Stock Market 2008

8/8/2019 Stock Market 2008

1/31

Stock Market Recap

The Year In Review

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2/31

Where We Are Now? Major Indices:

Dow Jones Industrial Average: Down 33.8%

S&P 500: Down 38.5%

NASDAQ: Down 40.5%

Federal Funds Interest Rate Target:

2007: 4.25% 2008: 0.00-0.25%

Crude Oil Futures (per barrel):

2007: $95.98 2008: $44.60

Unemployment Rate: 2007: 4.7% 2008: 6.7%

U.S. Treasury Yield (Six Month Note)

2007: 3.49% 2008: 0.27%


3/31


4/31

WhatHappened!?


5/31

The Origin

Following the Dot Com bubble and the 9/11

stock market crash

Alan Greenspan cuts Fed Funds rate to 1%


6/31

The Credit Bubble Begins

From 2003 to 2007:

Credit growth exceeded economic growth

So-called sub-prime mortgages became readily

available and encouraged!

Real Estate = The Ever-Appreciating Asset?


7/31

Borrowing in Excess

Poor Mortgage Practices:

Alt-A loans available without paperwork

People selling mortgages got commissions from sales

volume not the actual value of the mortgage

Securitization (Think Bundling & Selling)

Bad mortgages were put into basket securities such as

CDOs and Mortgage Backed Securities

What was sold actually got a HIGH credit rating!


8/31


9/31

Buyers Vanish from Market Eventually, people stop buying homes and with no buyers,

housing prices start to correct!

Once home values are collapsed,the collateral holding up loans

vanishes, and people suddenlycannot afford their own homes!

Whats more, the value of all of the securities that were soldis gone. So HUGE firms are forced to post losses!


10/31

The MightyHave Fallen


11/31

Bear Stearns

Off Balance Sheet items, like CDOs and

Mortgage-Backed Securities, cause write-downs of$500+ Billion from major banks

Run on the Bank

Bear Stearns collapses as buyers vanished, leaving

liquidity issues in the company

Capital fell from $12 billion to $2 billion in less than a

day causing a complete collapse

Bought out by JP Morgan for $10 a share, with a

$30 billion loan from the Federal Reserve


12/31

Fannie Mae & Freddie Mac

Fannie Mae and Freddie Mac were set up in the

1930s as Government Sponsored Entities (GSEs)in order to promote home ownership

Liquidity was completely erased once credit dried

up in the housing market

BAILED OUT

Too big to fail? Responsible for nearly half of the $11 trillion dollars of

mortgages on the market


13/31

Shorters Take Control

By now, we are waking up every morning to

10%+ declines in the financial stocks

No Uptick Rule In Place by the SEC

Shorters are destroying every stock on the market,

causing the rest of the market to fall alongside it

NO confidence in the system at all


14/31

Merrill Lynch

Agrees over the weekend to be sold to Bank of

America for $50 billion

Bank of America went for safety in the face ofinvestment banks that were succeeding off of

extreme amounts of leverage

Criticized over purchase, as the market tanked Monday

and BOA could have bought MER much cheaper!


15/31

Lehman Brothers

Lehman Brothers had similar liquidity problems to

Bear Stearns and the stock was being shorted tosmithereens!

The Question was:

Will The Government Bail Them Out?

Government DOESNT step in, LEH declaresChapter 11 Bankruptcy on September 15th


16/31

AIG Bailout

AIG received $85 billion from the government

back in September effectively letting thegovernment seize control of the company

The problem? Credit Default Swaps

CDSs are insurance against defaults on assets tied to

corporate debt and mortgage securities

Weakness in AIG would have a MAJOR impact on

financial institutions that bought swaps to protect

themselves against loss and take writedowns


17/31

Enough is Enough

Morgan Stanley and Goldman Sachs step in to put

an end to the constant shorting

The SEC agrees, and bans shorting on a select listof stocks for a while to ease the market pain

This also happened in the U.K., Australia, the

Netherlands and Taiwan

MS and GS are converted from investment banks

to bank-holding companies.


18/31

Main StreetJumpsIn


19/31

Capital Injections!

Warren Buffet invests $5 billion in Goldman

Sachs, and $3 billion in General Electric

The Netherlands buys Fortis for $23 billion

Citigroup agrees to acquire Wachovia for $2

billion, but Wells Fargo outbids with an $11.8billion offer that doesnt need federal support!


20/31

Bailout Madness

President Bush signs on a $700 billion bailout plan

to rescue the U.S. financial system

One of the largest government interventions in history

The worlds Central Banks launch a coordinated

effort by lowering short-term borrowing rates in

unison by a half-percentage point


21/31

Barack Obama Wins

Senator Barack Obama wins election into the U.S.

Presidency over John McCain

Stocks endure worst post-election sell-off inhistory, and the market tumbles 5.1%


22/31

AIG Bailout Revisited

Government scraps the existing bailout package

and increases the giveaway to $150 billion!!!


23/31

China Announces Stimulus Plan

China announces that they are progressing with a

bailout of their own, a sizable $586 billion torestore domestic demand and maintain double-

digit GDP growth


24/31

WhosT

oBlame!?


25/31


26/31

Just Kidding


27/31

Detroit In Trouble

The CEOs of Detroit auto-makers fly into

Washington to appeal for taxpayer money

First obvious sign of trouble outside of thefinancial sector


28/31

More Bailouts!

The government agrees to step in to stabilize

conditions at Citigroup

Guarantee more than $300 billion in troubled assets,

and injecting $20 billion of additional capital

The central U.S. bank plans to buy up to $600

billion of debt issued or backed by mortgage-

finance firms


29/31

Recession

The National Bureau of Economic Research

stated on December 2nd that the recessionofficially began in December of 2007

Bernard Madoff is arrested from multibillion-dollar fraud the effects of which we still cannot

fully know for sure


30/31

The End of 2008 The Federal Reserve cuts its target on the Federal Funds Rate

to 0%-0.25%

Goldman Sachs posts its first quarterly loss since going public

The White House agrees to lend GM and Chrysler $17.4billion to avoid bankruptcy

The government commits $6 billion to stabilize GMAC afinancing company vital to the future of GM

and we rally into 2009!


31/31

Stock Market Recap

The Year In Review

A FREE Presentation

Brought to you byThe Net Fool dot com

Come by and subscribe for more!

Documents

Stock Market 2008