Implications, Vulnerabilities, and Aftershocks, Part 2

The past three weeks have likely been tougher than President Bush expected following his September 19 announcement of a $700 billion bailout plan to buy bad debt and mortgages.

Two days after the announcement, Goldman Sachs and Morgan Stanley received approval from the Federal Reserve to change from investment banks to bank holding companies. The move allowed them to qualify for the Fed’s emergency loan program.

In the next several days, President Bush asked members of Congress, including John McCain and Barack Obama, to develop what would hopefully be a successful bailout plan. While this effort was under way, Washington Mutual, with $307 billion in assets, became the nation’s largest thrift failure.

More nerve-racking events followed.

September 29—Citigroup said it would buy most of Wachovia’s banking operations for $2.1 billion in stock. But on this same day, the U.S. House rejected President Bush’s $700 billion rescue plan by a vote of 228-205. The Dow Jones Industrial Average suffered its largest one-day drop in history, falling 777.68 points.

October 1—The U.S. Senate approves an amended version of the bailout plan.

October 3—Wells Fargo announces that it will acquire all of Wachovia for $14.8 billion, and the House approves the amended bailout plan, which is signed by President Bush.

October 6—Despite approval of the bailout plan just three days earlier, the Dow falls below 10,000 for the first time since 2004.

October 8—AIG receives an extra $37.8 billion from the Federal Reserve—in addition to the $85 billion it received in September.

October 9—For the first time in five years, the Dow falls below 9,000.

October 10—Wells Fargo defeats Citigroup in its battle for Wachovia, but the Dow falls 700 points in the first five minutes of trading. It actually dips below the 8,000 mark but rises dramatically to close just 128 points down.

October 12—Leaders of the European Union approve a proposal to help failing banks. Also during the weekend, there is talk of a merger between U.S. automakers Chrysler and GM, which had issued a statement on Friday saying that it was not considering bankruptcy. GM’s shares had fallen more than 30 percent on the previous day, closing at only $4.76.

October 13—The nation’s financial picture brightens as the Dow ends the day 936 points higher. Experts are hoping that the stock market figures recorded on October 10 represent the bottom of the pit and that the market will now recover.