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  • All of these items could have and would be discussed in depth further in separate articles to come in the future. They did a good job of mentioning the important issues and trying not to skew things, however more attention could have been paid to how they got into this mess in the first place with the financial products division, leverage, and CDS.
  • In the months after, questions would rise through congress regarding where the bailout money came from, when taxpayers are being paid back, and where the money went to. In March 2009, developments surrounding the bets of AIG entered the media.Discussion of payouts to banks begins, but is not discussed, or explained very clearly, especially when it comes to determining why the government paid the banks. Goldman claims they were hedged, but this has not been discussed.This needed to be investigated more.Because it was so widespread, filtered, and complicated, it took a lot of time to sort through where the money that went to AIG actually went. This, the bailout, financial regulation (such as hedge funds and short selling) and revelations on corporate spending and compensation lingered for the next year. You can go numerous routes here – but this is one area that should have been discussed more.

Transcript

  • 1. Jay Friedman
    Drew Hallett
    Joyce Lee
    Jackie Maurno
    Allie White
  • 2. The Wall Street Journal Statistics
    National Edition
    1,698,990 circulation
    Eastern Edition
    780,256 circulation
    • New York Metro: 289,418
    • 3. Southern Region: 244,070
    • 4. New England Region: 130,733
    • 5. Florida Region: 129, 228
    • 6. South Atlantic Region: 120,717
    • 7. Wash./Baltimore Region: 77,330
  • Early Coverage of Housing Bubble
    “Existing-Home Prices Accelerate Ascent – Median Figures Jump 6.4% Amid a Weak Economy, Spurring Talk of Bubble” – Patrick Barta (Aug 14, 2001) Pg. A.2
    “I see some of these houses around here, and these are really crummy houses, selling for $300,000 or $400,000”
    “Prices are heading toward a level ‘a lot farther beyond what people will pay, and I think [they’re] going to fall quite a bit.’”
    “The Prospect of a Housing Bubble Floats Again” – Patrick Barta (Feb 8, 2002) Pg. A.2
    Price-to-Earnings ratio is 1.6 when it’s usually 1.2
    “High cost of housing … is being masked by extraordinarily low interest rates. An uptick in interest rates … could ‘cause the housing market to tip over.’”
    Computer model rates housing market on 0 to 100 scored below 50, meaning the “market’s look is ‘unfavorable.’”
  • 8. Housing Bubble Coverage
    “U.S. Mortgage Crisis Rivals S&L Meltdown; Toll of Economic Shocks May Linger for Years; A Global Credit Crunch” – Greg Ip et al. (Dec 10, 2007) Pg. A.1
    Clear, 3000-word explanation of housing bubble origin and impact on economy
    “MarketWatch: Surviving the Big, Scary ‘Mega-Bubble’ – Paul Farrell (Jul 17, 2005)
    Addresses readers’ concerns by informing them of experts’ opinions about how to best prepare for potential bursting of bubble
    Ineffective: Large decrease of “housing bubble” mentions in 2006
  • 9. “The Fall of Bear Stearns”Kate Kelly
    Part I: May 27, 2008
    “’I just simply have not been able to come up with anything, even with the benefit of hindsight, that would have made a difference.’” -- Alan Schwartz, chief executive Bear Stearns
    “…the firm’s leaders missed opportunities that might have been able to save the 85-year-old brokerage.”
    “To outsiders, it was beginning to look as if Bear Stearns had navigated the crisis relatively deftly. Inside the firm, that view wasn’t as prevalent.”
    Part II: May 28, 2008
    “It was the beginning of a frantic 72 hours that would bring the Wall Street firm to its knees…show how quickly a company that took 85 years to build could unravel.”
    “credit- default swaps — a big, barely regulated market where one party, for a price, assumes the riske that bond or loan will go bad.” (layman’s terms)
    “Inside the sixth-floor conference room…executives cheered and exchanged high-fives. They thought they had four weeks to sort out their problems.”
    “If This Is a Bubble, It Sure Is Hard to Pop”
    Tuesday March 30,1999 --- Dow hit 10,000
  • 10. Part III: May 29, 2008
    “…capped a helter-skelter week — and presaged another 10 days of chaos. Interviews with more than two dozen executives and others directly involved show that Bear Stearns nearly died not once, but twice.”
    “Bear Stearns Chief Financial Officer Samuel Molinaro Jr. — tired and in the same suit he’d left home in 36 hours before…”
    “If there were hazards, moral and otherwise, luring in the deal, the future would have to sort them out.”
    Conclusions: May 30, 2008
    “Bear Stearns Cos., a powerhouse on Wall Street for nearly nine decades, ceased to exist Thursday in a meeting that lasted 11 minutes.”
    “In doing so, they sealed a deal made in haste two months ago amid one of the most terrifying bank runs in history.”
  • 11. “Lehman Races to Find a Buyer”September 12, 2008
    Employees taking lunch breaks or a few minutes for a smoke… discussed the firm’s future.
    “It’s over, man… unless we get bought out in the next 24 hours, it’s over,” said a young man, in conversation with someone on his cellphone.”
    At a fast-food vendor across the street, people waiting to order food discussed the dive into Lehman’s share price this week
    “At some point, where does it stop?” one said, as he headed back to the office
  • 12. Reporting Figures
    “As a result, Lehman shares fell by as much as 48% by midday Thursday, touching their lowest point since 1995” – Lehman Races to Find a Buyer
    “Evergreen Money Market Fund had $309 million, or 1.9% of its assets, invested in Lehman credit” – Sponsors to back Some Lehman Exposure
    “Money Market Fund had $110 million, or 1.66% of its assets invested” – Sponsors to back Some Lehman Exposure
  • 13. Investors Flee Money Funds, Moving Cash to Safer Spots
    “As credit markets locked up world-wide, investors have started moving their cash from money funds to safer locales, such as U.S. Treasurys and bank certificates of deposit”
    “A run on money funds would have implications for corporations that depend on short-term funding such as commercial paper”
    “If the funds don’t buy this paper, it could cause a cash crunch…”
    “Another source of fund money comes from ‘sweep accounts,’ through which brokerage customers’ spare cash is automatically deposited in a money fund.”
  • 14. Sponsors to Back Some Lehman Exposure;
    “RIC Money Market fund had $403 million in exposure to Lehman credit… RTC Short Term Investment had $75 million in exposure.
    “Fidelity Investments said… nine of its general-purpose money funds had minimal exposure to a single Lehman Brothers repurchase agreement.
    “But all of these holdings were paid in full Tuesday, so Fidelity’s taxable money-market funds now have no exposure.”
  • 15. Lehman Bankruptcy
    “Lehman files for bankruptcy, Merill Sold, AIG Seeks Cash” Carrick Mollenkamp, Susanne Craig, Serena Ng, Aaron LucchettiSeptember 16, 2008
    • “Regulators and others were preparing for a hectic Monday. The New York Stock Exchange prepared contingency plans over the weekend to reassign the approximately 200 blue-chip stocks that Lehman's specialist unit trades, according to people familiar with the matter.”
  • Lehman Bankruptcy Coverage Cont’d
    • Simple break-down over the decreasing stock prices of three key companies involved in the crisis
    • 16. Shows significant drop in stock prices at Lehman Brothers, Merrill Lynch and AIG.
    • 17. Visually displayed, translated in dollars and percentage points, understandable to everyone.
  • September 17th, 2008:
    “taxpayers could reap a big profit through the government's equity stake”
    “crisis could begin to spill over into seemingly safe investments held by small investors”
    “could not get the cash quickly enough to satisfy the collateral demands”
    “potential domino effect could reach around the world”
    “AIG's cash squeeze is driven in large part by losses in a unit separate from its traditional insurance businesses. That financial- products unit…”
  • 18. Tracing The Money
    March 2009:
    “[bail-out money] stand to benefit hedge funds that bet on a falling housing market”
    “its gambling debts are what taxpayers are paying off right now”
    “From mid-September to the end of last year, AIG and the government paid $5.4 billion to Deutsche and $8.1 billion to Goldman under credit default swap contracts the insurer had written.”
    “indicating the underlying assets are valued at roughly 27 cents on the dollar”
  • 19.
  • 20. December 12th, 2009
    “The trades yielded Goldman less than $50 million in profits, which were mostly booked from 2004 to 2006, according to a person familiar with the matter. But they piled risks onto AIG's books, which later came to haunt the insurer and Goldman. The trades also gave Goldman a unique window into AIG's exposure to losses on securities linked to mortgages. When the federal government bailed out the insurer, Goldman avoided losses on its trades with AIG covering a total of $22 billion in assets.”
    “Goldman charged more than AIG for the protection, so it was able to pocket the difference, making millions while moving the default risks to AIG”
    “Goldman officials said the company believed it would have been fully protected had AIG been allowed to fail because of collateral it had amassed and the additional insurance it had bought against an AIG default. The auditor, however, questioned that conclusion. The report said Goldman would have had a difficult time selling the collateral and that the firm might have been unable to actually collect on the additional insurance.”
  • 21. One Year Later
    “Lessons of the Financial Crisis – One Year Later” – Gregory Zuckerman (Aug 30, 2009) Pg. 1
    Gives a list of lessons learned from the crisis using hindsight that can be used to avoid a future crisis
    Doesn’t blame a particular entity
    “The End of Wall Street” Documentary
    Three 10 minute parts: What Happened?, Why It Happened?, What Happens Next
    Collection of WSJ reporters review crisis and give input on each major event
    End documentary by sharing how they think the economy will progress