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  • 1. Stock Market Recap
    • The Year In Review
    • A FREE Presentation
      • Brought to you by The Net Fool dot com
      • Come by and subscribe for more!
  • 2. 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.  
  • 4. What Happened!?
  • 5. The Origin
    • Following the Dot Com bubble and the 9/11 stock market crash…
    • Alan Greenspan cuts Fed Funds rate to 1%
  • 6. 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. 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.  
  • 9. 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 suddenly cannot afford their own homes!
    • What’s more, the value of all of the securities that were sold is gone…. So HUGE firms are forced to post losses!
  • 10. The Mighty Have Fallen
  • 11. 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. 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
      • Too big to fail?
      • Responsible for nearly half of the $11 trillion dollars of mortgages on the market
  • 13. 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. 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 of investment 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. Lehman Brothers
    • Lehman Brothers had similar liquidity problems to Bear Stearns… and the stock was being shorted to smithereens!
    • The Question was: Will The Government Bail Them Out?
    • Government DOESN’T step in, LEH declares Chapter 11 Bankruptcy on September 15 th
  • 16. AIG Bailout
    • AIG received $85 billion from the government back in September… effectively letting the government 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. 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 list of 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. Main Street Jumps In
  • 19. 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 $11.8 billion offer that doesn’t need federal support!
  • 20. 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 world’s Central Bank’s launch a coordinated effort by lowering short-term borrowing rates in unison by a half-percentage point
  • 21. Barack Obama Wins
    • Senator Barack Obama wins election into the U.S. Presidency over John McCain
    • Stocks endure worst post-election sell-off in history, and the market tumbles 5.1%
  • 22. AIG Bailout Revisited
    • Government scraps the existing bailout package… and increases the giveaway to $150 billion!!!
  • 23. China Announces Stimulus Plan
    • China announces that they are progressing with a bailout of their own, a sizable $586 billion to restore domestic demand and maintain double-digit GDP growth
  • 24. Who’s To Blame!?
  • 25.  
  • 26. … Just Kidding
  • 27. Detroit In Trouble
    • The CEOs of Detroit auto-makers fly into Washington to appeal for taxpayer money
    • First obvious sign of trouble outside of the financial sector
  • 28. 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. Recession
    • The National Bureau of Economic Research stated on December 2 nd that the recession officially 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. 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 $17.4 billion to avoid bankruptcy
    • The government commits $6 billion to stabilize GMAC… a financing company vital to the future of GM
    • … and we rally into 2009!
  • 31. Stock Market Recap
    • The Year In Review
    • A FREE Presentation
      • Brought to you by The Net Fool dot com
      • Come by and subscribe for more!