executives give their bonuses back anyway (see March 24, 2009). [Politics Daily, 3/24/2009]

Entity Tags: Barack Obama, US Congress, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Fifteen of the top 20 beneficiaries of bonuses at troubled insurer AIG have given the payments back, says New York Attorney General Andrew Cuomo. The bonuses were to be paid out at the end of 2008 and earlier this month, but there was a public outcry over them as the taxpayer had spent about $180 bailing the company out (see September 16, 2008, March 15, 2009, March 18, 2009, and March 19, 2009). [Reuters, 4/17/2009]

Entity Tags: Andrew Cuomo, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

The insurer AIG, bailed out by the US government the previous year (see September 16, 2008), is in talks with the US Federal Reserve over extra credit, according to the Financial Times. The negotiations concern a $5 billion credit line that could be used to facilitate the sale of the company’s aircraft leasing business. [Reuters, 4/17/2009]

Entity Tags: US Federal Reserve, AIG (American International Group, Inc.)

Timeline Tags: Global Economic Crises

Ordering 

Time period


Email Updates

Receive weekly email updates summarizing what contributors have added to the History Commons database

 
Donate

Developing and maintaining this site is very labor intensive. If you find it useful, please give us a hand and donate what you can.
Donate Now

Volunteer

If you would like to help us with this effort, please contact us. We need help with programming (Java, JDO, mysql, and xml), design, networking, and publicity. If you want to contribute information to this site, click the register link at the top of the page, and start contributing.
Contact Us

Creative Commons License Except where otherwise noted, the textual content of each timeline is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike