The Dow Jones Industrial Average closed on Oct. 9, 2007, at more than 14,000. It’s been pretty much downhill since then.
How did we get to this point? The nightly news, the morning paper and thousands of Web sites purport to know the answer. The bottom line is that a series of bad decisions from Wall Street to Washington to Main Street, and likely to your street, have brought us to this point.
Although the crisis begins earlier, it began gaining the public attention of policymakers in the summer of 2007.
- May 2007. Fed chief Ben Bernake says he does not expect the number of mortgage defaults — growing at this point — to seriously impact the economy.
- August 2007. The Federal Reserve pumps $24 billion into the U.S. banking system on Aug. 9, causing the Dow Jones to drop more than 400 points, its second-worst decline of the year. The Fed pumps another $38 billion in temporary reserves the next day. The government on Aug. 10 also rejects Fannie Mae’s and Freddie Mac’s bids to acquire more debt. The Fed cuts its discount rate by 50 basis points — half a percent in layman’s terms — on Aug. 17. The Dow closes the month at 13,357.74.
- September 2007. The Fed cuts the federal funds rate by half a percent to 4.75% on Sept. 18. The Dow closes the month at 13,895.63.
- October 2007. Three of the nation’s largest banks — Citigroup, Bank of America and JPMorgan Chase — announce a U.S. Treasury Department-backed plan to buy securities hurt during the summer’s mortgage volatility. The Dow set a record high on Oct. 9, closing at 14,164.53, but closes the month at 13,930.01.
- February 2008. Congress and the White House approve a stimulus package. Most taxpayers will receive between $600 and $1,200, and rebate checks begin arriving in early summer. The Dow closes the month at 12,266.39.
- July 2008. The Dow closes more than 20% below its October 2007 high on July 2, indicating an official bear market. The Dow closes the month at 11,378.02.
- September 2008. The Bush Administration announces it would seize Fannie Mae and Freddie Mac. Both are placed in a government conservatorship. In the same month, investment firm Lehman Brothers closes shop, Bank of America announces it will buy Merrill Lynch and the U.S. government announces the first $85 billion bailout of insurance giant AIG. Later in the month, Washington Mutual shuts down and its assets acquired by JPMorgan Chase. Washington Mutual (WaMu) is the nation’s largest bank failure in history. On Sept. 29, the House of Representatives rejects the Administration’s call for a $700 billion emergency rescue plan. The Dow closes the month at 10,850.66.
- October 2008. The House relents and passes a modified version of the $700 billion emergency rescue plan — derided by opponents as a bailout — on Oct. 3. On Oct. 6, the Federal Reserve, coordinating with central banks worldwide, slashes interest rates. By Oct. 8, AIG receives a second loan, for $37.8 billion. Oct. 13 is a bright spot economically as the Dow Jones soars 936 points in one day — its biggest point gain in more than a generation. By Oct. 23, former Federal Reserve chairman Alan Greenspan calls the current crisis a “once-in-a-century credit tsunami.” On Oct. 30, the U.S. Commerce Department reports that third quarter economic activity had slowed and that GDP fell at an annualized 0.3%. Some analysts — already speculating that the economy is in recession — believe this may indicate a worsening recession. The Dow closes the month at 9,336.93.
- November 2008. The month continues to see volatile swings, but generally downward momentum in stock prices and more bad news about consumer spending and economic activity. Retailers ratchet down expectations for the holiday season. The Dow Jones Industrial Average falls below 8,000 for the first time since 2003. The lone bright spot: oil prices dropped below $50 a barrel and gas prices were under $2 a gallon in much of the country — the first time prices had been that low in more than three years. The Dow closes the month at 8,829.04.
Source: Adapted from CBS3, a CBS network affiliate