Timeline of the Credit Crisis to 10-22-08
The demise of Cleveland's National City Bank
TRANSCRIPT from Meet the Press, online at MSNBC, 10-19-08
[Former Secretary of State, General Colin Powell, endorses Barack Obama for President of the United States of America]
``MR. TOM BROKAW: ... He served as President George W. Bush's secretary of state and was once called the man most likely to become the nation's first African-American president ... Is he now ready to make an endorsement in this presidential race?
What are his thoughts on the major issues facing the country and the world? Our exclusive guest this Sunday [10-19-08], former Secretary of State General Colin Powell ...
General Colin Powell, welcome back to MEET THE PRESS.
GEN. POWELL: Thank you, Tom.
MR. BROKAW: We indicated in that opening, there is a lot of anticipation and speculation about your take on this presidential campaign. We'll get to that in a moment. But in your old business we might call this a tour of the horizon.
Whoever's elected president of the United States, that first day in the Oval Office on January 21st  will face this:
The president of the United States and the Congress of the United States now have the highest disapproval ratings that we have seen in many years. In all your years of public service, have you ever seen an incoming president face such daunting challenges?
GEN. POWELL: No. I have seen ... difficult times in our history. I think about the early '70s when we were going through Watergate, Spiro Agnew, Nixon period, that was not a good time.
But right now we're also facing a very daunting period. And I think the number one issue the president's going to have to deal with is the economy. That's what the American people are worried about. And, frankly, it's not just an American problem, it's an international problem ...
The president will also have to make decisions quickly as to how to deal with Iraq and Afghanistan. And also I think the president has to reach out to the world and show that there is a new president, a new administration that is looking forward to working with our friends and allies. And in my judgment, also willing to talk to people who we have not been willing to talk to before. Because this is a time for outreach ...
MR. BROKAW: What's not on the screen right now that concerns you that should be more prominent in the minds of the American people and the people running for president?
GEN. POWELL: I think the American people and the gentlemen running for president will have to, early on, focus on education more than we have seen in the campaign so far. America has a terrible educational problem in the sense that we have too many youngsters not finishing school.
A third of our kids don't finish high school, 50 percent of minorities don't finish high school. We've got to work on this ...
Also, I think, the new president has to realize that the world looks to America for leadership, and so we have to show leadership on some issues that the world is expecting us to, whether it's energy, global warming and the environment.
And I think we have to do a lot more with respect to poverty alleviation and helping the needy people of the world ... Because when you help the poorest in the world, you start to move them up an economic and social ladder, and they're not going to be moving toward violence or terrorism of the kind that we worry about.
MR. BROKAW: Well, let's move to the American presidential campaign now ... Are you prepared to make a public declaration of which of these two candidates that you're prepared to support?
GEN. POWELL: Yes, but let me lead into it this way. I know both of these individuals very well now ... And I must say that I've gotten a good measure of both. In the case of Mr. McCain, I found that he was a little unsure as to deal with the economic problems that we were having and almost every day there was a different approach to the problem. And that concerned me, sensing that he didn't have a complete grasp of the economic problems that we had.
And I was also concerned at the selection of Governor Palin. She's a very distinguished woman, and she's to be admired; but at the same time, now that we have had a chance to watch her for some seven weeks, I don't believe she's ready to be president of the United States, which is the job of the vice president. And so that raised some question in my mind as to the judgment that Senator McCain made.
On the Obama side, I watched Mr. Obama and I watched him during this seven-week period. And he displayed a steadiness, an intellectual curiosity, a depth of knowledge and an approach to looking at problems like this and picking a vice president that, I think, is ready to be president on day one ...
I also believe that on the Republican side over the last seven weeks, the approach of the Republican Party and Mr. McCain has become narrower and narrower. Mr. Obama, at the same time, has given us a more inclusive, broader reach into the needs and aspirations of our people. He's crossing lines -- ethnic lines, racial lines, generational lines ...
And I've also been disappointed, frankly, by some of the approaches that Senator McCain has taken recently ... This Bill Ayers situation that's been going on for weeks became something of a central point of the campaign. But Mr. McCain says that he's a washed-out terrorist. Well, then, why do we keep talking about him?
And why do we have these robocalls going on around the country trying to suggest that, because of this very, very limited relationship that Senator Obama has had with Mr. Ayers, somehow, Mr. Obama is tainted. What they're trying to connect him to is some kind of terrorist feelings. And I think that's inappropriate ...
And the [Republican] party has moved even further to the right, and Governor Palin has indicated a further rightward shift. I would have difficulty with two more conservative appointments to the Supreme Court, but that's what we'd be looking at in a McCain administration ...
So, when I look at all of this ... I come to the conclusion that because of his ability to inspire, because of the inclusive nature of his campaign, because he is reaching out all across America ... I think he is a transformational figure. He is a new generation coming into the world -- onto the world stage, onto the American stage, and for that reason I'll be voting for Senator Barack Obama ...
MR. BROKAW: I want to ask you about your own role in the decision to go to war in Iraq. Barack Obama has been critical of your appearance before the United Nations at that time. Bob Woodward has a new book out called "The War Within," and here's what he had to say about Colin Powell and his place in the administration: "Powell ... didn't think (Iraq) was a necessary war, and yet he had gone along in a hundred ways, large and small ..."
What's the lesson in all of that for a ... new secretary of state or for a new national security adviser, based on your own experience?
GEN. POWELL: ... I thought the evidence was there. And it is not just my closing of the whole deal with my U.N. speech. I know the importance of that speech, and I regret a lot of the information that the intelligence community provided us was wrong ...
It was easy to get to Baghdad, but then we forgot that there was a lot more that had to be done. And we didn't have enough force to impose our will in the country or to deal with the insurgency when it broke out, and that I regret ...
[General Eric Shinseki ... When questioned during a hearing before the Senate in 2003, the Kauai-born West Point graduate gave a straightforward assessment that several hundred thousand soldiers would be needed to stabilize Iraq after an invasion. His prescient judgment was ridiculed by then-Defense Secretary Donald Rumsfeld, among others. The general then found himself marginalized until he retired -- so much for Bush listening to the advice of those "on the ground."]
MR. BROKAW: Removing the weapons of mass destruction from the equation, because we now know that they did not exist, was it then a war of necessity or just a war of choice?
GEN. POWELL: Without the weapons of mass destruction present, as conveyed to us by the intelligence community in the most powerful way, I don't think there would have been a war ...
MR. BROKAW: Finally, if Senator Obama is elected president, will there be a place for Colin Powell in that administration? Maybe as the ambassador at large in Africa or to take on the daunting task of resolving the Israeli/Palestinian issue?
GEN. POWELL: ... I have always said if a president asks you to do something, you have to consider it. But I am in no way interested in returning to government. But I, of course, would sit and talk to any president who wishes to talk to me ...''
[Timeline of the Credit Crisis to 10-22-08]
ARTICLE from Mother Jones, 7-1-08, July/August 2008 Issue, By Nomi Prins
``Where Credit Is Due: A Timeline of the Mortgage Crisis
1913: Federal Reserve Act creates national banking system ...
1933: With memories of 1929 stock crash still fresh, Glass-Steagall Act separates "commercial banks" focusing on consumer activities (checking, savings) from "investment banks," which deal with speculative trading and mergers.
1968: Truth in Lending Act requires banks to disclose loan terms and fees ...
1984: S and Ls start crashing in Texas as oil boom peters out. More than 1,000 thrifts nationwide will fail between 1986 and 1995; debacle will cost $500 billion, including $124 billion in taxpayer money.
April 2, 1987: Sen. John McCain meets with federal regulators to discuss investigation of Lincoln Savings and Loan. The thrift's owner, Charles Keating, was the senator's business partner and campaign contributor, and flew McCain around on his private jet.
Sept, 1987: Drexel Burnham Lambert, home to "junk-bond king" Michael Milken, creates "collateralized debt obligations" (cdos) -- securities made up of myriad loans and bonds with different risk levels.
Dec 9, 1988: Silverado S and L collapses, leaving $1.3 billion taxpayer liability; board members include Neil Bush, who engineered loans to friends in what federal Office of Thrift Supervision will call "multiple conflicts of interest." Bush later tells Congress a few of his deals may have looked "a little fishy."
Feb 6, 1989: President George H.W. Bush bails out S&L industry; among those helped is his son, Jeb, as government takes over most of a $5 million second mortgage on his Miami office building.
Sept 30, 1995: Congress enacts Truth in Lending Act "reform," easing regulations on creditors; bill powered through by Rep. Bill McCollum (R-Fla.), a key recipient of finance, insurance, and real estate (fire) donations ($136,000 in 1993-94).
Dec 22, 1995: As part of Newt Gingrich's Contract With America, Congress enacts a measure making it more difficult to sue companies for securities fraud.
Aug 2, 1996: Office of Thrift Supervision issues rule preempting almost all state laws regulating S&L credit activities ...
April 1998: Citicorp and Travelers announce biggest-ever corporate merger ($70 billion); transaction technically illegal under Glass-Steagall; CEO Sandy Weill launches $12 million campaign to repeal law ...
Nov 1999: Gramm-Leach-Bliley Act guts Glass-Steagall, setting off wave of megamergers among banks and insurance and securities companies. Driving force is Sen. Phil Gramm (R-Texas), who has received $4.6 million from fire sector over previous decade ...
See Foreclosure Phil
Dec 14, 1999: As Congress heads for Christmas recess, Sen. Gramm attaches 262-page amendment to an omnibus appropriations bill. Commodity Futures Modernization Act will deregulate derivatives trading, give rise to Enron debacle, and open door to an explosion in new, unregulated securities ...
NEWS ARTICLE from The Plain Dealer, 9-18-08, by Teresa Dixon Murray
``Banking crisis timeline
1990s: Banks, very simply, sell money. In the 1990s, they started running out of qualified borrowers to lend to and started relaxing their standards for all types of lending, from mortgages to credit cards. Government regulators didn't step in.
Mid-1990s to early 2000s: As more people could qualify to borrow money for houses, increased demand for homes drove up prices.
Mid-1990s to 2005: Increased home values allowed more people to borrow against their homes or to use home equity to pay off credit cards, buy cars or run up other debts.
2000 to 2005: Subprime lending soared. Disregard for lending standards and laws allowed all kinds of fraudulent lending to occur, made possible by bogus appraisals, no proof of income and no-money-down loans. Important point: Not all the improper lending was subprime, meaning high-interest ...
2006: Lending money to people who shouldn't qualify was a game of hot potato. Banks sold loans to others, who bundled them and sold them again ... As investors began to question whether some high-risk loans were solid, banks started having trouble selling the loans they had originated.
Early 2007: Fear over subprime loans started spreading to other loans, such as those requiring no proof of income.
Summer 2007: Stock prices at many major banks started falling as investors grew nervous. American Home Mortgage, one of the nation's top 10 subprime lenders, closed ...
Late summer to early fall 2007: Banks started having trouble selling anything except the squeakiest clean mortgages ...
ARTICLE from Mother Jones, 7-1-08, continued
Oct 7, 2002: Swiss investment bank UBS [Union Bank of Switzerland] announces that Sen. Gramm is joining it to "advise clients on corporate finance issues and strategy"; he will also lobby Congress, Treasury, and Fed on banking and mortgage issues as industry pushes to eliminate predatory-lending rules ...
July 10, 2006: Henry M. Paulson Jr. sworn in as Treasury secretary, leaving job as Goldman Sachs chairman and ceo. In 2005, Goldman securitized $68 billion in residential mortgages and $23 billion in "other assets" primarily related to cdos ...
March 12, 2007: Sen. John McCain's presidential campaign announces that Sen. Gramm will join it as cochair and economic policy adviser ...
[Fall 2007: Virtually every type of financial services firm, from banks to brokerages, was caught with the hot potato, holding mortgages that weren't worth as much as they thought ...
Winter 2007 to spring 2008: Commercial and investment banks scrambled to raise billions from private investors and foreign countries. Citigroup got $7.5 billion from Abu Dhabi; UBS got $10 billion from Singapore and the Middle East; Washington Mutual raised $5 billion from private investors; National City Bank raised $7 billion, also from private investors.
January, 2008: The nation's largest mortgage lender, Countrywide, was rescued from failure by selling to Bank of America.]
March 16, 2008: Bear Stearns announces takeover by JPMorgan Chase in Fed-engineered bailout; measure approved by Fed Board of Governors with fewer votes than required by law, under a post-9/11 "national security emergency" exception.
March 25, 2008: In speech on housing market, Sen. McCain calls for easing crisis by "removing regulatory, accounting, and tax impediments to raising capital." ...
May 6, 2008: Bush announces he will veto legislation directing $15 billion to neighborhoods ransacked by foreclosures. Also threatens to veto legislation to provide $300 billion for struggling homeowners ...''
[July 2008: Mortgage trouble and plummeting consumer confidence caused a run by depositors on California's IndyMac Bank. It became the second-largest bank failure in history.
September, 2008: Mortgage giants Freddie Mac and Fannie Mae, which held nearly half the nation's mortgages, were taken over by the federal government.
Much of Freddie's and Fannie's debts were held by foreign central banks, particularly in China and Japan. If these central banks lost confidence in Freddie and Fannie, that could have caused interest rates through the United States to skyrocket and could have caused the value of the dollar to drop more.
Week of 9-15-08: Investment bank Lehman Brothers went bankrupt.
Merrill Lynch, the nation's largest brokerage, avoided collapse by agreeing to get bought by Bank of America.]
9-16-08: Government Announces $85 Billion Emergency Loan to Rescue AIG. Feds say a failure of the company could be devastating to the financial markets as well as the economy. This is in exchange for a nearly 80% equity stake in the company.
AIG, the world's largest insurance company, reached crisis levels thanks to billions of dollars in losses related to guarantees it wrote on mortgage investments that went bust.
9-19-08: Treasury temporarily guarantees money-market funds against losses up to $50 billion.
9-21-08: Goldman Sachs, Morgan Stanley to Become Bank Holding Companies The Federal Reserve approves transformation of Morgan Stanley (MS) and Goldman Sachs (GS) into bank holding companies from investment banks in order to increase oversight and allow them to access the Fed's discount window.]
NEWS ARTICLE from Times Online, 9-26-08, by Gerard Baker
``Bailout TimeLine for September 25, 2008
10 am [9-25-08] (US Eastern) Barack Obama and John McCain expected in Washington to agree to bipartisan bailout deal worth $700 billion to shore up the American financial market ...
Midday [9-25-08] Nancy Pelosi, Democratic leader of the House of Representatives, informs the media that progress was being made while cross-party talks continued behind closed doors. She said President Bush's agreement to limit pay for executives and giving taxpayers an equity stake was cause for optimism.
1 pm [9-25-08] After two hours of negotiations Democratic and Republican senators emerge from talks saying an agreement has been reached in principle ... The Dow Jones responds by moving up 302.02.
2 pm [9-25-08] Conservative rebels in the House of Representatives are reportedly offering an alternate solution ... [that] would see tax breaks ... to shore up the toxic American mortgage market ...
3 pm [9-25-08] Congressional aides say the tentative agreement reached so far only backs a tiny proportion of the bailout with a proposed $250 billion available to the banks immediately. The Dow Jones plummets -- with 144.96 points wiped off the day's high ...
6 pm [9-25-08] The White House meeting ends acrimoniously with no agreement in place ...
7 pm [9-25-08] The largest retail bank failure in American history is confirmed as federal regulators seize Washington Mutual and sell it's mortgage book to JP Morgan ...
9 pm [9-25-08] After reports that John McCain had decided that the bailout was unacceptable in its existing form, his campaign team releases a statement: "The plan that has been put forth by the [Bush] administration ... will not protect the taxpayers ..."
10:30 pm [9-25-08] The desperate negotiations come to an end for the day.
3am [9-26-08] Asian markets open and promptly tumble at the prospect of a failed rescue package. The Nikkei 225 falls 113 points in Japan, and the Shanghai Stock Exchange follows suit.
TIMELINE from SmartMoney.com
[9-29-08: The Federal Reserve makes an extra $330 billion available to other central banks, boosting to $620 billion the amount available to the central banks through currency swap arrangements, where dollars are traded for their currencies. It also triples to $225 billion the amount available for short-term loans to U.S. financial institutions.]
9-29-08: The House of Representatives rejects the $700 billion rescue bill by a 228-205 vote.
9-29-08: The Dow falls 777.68 points to mark its largest one-day point loss in history. The decline is spurred by the House of Representative's rejection of the $700 billion rescue plan.
10-1-08: The Senate passes an amended proposed bailout bill, putting pressure on the House to do the same.
10-3-08: House Approves Bailout, Bush Signs Bill After the House voted in favor of the bailout 263-171, President George W. Bush quickly signed it ...
10-6-08: Dow Drops Below 10,000
For the first time since 2004, the Dow Jones industrials dropped below 10,000. At one point during the day, the Dow was down 800 points before it rallied near closing to finish the day down 369 at 9,955.50.
TIMELINE from the Boston Herald, By Associated Press Sunday, October 12, 2008
10-6-08: The Fed increases a short-term loan program, saying it is boosting short-term lending to banks to $150 billion and that, by year's end, $900 billion in potential overall credit will be outstanding. It also says it will begin paying interest on reserves that banks keep with the Fed in hopes of coaxing banks into keeping more money on deposit at the central bank.
10-7-08: The Fed says it will buy unsecured short-term debt, or commercial paper, from firms.
10-8-08: The Fed cuts the federal funds rate a half percentage point, to 1.5 percent. It follows a one-quarter point cut April 30 and a three-quarter point cut March 18 .
10-9-08: AIG Gets Another Loan From Feds The Federal Reserve agrees to provide AIG with a loan of up to $37.8 billion, on top of the $85 billion loan it received in September 2008.
10-9-08: Dow Falls Below 9,000
ARTICLE from The Taipei Times, Sunday, 10-12-2008
BAGHDAD -- ... US and Iraqi officials have said they are close to an agreement that would replace the UN mandate for US forces in Iraq that expires on 12-31 . But the most contentious issue, legal jurisdiction and immunity for US troops under Iraqi law, remains unresolved.
Al-Maliki said the US had made major concessions, including agreeing to pull US forces back to their bases by the end of June  and to a full withdrawal by 12-31-2011 ...
One senior US official, close to the talks, confirmed on Friday [10-10-08] that the US had agreed to the June  and 2011 dates.
[So much for "conditions on the ground." Remember that General Eric Shinseki was ignored in 2003 when he said that the Iraqi borders could not be secured without 300,000 American soldiers.]
(CNN) -- Timeline: Banking crisis
10-10-08: Black Friday
10-13-08: Bank of England loans $174 million to Icelandic bank Landsbanki to help repay UK depositors.
10-14-08: Iceland in talks with Russia to negotiate emergency loan of $5.44 billion after bank collapses.
US follows UK lead by part-nationalizing banks.
TIMELINE from Reuters, 10-19-08
``Rescue summit planned as financial chaos continues
(Reuters) -- Trading will never be the same.
10-14-08: Japan joins the global push, saying it could inject public funds into regional banks. The Nikkei surges more than 14 percent -- the biggest one-day gain in its history.
[Government ownership of the means of production, in other words "socialism", is okay if it benefits the wealthy.]
10-16-08: UBS [Union Bank of Switzerland] AG is to get a 6 billion Swiss franc ($5.30 billion) injection from the state in return for a 9.3 percent shareholding. Switzerland's other major bank, Credit Suisse Group, says it will raise 10 billion from outside investors to insulate themselves from the crisis.''
ARTICLE from Mother Jones, 11-1-08, By Peter Stone
November/December 2008 Issue
``UBS's Offshore Shell Game
The investment firm where former McCain adviser and ex-Senator Phil Gramm serves as a vice chairman is taking heat for helping affluent Americans cheat the US Treasury out of some $2 billion, but the world might never have known had Bradley Birkenfeld not sung like a canary.
The Boston-bred Birkenfeld was a banker for UBS, a Swiss financial behemoth with major US operations. His specialty: devising tax shelters in the form of offshore shell companies and peddling them to the super-rich ...
According to court documents, 85 to 90 bankers in UBS's wealth-management divisions drummed up business ... It was one of Birkenfeld's biggest clients who would prove his undoing, Igor Olenicoff, a Forbes 400 billionaire and major developer in Florida, Illinois, Nevada, and the Southwest ...
Once the feds had Olenicoff, it was a short jump to Birkenfeld, who left UBS in 2006 and began to cooperate. He admitted to the agents that he and fellow UBS bankers had helped Olenicoff and other wealthy clients hide their assets via fictitious firms in Switzerland, Liechtenstein, Panama, and the British Virgin Islands.
Birkenfeld ... also advised Olenicoff to destroy banking records and use only Swiss credit cards to throw Uncle Sam off the trail. In June , Birkenfeld arrived in a Fort Lauderdale courtroom in his gray pin-striped suit, looking forlorn as he pleaded guilty to charges of conspiracy and facilitating tax fraud ...
Birkenfeld ... told [a Congressional] committee that UBS had even trained him in illegal procedures, and outfitted his laptop with encryption software to make its contents inscrutable to US agents. UBS doesn't deny that its American clients keep some $18 billion in 19,000 undeclared Swiss accounts, investments that earned UBS about $200 million per year, Birkenfeld told prosecutors ...''
TIMELINE by Kristin Jones, ProPublica, October 22, 2008
``Fed to the Rescue: A Timeline
September 14, 2008:
The Fed broadens the types of collateral that investment banks can post for two emergency loan programs and increases the loans frequency and dollar limit. Stocks are now accepted as collateral in the overnight lending program.
September 15, 2008:
The Fed proposes to relax an accounting rule for banks, lowering the capital they are required to have on hand.
September 16, 2008:
The Fed authorizes an $85 billion loan to AIG. The move gives the federal government an 80 percent stake in the beleaguered insurance company and amounts to a takeover.
September 18, 2008:
The Fed expands currency swap lines (essentially a kind of loan). It established the program late last year with the European Central Bank and the Swiss National Bank, and it announces new swap lines with the Bank of Japan, the Bank of England and the Bank of Canada. The Fed's injection of an additional $180 billion in credit to other central banks is intended to boost the flow of dollars available for overnight and short-term lending worldwide. The swaps are authorized through January 30, 2009.
September 19, 2008:
The Fed temporarily eases restrictions on the amount of leverage allowed for banks, letting them have less money on hand. A second rule relaxes limits on transactions between banks and their affiliates, allowing the Federal Reserve to use the banks as intermediaries with the money markets.
It also announces its plan to buy from banks the short-term debt, called discount notes, issued by Fannie Mae and Freddie Mac.
September 21, 2008:
The Fed approves the bid for Morgan Stanley and Goldman Sachs to become bank holding companies and extends credit to them. This move subjects the two banks to greater regulation and greater federal government protection. The approval is pending a five-day antitrust waiting period.
September 22, 2008:
The five-day waiting period for Morgan Stanley and Goldman Sachs is waived. To facilitate the transition, the Fed eases limitations on private investments in bank holding companies.
September 24, 2008:
The Fed establishes currency swap lines with central banks in Australia, Sweden, Denmark and Norway. The new injection of $30 billion is in addition to currency swap lines already established with other central banks, and is similarly intended to ease pressure on the short-term funding markets.
September 26, 2008:
It announces another $13 billion in currency swaps with the European Central Bank and the Swiss National Bank.
September 29, 2008:
The Fed dumps hundreds of billions more into the credit market. It triples the cash it lends to commercial banks in an emergency program set up last year, from $25 billion to $75 billion on an 84-day term. It also announces that in November it will conduct two additional cash auctions totaling $150 billion but does not specify their term or timing. These auctions are an effort to get banks to start lending to each other again.
The Fed also boosts the amount of currency it is exchanging with other foreign banks in another emergency credit program, this time reaching a total of $620 billion from its previous $290 billion. The currency swaps are now authorized through April 30, 2009.
October 6, 2008:
The Fed makes two significant announcements. The first is that it will pay interest on reserves that banks leave on deposit with the Fed. This move is intended to encourage banks to deposit more money with the Fed, giving it extra resources for its many new lending programs. The second announcement is that it is considering ways to provide additional support for unsecured funding markets, indicating for the first time that it's open to lending directly to companies.
The Fed also increases its loans to banks in an emergency cash auction program to $900 billion.
October 7, 2008:
The Fed says it will buy corporations' short-term debt, making it into a last-resort lender not only for banks but for companies as well. The radical new program known as the Commercial Paper Funding Facility responds to a developing crisis in which banks have been refusing to lend companies vital short-term funding. The program is authorized through April 30, 2009.
October 8, 2008:
Five other central banks join the Fed in coordinating an interest rate cut, another unprecedented move designed to boost global spending. China's central bank also cuts its key interest rate.
Discussions begin with the bond firm PIMCO about managing the Fed's new program that lends short-term funding to corporations.
The Fed also says it will loan an additional $37.8 billion to AIG for its securities lending program. This new loan to AIG is in addition to a previous $85 billion to the company.
October 13, 2008:
The Fed announces that three central banks -- the Bank of England, European Central Bank and Swiss National Bank -- can now borrow dollars in unlimited amounts. Japan is considering a similar arrangement. The offer expires April 30, 2009.
October 14, 2008:
New details are released on the Fed's program to buy commercial paper: PIMCO will manage it, State Street bank will administer it, and it will go into effect on October 27. Also on October 14, it was announced that State Street is one of the banks to receive a federal bailout.
October 20, 2008:
The Fed finalizes a rule requiring mortgage lenders to make more disclosures about subprime mortgages. The new rule doesn’t go into effect until October 2009.
October 21, 2008:
The Fed unveils yet another program designed to ease pressure on the credit market by flooding it with cash. This one, called the Money Market Investor Funding Facility, will give as much as $540 billion in short-term loans to help shore up money market mutual funds.
October 22, 2008:
The Fed raises the interest rate it pays on banks' reserve deposits. Again, the move is meant to encourage banks to deposit more money with the Fed, giving it extra firepower for its now numerous new lending programs.''
NEWS ARTICLE from The Plain Dealer, 10-27-08,
by Teresa Dixon Murray, Plain Dealer Reporter
[The demise of Cleveland's National City Bank]
``Four key periods led to National City sale [on 10-24-08]
The sale of National City to PNC Financial Services [of Pittsburg] has its roots in decisions made years ago ...
How did one of the nation's top 10 banks, which was founded when Abraham Lincoln was just a prairie lawyer, become the latest casualty in the nation's financial mess? ...
The events that caused National City's collapse can be traced to four periods of time:
But the $10 billion hangover caused by First Franklin's high-risk loans ended up being the biggest weight around National City's neck.
Here's a closer look at what happened to National City during each of those periods:
The late 1990s
... The bank bought California-based First Franklin from Bank of America for $266 million in 1999. First Franklin specialized in loans for people with lousy credit ratings who could qualify for mortgages only at high interest rates. First Franklin did $4 billion in loans in 1999. By 2003, it did $30 billion.
In addition, National City started advertising it had billions to lend and wanted help from mortgage brokers nationwide. But outside brokers were often in the business only for a quick buck and didn't necessarily care whether the loans were solid. That lack of control left National City, in the end, with a lot of loans that no one wanted to buy.
Most of the problem broker loans were "piggyback loans." These allowed homebuyers to have little or no down payment and no private mortgage insurance in case of default.
A piggyback loan works like this: A buyer with no down payment gets an 80 percent first mortgage at a low rate and a 20 percent second mortgage -- a home equity loan -- at a slightly higher rate.
Since the buyer had no money in the home and no equity, the loans were undesirable when home values started dropping. In many cases, people owed more on their two loans than the homes were worth.
When the mortgage mess started in August 2007, National City was caught holding $11 billion worth of these home equity loans that it couldn't sell. That was about 10 percent of the bank's total loan portfolio.
Daberko's mission of making National City a mortgage giant was accomplished by 2003, when mortgage profits started hitting $1 billion a year. That $1 billion was a whopping one-half of National City's annual profits.
In an interview in May 2006, Daberko crowed that National City was writing $130 billion in mortgages a year and had become the sixth-largest lender nationwide, behind companies like Washington Mutual and Countrywide, both of which collapsed this year . Daberko gushed that his strategic plan "was wildly successful." ...
Interestingly, National City's new owner, PNC, sold its mortgage operation in 2002 when the business was booming. Chairman and CEO Jim Rohr said he believed mortgages, even prime ones, were too volatile and risky.
National City Chairman and CEO Peter Raskind, in an interview early this year , said he wanted to scale back the mortgage business, particularly loans through brokers, long ago. Daberko trumped him, however ...
When Raskind became CEO in July 2007, he immediately started curbing the mortgage business, but it was too late. National City had about $25 billion in risky loans, more than the market value of the whole bank.
Raskind, said earlier this year that executives first talked about selling First Franklin in 2005 because they sensed the subprime party was ending.
But National City just couldn't let go of First Franklin. It took until late 2006 to sell the division. It looked like a masterful decision: National City bought First Franklin in 1999 for $266 million and sold it for $1.3 billion to Merrill Lynch. During those seven years, National City raked in $1.7 billion in profits from First Franklin.
The problem: Merrill bought only $6 billion of the First Franklin loans; it said the other $10 billion were too risky even for subprime loans. The $10 billion that National City had to swallow made up half of the risky loans the bank was holding in August 2007 -- the ones that ultimately brought it down.
If National City had sold First Franklin and the whole $16 billion portfolio six to 12 months earlier, National City almost surely would still be intact today.
2006 to early 2007
Richard DeKaser became National City's chief economist in 1999 after a career that included positions at BankBoston and the U.S. Department of Commerce. DeKaser quickly gained a reputation as one of the top economists in the country, particularly on housing.
In summer 2006, he issued a research report that screamed about trouble ahead. He said that the housing market was heading for a meltdown and that companies heavy in the mortgage market were facing trouble.
DeKaser's report was well-read in economic circles, but apparently unheeded by his own employer ...
Just a few months later was when National City spent the precious $2 billion on the two banks in Florida -- a state that would be crushed by declining property values and foreclosures.
In another step toward oblivion, National City bought back more than $3 billion worth of its own stock in early 2007, when the price was around $38 -- the highest in years.
The company's board even approved buying back more shares in April 2007, after the first quarter had closed and executives knew profits had dropped by nearly one-third because of the sour housing market.
Analyst Jeff Davis of Wolf River Capital in Nashville said the $3 billion stock buyback "was a signal that management and the board didn't have a clue as to the storm they were facing. ... There were other banks that were battening down the hatches, and National City wasn't."
The past seven weeks [ending with 10-24-08]
Despite everything that had happened, it appeared National City could survive its mistakes, at least for the short term. That changed in September , when the government took over Freddie Mac and Fannie Mae, the monster mortgage underwriters.
At the beginning of September, National City's stock was trading above $5. A few weeks later, it closed at $1.36 and the bank's credit ratings were cut by two major ratings agencies.
"Freddie Mac and Fannie Mae was the turning point for lot of this," said Graeme Deans, a partner with consulting firm A.T. Kearney of Toronto ... Deans said the government is trying to get rid of all of the potential problems after the embarrassing collapses of Lehman Brothers, AIG, Washington Mutual and Wachovia ...''
``Posted by [Commentator 1] on 10/27/08
David Daberko -- You will be known as one of the worst bankers in the History of Cleveland and the State of Ohio.
You are right up there with [Charles] Keating.
To Peter Raskind and the Executive Staff -
Was your vision blinded by the quick dollar? Anyone with a brain saw this train wreck coming down the track. As a shareholder, I wish you would return your millions from your poor decisions over the past several years.
To PNC CEO Rohr -
If you are smart, get rid of NCB Senior Management - they already have a track record and it isn't good.
Posted by [Commentator 2] on 10/27/08
JON E. BARFIELD, Chairman and President of The Bartech Group, Inc., a provider of engineering and information technology staffing services, business process consulting and outsourced vendor management services, since 1995. Director of BMC Software, Inc. and CMS Energy Corporation. Director of National City since 1998.
JAMES S. BROADHURST, Chairman and Chief Executive Officer of Eat'n Park Hospitality Group, Inc., a chain of family restaurants and a provider of contract dining services, since 1984. Director of National City since 1996.
CHRISTOPHER M. CONNOR, Chairman and Chief Executive Officer of The Sherwin-Williams Company, a global producer in the paint and coatings industry, since April 2000. Director of Eaton Corporation. Director of National City since 2002.
BERNADINE P. HEALY, M.D., Medical Columnist and Health Editor, U.S. News & World Report, since September 2002. Director of Ashland Inc., Invacare Corporation and The Progressive Corporation. Director of National City since 2003 and previously a director of National City from 1995 to 2001 and 1989 to 1990.
JEFFREY D. KELLY., Chief Financial Officer of National City since 2000 and Vice Chairman since December of 2004 and previously Executive Vice President from 1994 to December 2004. Director of The Progressive Corporation. Director of National City since 2007.
ALLEN H. KORANDA, Chairman and Chief Executive Officer of MAF Bancorp, Inc. from 1989 until its acquisition by National City in September 2007, and Chairman and Chief Executive Officer of Mid America Bank, MAF Bancorp, Inc.'s banking subsidiary, from 1984 until 2007. Director of National City since 2007.
MICHAEL B. McCALLISTER, President and Chief Executive Officer of Humana Inc., a provider of coordinated health insurance coverage and related services for employer groups, government-sponsored programs and individuals, since February 2000. Director of Humana Inc. Director of National City since 2006.
PAUL A. ORMOND, Chairman, President and Chief Executive Officer of HCR ManorCare, Inc. (formerly Manor Care, Inc.), a provider of long-term care, skilled nursing and rehabilitative services, since 1991. Director of National City since 1999.
PETER E. RASKIND, Chairman, President and Chief Executive Officer of National City. Mr. Raskind has been Chairman since December 2007, Chief Executive Officer since July of 2007 and President since December 2006 and was previously Vice Chairman from December 2004 to December 2006 and Executive Vice President from 2000 to December 2004. Director of National City since 2006.
GERALD L. SHAHEEN, Group President of Caterpillar Inc., a manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, from 1998 until his retirement in February of 2008. Director of AGCO Corporation and Ford Motor Company. Director of National City since 2001.
Richard E. Thornburgh, Vice Chairman of Corsair Capital LLC, a private equity investment company with more than $1 billion invested in financial services companies worldwide, including banks, insurers, asset managers, and specialty lenders. He is currently a member of the Board of Directors Credit Suisse Group. Director of National City Corporation since May 2008.
JERRY SUE THORNTON, Ph.D., President of Cuyahoga Community College, a provider of post-secondary education, since 1992. Director of RPM International Inc., Applied Industrial Technologies, Inc. and American Greetings Corporation. Director of National City since 2001.
MORRY WEISS, Chairman of American Greetings Corporation, a greeting card manufacturer, since 1992. Chief Executive Officer of American Greetings Corporation from 1987 to June 2003. Director of National City since 1993.''
NEWS ARTICLE from The Plain Dealer, 10-29-08,
by Sabrina Eaton, Plain Dealer Washington Bureau
``Treasury official denies steering bailout money to PNC for National City buy
WASHINGTON -- A Treasury Department official on Tuesday angrily denied Rep. Steve LaTourette's suggestions that he orchestrated PNC Financial Services Group's purchase of National City Bank with federal bank bailout dollars because he was a PNC attorney before taking his government job.
"The suggestion is absolutely baseless ... Comptroller of the Currency John C. Dugan wrote in a letter to LaTourette. Dugan's letter replied to correspondence LaTourette sent Monday to Treasury Secretary Henry Paulson, which questioned whether Dugan "steered $7.7 billion of taxpayer bailout money to his former client, PNC, so it could buy National City Bank." ...
After reviewing Dugan's letter, LaTourette said he was "sorry if I touched a nerve, but my concern is not for Mr. Dugan's feelings but instead for the thousands of people in Northeast Ohio whose jobs are at risk and the many shareholders of National City Bank who wonder how their government could do something so harmful as part of a so-called rescue package ...
"The administration should not use financial rescue funds for a mergers-and-acquisitions bonanza," said Sen. Sherrod Brown, a Democrat from Avon. "If Secretary Paulson wants to attack a credit crisis, he should be pushing banks to make loans instead of buying other banks." ...
Posted by [Commentator 3] on 10/29/08
This whole thing is so dirty. First, anyone who reads the account of what transpired published by the Wall Street Journal would be astonished at what actually happened and why there will be no more National City (Thanks to John C. Dugan) ...
Posted by [Commentator 4] on 10/29/08
... So, what will the consumers who need mortgages do when PNC completely shuts down NCC's mortgage lending. Not all of NCC's mortgages are "toxic" as the press has deemed ... As I understand it, though, PNC got out of mortgage lending altogether and they intend to do the same in the NCC footprint ...''
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