INDEX

Overview..........................................................................................................................2 Pre-recession economic imbalances:...............................................................................5 Commodity boom........................................................................................................5 Housing bubble:...........................................................................................................7 Inflation:....................................................................................................................... Causes.............................................................................................................................. !ebate over origins......................................................................................................" #ffects............................................................................................................................$$ Political instability related to t%e economic crisis.........................................................$2 Policy res&onses.............................................................................................................$' I() recommendation.................................................................................................$5 *nited +tates &olicy res&onses...................................................................................$5 ,sia-Pacific &olicy res&onses....................................................................................22 #uro&ean &olicy res&onses.........................................................................................2.lobal res&onses........................................................................................................2' Countries maintaining growt% or tec%nically avoiding recession:.................................2/ Countries in economic recession or de&ression.............................................................27 Com&arisons wit% t%e .reat !e&ression........................................................................-0 In t%e *nited +tates:...................................................................................................-$ In t%e *nited 1ingdom..............................................................................................-' In Ireland....................................................................................................................-5 2ob losses and unem&loyment rates:..............................................................................-/ #conomics 3 Investing: 4is5s of a 200 style crisis are rising.........................................-/

INTRODUCTION: The late-2000s recession, by some called the reat Recession or !esser De"ression, is a se#ere on$oin$ $lobal economic "roblem that be$an in December 200% and too& a "artic'larly shar" do(n(ard t'rn in )e"tember 200*+ The reat Recession has a,,ected the entire(orld economy, (ith hi$her detriment in some co'ntries than others+ It is a $lobal recession characteri-ed by #ario's systemic

imbalances and (as s"ar&ed by the o'tbrea& o, the late-2000s ,inancial crisis+ There are t(o senses o, the (ord .recession.: a less "recise sense, re,errin$ broadly to .a "eriod o, red'ced economic acti#ity., and the scienti,ic sense 'sed most o,ten in economics, (hich is de,ined o"erationally, re,errin$ s"eci,ically to the contraction "hase o, a b'siness cycle, (ith t(o or more consec'ti#e /'arters o, ne$ati#e D0 $ro(th+ 1y the economic-science de,inition o, the (ord .recession., the reat Recession ended in the U+)+ in 2'ne or 2'ly 2003+ 4o(e#er, in the broader, lay"erson sense o, the (ord, many "eo"le 'se the term to re,er to the on$oin$ hardshi" 5in the same (ay that the term . reat De"ression. is also "o"'larly 'sed6+ In the U+)+, ,or e7am"le, "ersistent hi$h 'nem"loyment remains, alon$ (ith lo( cons'mer con,idence, the contin'in$ decline in home #al'es and increase in ,oreclos'res and "ersonal ban&r'"tcies, an escalatin$ ,ederal debt crisis, in,lation, and risin$ $as and ,ood "rices+ In ,act, a 2088 "oll ,o'nd that more than hal, o, all 9mericans thin& the U+)+ is still in recession or e#en de"ression, des"ite o,,icial data that sho(s a historically modest reco#ery+

O#er#ie( 9ccordin$ to the U+)+ National 1'rea' o, Economic Research 5the o,,icial arbiter o, U+)+ recessions6 the recession be$an in December 200%+ The ,inancial crisis is lin&ed to rec&less lendin$ "ractices by

,inancial instit'tions and the $ro(in$ trend o, sec'riti-ation o, real estate mort$a$es in the United )tates+ The U) mort$a$e-bac&ed sec'rities, (hich had ris&s that (ere hard to assess, (ere mar&eted aro'nd the (orld+ 9 more broad based credit boom ,ed a $lobal s"ec'lati#e b'bble in real estate and e/'ities, (hich ser#ed to rein,orce the ris&y lendin$ "ractices+ The "recario's ,inancial sit'ation (as made more di,,ic'lt by a shar" increase in oil and ,ood "rices+ The emer$ence o, )'b-"rime loan losses in 200% be$an the crisis and e7"osed other ris&y loans and o#er-in,lated asset "rices+ :ith loan losses mo'ntin$ and the ,all o, !ehman 1rothers on )e"tember 8;, 200*, a ma<or "anic bro&e o't on the inter-ban& loan mar&et+ 9s share and ho'sin$ "rices declined, many lar$e and (ell established in#estment and commercial ban&s in the United )tates and E'ro"e s',,ered h'$e losses and e#en ,aced ban&r'"tcy, res'ltin$ in massi#e "'blic ,inancial assistance+ 9 $lobal recession has res'lted in a shar" dro" in international trade, risin$ 'nem"loyment and sl'm"in$ commodity "rices+ In December 200*, the National 1'rea' o, Economic Research 5N1ER6 declared that the United )tates had been in recession since December 200%+ )e#eral economists ha#e "redicted that reco#ery may not a""ear 'ntil 2088 and that the recession (ill be the (or 0a'l =r'$man, (ho (on the Nobel >emorial 0ri-e in Economics, once commented on this as seemin$ly the be$innin$ o, .a second reat De"ression+. The conditions leadin$ '" to the crisis, characteri-ed by an e7orbitant rise in asset "rices and associated boom in economic demand, are considered a res'lt o, the e7tended

"eriod o, easily a#ailable credit inade/'ate re$'lation and o#ersi$ht, or increasin$ ine/'ality+ The recession has rene(ed interest in =eynesian economic ideas on ho( to combat recessionary conditions+ ?iscal and monetary "olicies ha#e been si$ni,icantly eased to stem the recession and ,inancial ris&s+ Economists ad#ise that the stim'l's sho'ld be (ithdra(n as soon as the economies reco#er eno'$h to .chart a "ath to s'stainable $ro(th.+

0re-recession economic imbalances: The onset o, the economic crisis too& most "eo"le by s'r"rise+ 9 2003 "a"er identi,ies t(el#e economists and commentators (ho, bet(een 2000 and 200@, "redicted a recession based on the colla"se o, the then-boomin$ ho'sin$ mar&et in the U+): Dean 1a&er, :ynne odley, ?red 4arrison, >ichael 4'dson, Eric 2ans-en, )te#e =een, 2acob 1rAchner >adsen B 2ens =<aer )Arensen, ='rt RichebCcher, Ne'ral Ro'bini, 0eter )chi,, and Robert )hiller+ 9mon$ the #ario's imbalances in (hich the U+)+ monetary "olicy contrib'ted by e7cessi#e money creation, leadin$ to ne$ati#e ho'sehold sa#in$s and a h'$e U+)+ trade de,icit, dollar #olatility and "'blic de,icits, a ,oc's can be made on the ,ollo(in$ ones: Commodity boom Further information: 2000s energy crisis and 2007 2008 world food price crisis See also: 2008 Central Asia energy crisis, 2008 ulgarian energy crisis, and 2000s commodities !oom

1rent barrel "etrole'm s"ot "rices, >ay 83*% D 9"ril 2088+ The decade o, the 2000s sa( a $lobal e7"losion in "rices, ,oc'sed es"ecially

in commodities and ho'sin$, mar&in$ an end to thecommodities recession o, 83*0D2000+ In 200*, the "rices o, many commodities, notably oil and ,ood, rose so hi$h as to ca'se $en'ine economic dama$e, threatenin$ sta$,lation and a re#ersal o, $lobali-ation+ In 2an'ary 200*, oil "rices s'r"assed E800 a barrel ,or the ,irst time, the ,irst o, many "rice milestones to be "assed in the co'rse o, the year+ In 2'ly 200*, oil "ea&ed at E8F%+G0 a barrel and a $allon o, $asoline (as more than EF across most o, the U+)+9+ The economic contraction in the ,o'rth /'arter o, 200* ca'sed a dramatic dro" in demand and "rices ,ell belo( EG; a barrel at the end o, the year+ The hi$h o, 200* may ha#e been "art o, broader "attern o, s"i&in$ instability in the "rice o, oil o#er the "recedin$ decade This "attern o, s"i&in$ instability in oil "rice may be a "rod'ct o, 0ea& Oil+ There is concern that i, the economy (as to im"ro#e, oil "rices mi$ht ret'rn to "re-recession le#els+ The ,ood and ,'el crises (ere both disc'ssed at the GFth * s'mmit in 2'ly 200*+ )'l,'ric acid 5an im"ortant chemical commodity 'sed in "rocesses s'ch as steel "rocessin$, co""er "rod'ction and bioethanol "rod'ction6 increased in "rice G+;-,old in less than 8 year (hile "rod'cers o, sodi'm hydro7ide ha#e declared ,orce ma<e're d'e to ,loodin$, "reci"itatin$ similarly stee" "rice increases+ In the second hal, o, 200*, the "rices o, most commodities ,ell dramatically on e7"ectations o, diminished demand in a (orld recession+

4o'sin$ b'bble:

U= ho'se "rices bet(een 83%; and 2080+ Further information: "eal estate !u!!le 1y 200%, real estate b'bbles (ere still 'nder (ay in many "arts o, the (orld, es"ecially in the United )tates, United =in$dom,United 9rab Emirates, Italy, 9'stralia, Ne( Healand, Ireland, )"ain, ?rance, 0oland+ U+)+ ?ederal Reser#e Chairman 9lan reens"an said in mid-200; that .at a minim'm, thereIs a little I,rothI 5in the U+)+ ho'sin$ mar&et6 +++ itIs hard not to see that there are a lot o, local b'bbles.+The #conomist ma$a-ine, (ritin$ at the same time, (ent ,'rther, sayin$ .the (orld(ide rise in ho'se "rices is the bi$$est b'bble in history.+ Real estate b'bbles are 5by de,inition o, the (ord .b'bble.6 ,ollo(ed by a "rice decrease 5also &no(n as a ho'sin$ "rice crash6 that can res'lt in many o(ners

holdin$ ne$ati#e e/'ity 5a mort$a$e debt hi$her than the c'rrent #al'e o, the "ro"erty6+

In,lation:
In ?ebr'ary 200*, Re'ters re"orted that $lobal in,lation (as at historic le#els, and that domestic in,lation (as at 80D20 year hi$hs ,or many nations+ .E7cess money s'""ly aro'nd the $lobe, monetary easin$ by the ?ed to tame ,inancial crisis, $ro(th s'r$e s'""orted by easy monetary "olicy in 9sia, s"ec'lation in commodities, a$ric'lt'ral ,ail're, risin$ cost o, im"orts ,rom China and risin$ demand o, ,ood and commodities in the ,ast $ro(in$ emer$in$ mar&ets,. ha#e been named as "ossible reasons ,or the in,lation+ In mid-200%, International >onetary ?'nd 5I>?6 data indicated that in,lation (as hi$hest in the oile7"ortin$ co'ntries, lar$ely d'e to the 'nsterili-ed $ro(th o, ,orei$n e7chan$e reser#es, the term .'nsterili-ed. re,errin$ to a lac& o, monetary "olicy o"erations that co'ld o,,set s'ch a ,orei$n e7chan$e inter#ention in order to maintain a co'ntryIs monetary "olicy tar$et+ 4o(e#er, in,lation (as also $ro(in$ in co'ntries classi,ied by the I>? as .non-oile7"ortin$ !DCs. 5!east De#elo"ed Co'ntries6 and .De#elo"in$ 9sia., on acco'nt o, the rise in oil and ,ood "rices+JF8K In,lation (as also increasin$ in the de#elo"ed co'ntries, b't remained lo( com"ared to the de#elo"in$ (orld+

Ca'ses

The $reat asset b'bble: 8+ Central ban&sI $old reser#es D E0+*F; tn+ 2+ >0 5"a"er money6 D - EG+3 tn+ G+ traditional 5,ractional reser#e6 ban&in$ assets D EG3 tn+ F+ shado( ban&in$ assets D E@2 tn+ ;+ other assets D E230 tn+ @+ 1ail-o't money 5early 20036 D E8+3 tn+

Debate o#er ori$ins

The central debate abo't the ori$in has been ,oc'sed on the res"ecti#e "arts "layed by the "'blic monetary "olicy 5in the U) notably6 and by "ri#ate ,inancial instit'tions "ractices+ On October 8;, 200*, 9nthony ?aiola, Ellen Na&ashima, and 2ill Dre( (rote a len$thy article in $he %ashington &ost titled, .:hat :ent :ron$.+ In their in#esti$ation, the a'thors claim that ,ormer ?ederal Reser#e 1oard Chairman 9lan reens"an,

Treas'ry )ecretary Robert R'bin, and )EC Chairman 9rth'r !e#itt #ehemently o""osed any re$'lation o, ,inancial instr'ments &no(n as deri#ati#es+ They ,'rther claim that reens"an acti#ely so'$ht to 'ndermine the o,,ice o, the Commodity ?'t'res Tradin$ Commission, s"eci,ically 'nder the leadershi" o, 1roo&sley E+ 1orn, (hen the Commission so'$ht to initiate re$'lation o, deri#ati#es+ Ultimately, it (as the colla"se o, a s"eci,ic &ind o, deri#ati#e, the mort$a$e-bac&ed sec'rity, that tri$$ered the economic crisis o, 200*+ :hile reens"anIs role as Chairman o, the ?ederal Reser#e has been (idely disc'ssed 5the main "oint o, contro#ersy remains the lo(erin$ o, ?ederal ,'nds rate at only 8L ,or more than a year (hich, accordin$ to the 9'strian )chool o, economics, allo(ed h'$e amo'nts o, .easy. credit-based money to be in<ected into the ,inancial system and th's create an 'ns'stainable economic boom6, there is also the ar$'ment that reens"anIs actions in the years 2002D 200F (ere act'ally moti#ated by the need to ta&e the U+)+ economy o't o, theearly 2000s recession ca'sed by the b'rstin$ o, the dot-com b'bble M altho'$h by doin$ so he did not hel" a#ert the crisis, b't only "ost"one it+ )ome economists - those o, the 9'strian school and those "redictin$ the recession s'ch as )te#e =een claim that the 'ltimate "oint o, ori$in o, the $reat ,inancial crisis o, 200%D2080 can be traced bac& to an e7tremely indebted U) economy+ The colla"se o, the real estate mar&et in 200@ (as the close "oint o, ori$in o, the crisis+ The ,ail're rates o, s'b"rime mort$a$es (ere the ,irst sym"tom o, a credit boom t'rned to b'st and o, a real estate shoc&+ 1't lar$e de,a'lt rates on s'b"rime mort$a$es cannot acco'nt

,or the se#erity o, the crisis+ Rather, lo(-/'ality mort$a$es acted as an accelerant to the ,ire that s"read thro'$h the entire ,inancial system+ The latter had become ,ra$ile as a res'lt o, se#eral ,actors that are 'ni/'e to this crisis: the trans,er o, assets ,rom the balance sheets o, ban&s to the mar&ets, the creation o, com"le7 and o"a/'e assets, the ,ail're o, ratin$s a$encies to "ro"erly assess the ris& o, s'ch assets, and the a""lication o, ,air #al'e acco'ntin$+ To these no#el ,actors, one m'st add the no( standard ,ail're o, re$'lators and s'"er#isors in s"ottin$ and correctin$ the emer$in$ (ea&nesses+ Robert Reich belie#es the amo'nt o, debt in the U) economy can be traced to economic ine/'ality, (here middle class (a$es remain sta$nant (hile (ealth concentrates at the to", and ho'seholds ."'ll e/'ity ,rom their homes and o#erload on debt to maintain li#in$ standards+.

E,,ects

International trade, 2000-2080+ 2000N800+ 9 "l'n$e in the #ol'mes o, e7chan$es can be seen as o, the second hal, o, 200*+ The late-2000s recession is sha"in$ '" to be the (orst "ost-:orld :ar II contraction on record: Real $ross domestic "rod'ct 5 D06 be$an contractin$ in the third /'arter o, 200*, and by

early 2003 (as ,allin$ at an ann'ali-ed "ace not seen since the 83;0s+ Ca"ital in#estment, (hich (as in decline year-onyear since the ,inal /'arter o, 200@, matched the 83;%D;* "ost (ar record in the ,irst /'arter o, 2003+ The "ace o, colla"se in residential in#estment "ic&ed '" s"eed in the ,irst /'arter o, 2003, dro""in$ 2G+2L year-on-year, nearly ,o'r "ercenta$e "oints ,aster than in the "re#io's /'arter+ U) Domestic demand, in decline ,or ,i#e strai$ht /'arters, is still three months shy o, the 83%FD%; record, b't the "ace D do(n 2+@L "er /'arter #s+ 8+3L in the earlier "eriod D is a record-brea&er already+ 9 re"ort in 2003 by 1loomber$ states that E8F+; trillion o, #al'e o, $lobal com"anies has been erased since the crisis be$an+

0olitical instability related to the economic crisis

1e$innin$ ?ebr'ary 2@, 2003 an Economic Intelli$ence 1rie,in$ (as added to the daily intelli$ence brie,in$s "re"ared ,or the 0resident o, the United )tates+ This addition re,lects the assessment o, United )tates intelli$ence a$encies that the $lobal ,inancial crisis "resents a serio's threat to international stability+ 1'siness :ee& in >arch 2003 stated that $lobal "olitical instability is risin$ ,ast d'e to the $lobal ,inancial crisis and is creatin$ ne( challen$es that need mana$in$+ The 9ssociated 0ress re"orted in

>arch 2003 that: United )tates .Director o, National Intelli$ence Dennis 1lair has said the economic (ea&ness co'ld lead to "olitical instability in many de#elo"in$ nations+. E#en some de#elo"ed co'ntries are seein$ "olitical instability+ N0R re"orts that Da#id ordon, a ,ormer intelli$ence o,,icer (ho no( leads research at the E'rasia ro'", said: .>any, i, not most, o, the bi$ co'ntries o't there ha#e room to accommodate economic do(nt'rns (itho't ha#in$ lar$e-scale "olitical instability i, (eIre in a recession o, normal len$th+ I, yo'Ire in a m'ch lon$er-r'n do(nt'rn, then all bets are o,,+. lobally, mass "rotest mo#ements ha#e arisen in many co'ntries as a res"onse to the economic crisis+ 9dditionally, in some co'ntries, riots and e#en o"en re#olts ha#e occ'rred in relation to the economic crisis+ ?or e7am"le, the 9rab )"rin$ re#olts ta&in$ "lace in the 9rab (orld since December 8*, 2080 (ere ostensibly s"ar&ed by the sel,-immolation o, an 'nem"loyed T'nisian man named>ohamed 1o'a-i-i (ho (as "re#ented ,rom e#en sellin$ "rod'ce ,rom a cart+ This act, combined (ith $eneral discontentment abo't hi$h 'nem"loyment, ,ood in,lation, corr'"tion lac& o, ,reedom o, s"eech and other ,orms o, "olitical ,reedom, and "oor li#in$ conditions led to the most dramatic (a#e o, social and "olitical 'nrest in T'nisia in three decades, res'lted in scores o, deaths and in<'ries, and an e#ent'al re$ime chan$e in T'nisia+ To date, there ha#e been re#ol'tions in T'nisia and E$y"tO a ci#il (ar in !ibyaO ci#il '"risin$s in 1ahrain, )yria and PemenO ma<or "rotests in 9l$eria, Ira/, 2ordan, >orocco and Oman, as (ell as on the borders o, IsraelO and minor "rotests

in='(ait, !ebanon, >a'ritania, )a'di 9rabia, )'dan, and :estern )ahara+ In 2an'ary o, 2003 the $o#ernment leaders o, Iceland (ere ,orced to call elections t(o years early a,ter the "eo"le o, Iceland sta$ed mass "rotests and clashed (ith the "olice d'e to the $o#ernmentIs handlin$ o, the economy+ 4'ndreds o, tho'sands "rotested in ?rance a$ainst 0resident )ar&o-yIs economic "olicies+ 0rom"ted by the ,inancial crisis in !at#ia, the o""osition and trade 'nions there or$ani-ed a rally a$ainst the cabinet o, "remier I#ars odmanis+ The rally $athered some 80-20 tho'sand "eo"le+ In the e#enin$ the rally t'rned into aRiot+ The cro(d mo#ed to the b'ildin$ o, the "arliament and attem"ted to ,orce their (ay into it, b't (ere re"elled by the stateIs "olice+ In late ?ebr'ary many ree&s too& "art in a massi#e $eneral stri&e beca'se o, the economic sit'ation and they sh't do(n schools, air"orts, and many other ser#ices in reece+ 0olice and "rotesters clashed in !ith'ania (here "eo"le "rotestin$ the economic conditions (ere shot by r'bber b'llets+ In addition to #ario's le#els o, 'nrest in E'ro"e, 9sian co'ntries ha#e also seen #ario's de$rees o, "rotest+ Comm'nists and others rallied in >osco( to "rotest the R'ssian $o#ernmentIs economic "lans+ 0rotests ha#e also occ'rred in China as demands ,rom the (est ,or e7"orts ha#e been dramatically red'ced and 'nem"loyment has increased+ 1eyond these initial "rotests, the "rotest mo#ement has $ro(n and contin'ed in 2088+

0olicy res"onses
The ,inancial "hase o, the crisis led to emer$ency inter#entions in many national ,inancial systems+ 9s the crisis de#elo"ed into $en'ine recession in many

ma<or economies, economic stim'l's meant to re#i#e economic $ro(th became the most common "olicy tool+ 9,ter ha#in$ im"lemented resc'e "lans ,or the ban&in$ system, ma<or de#elo"ed and emer$in$ co'ntries anno'nced "lans to relie#e their economies+ In "artic'lar, economic stim'l's "lans (ere anno'nced in China, the United )tates, and the E'ro"ean Union+ 1ailo'ts o, ,ailin$ or threatened b'sinesses (ere carried o't or disc'ssed in the U)9, the EU, and India+ In the ,inal /'arter o, 200*, the ,inancial crisis sa( the -20 $ro'" o, ma<or economies ass'me a ne( si$ni,icance as a ,oc's o, economic and ,inancial crisis mana$ement+ I>? recommendation The I>? stated in )e"tember 2080 that the ,inancial crisis (o'ld not end (itho't a ma<or decrease in 'nem"loyment as h'ndreds o, millions o, "eo"le (ere 'nem"loyed (orld(ide+ The I>? 'r$ed $o#ernments to e7"and social sa,ety nets and to $enerate <ob creation e#en as they are 'nder "ress're to c't s"endin$+ o#ernments sho'ld also in#est in s&ills trainin$ ,or the 'nem"loyed and e#en $o#ernments o, co'ntries li&e reece (ith ma<or debt ris& sho'ld ,irst ,oc's on lon$-term economic reco#ery by creatin$ <obs+ United )tates "olicy res"onses The ?ederal Reser#e, Treas'ry, and )ec'rities and E7chan$e Commission too& se#eral ste"s on )e"tember 83 to inter#ene in the crisis+ To sto" the "otential r'n on money mar&et m't'al ,'nds, the Treas'ry also anno'nced on )e"tember 83 a ne( E;0 billion "ro$ram to ins're the in#estments, similar to the ?ederal De"osit Ins'rance Cor"oration 5?DIC6 "ro$ram+J*@K 0art o, the anno'ncements incl'ded

tem"orary e7ce"tions to section 2G9 and 2G1 5Re$'lation :6, allo(in$ ,inancial $ro'"s to more easily share ,'nds (ithin their $ro'"+ The e7ce"tions (o'ld e7"ire on 2an'ary G0, 2003, 'nless e7tended by the ?ederal Reser#e 1oard+J*%K The )ec'rities and E7chan$e Commission anno'nced termination o, short-sellin$ o, %33 ,inancial stoc&s, as (ell as action a$ainst na&ed short sellin$, as "art o, its reaction to the mort$a$e crisis+J**K >ar&et #olatility (ithin U) F085&6 and retirement "lans The U) 0ension 0rotection 9ct o, 200@ incl'ded a "ro#ision (hich chan$ed the de,inition o, Q'ali,ied De,a'lt In#estments 5QDI6 ,or retirement "lans ,rom stable #al'e in#estments, money mar&et ,'nds, and cash in#estments to in#estments (hich e7"ose an indi#id'al to a""ro"riate le#els o, stoc& and bond ris& based on the years le,t to retirement+ The 9ct re/'ired that 0lan )"onsors mo#e the assets o, indi#id'als (ho had ne#er acti#ely elected their in#estments and had their contrib'tions in the de,a'lt in#estment o"tion+ This meant that indi#id'als (ho had de,a'lted into a cash ,'nd (ith little ,l'ct'ation or $ro(th (o'ld soon ha#e their acco'nt balances mo#ed to m'ch more a$$ressi#e in#estments+ )tartin$ in early 200*, most U) em"loyer-s"onsored "lans sent notices to their em"loyees in,ormin$ them that the "lan de,a'lt in#estment (as chan$in$ ,rom a cashRstable o"tion to somethin$ ne(, s'ch as a retirement date ,'nd (hich had si$ni,icant mar&et e7"os're+ >ost "artici"ants i$nored these notices 'ntil )e"tember and October, (hen the mar&et crash (as on e#ery ne(s station and media o'tlet+ It (as then that "artici"ants called their F085&6 and retirement "lan "ro#iders and disco#ered losses in

e7cess o, G0L in some cases+ Call centers ,or F085&6 "ro#iders e7"erienced record call #ol'me and (ait times, as millions o, ine7"erienced in#estors str'$$led to 'nderstand ho( their in#estments had been chan$ed so ,'ndamentally (itho't their e7"licit consent, and reacted in a "anic by li/'idatin$ e#erythin$ (ith any stoc& or bond e7"os're, loc&in$ in h'$e losses in their acco'nts+ D'e to the s"ec'lation and 'ncertainty in the mar&et, disc'ssion ,or'ms ,illed (ith /'estions abo't (hether or not to li/'idate assetsJ*3K and ,inancial $'r's (ere s(am"ed (ith /'estions abo't the ri$ht ste"s to ta&e to "rotect (hat remained o, their retirement acco'nts+ D'rin$ the third /'arter o, 200*, o#er E%2 billion le,t m't'al ,'nd in#estments that in#ested in stoc&s or bonds and r'shed into )table Sal'e in#estments in the month o, October+J30K 9$ainst the ad#ice o, ,inancial e7"erts, and i$norin$ historical data ill'stratin$ that lon$-term balanced in#estin$ has "rod'ced "ositi#e ret'rns in all ty"es o, mar&ets, J38K in#estors (ith decades to retirement instead sold their holdin$s d'rin$ one o, the lar$est dro"s in stoc& mar&et history+

!oans to ban&s ,or asset-bac&ed commercial "a"er

4o( money mar&ets ,'nd cor"orations D'rin$ the (ee& endin$ )e"tember 83, 200*, money mar&et m't'al ,'nds had be$'n to e7"erience si$ni,icant (ithdra(als o, ,'nds by in#estors+ This created a si$ni,icant ris& beca'se money mar&et ,'nds are inte$ral to the on$oin$ ,inancin$ o, cor"orations o, all ty"es+ Indi#id'al in#estors lend money to money mar&et ,'nds, (hich then "ro#ide the ,'nds to cor"orations in e7chan$e ,or cor"orate short-term sec'rities called asset-bac&ed commercial "a"er 591C06+ 4o(e#er, a "otential ban& r'n had be$'n on certain money mar&et ,'nds+ I, this sit'ation had (orsened, the ability o, ma<or cor"orations to sec're needed short-term ,inancin$ thro'$h 91C0 iss'ance (o'ld ha#e been si$ni,icantly a,,ected+ To assist (ith li/'idity thro'$ho't the system, the U) Treas'ry and ?ederal Reser#e 1an& anno'nced that ban&s co'ld obtain ,'nds #ia the

?ederal Reser#eIs Disco'nt :indo( 'sin$ 91C0 as collateral+J*@KJ32K ?ederal Reser#e lo(ers interest rates ?ederal reser#e rates chan$es 52'st data a,ter 2an'ary 8, 200* 6 Date Disco'nt Disco'nt Disco'nt rate rate rate 0rimary )econdary rate chan$e October -0+;0L *, 200*T 9"ril G0, 200* >arch 8*, 200* >arch 8@, 200* -0+2;L ne( interest rate 8+%;L 2+2;L ne( ne( rate interest interest chan$e rate rate 2+2;L 2+%;L -0+;0L 8+;0L -0+2;L 2+00L ?ed ,'nds ?ed ,'nds rate

-0+%;L

2+;0L

G+00L

-0+%;L 2+2;L

-0+2;L

G+2;L

G+%;L

2an'ary G0, -0+;0L 200* 2an'ary 22, -0+%;L 200*

G+;0L

F+00L

-0+;0L G+00L

F+00L

F+;0L

-0+%;L G+;0L

D T 0art o, a coordinated $lobal rate c't o, ;0 basis "oint by main central ban&s+J3GK D )ee more detailed U) ,ederal disco'nt rate chart:J3FK

!e$islation The )ecretary o, the United )tates Treas'ry, 4enry 0a'lson and 0resident eor$e :+ 1'sh "ro"osed le$islation ,or the $o#ernment to "'rchase '" to U)E%00 billion o, .tro'bled mort$a$e-related assets. ,rom ,inancial ,irms in ho"es o, im"ro#in$ con,idence in the mort$a$e-bac&ed sec'rities mar&ets and the ,inancial ,irms "artici"atin$ in it+ J3;K Disc'ssion, hearin$s and meetin$s amon$ le$islati#e leaders and the administration later made clear that the "ro"osal (o'ld 'nder$o si$ni,icant chan$e be,ore it co'ld be a""ro#ed by Con$ress+J3@KOn October 8, a re#ised com"romise #ersion (as a""ro#ed by the )enate (ith a %FD2; #ote+ The bill, 4R8F2F (as "assed by the 4o'se on October G, 200* and si$ned into la(+ The ,irst hal, o, the bailo't money (as "rimarily 'sed to b'y "re,erred stoc& in ban&s instead o, tro'bled mort$a$e assets+J3%K In 2an'ary 2003, the Obama administration anno'nced a stim'l's "lan to re#i#e the economy (ith the intention to create or sa#e more than G+@ million <obs in t(o years+ The cost o, this initial reco#ery "lan (as estimated at *2; billion dollars 5;+*L o, D06+ The "lan incl'ded G@;+; billion dollars to be s"ent on ma<or "olicy and re,orm o, the health system, 2%; billion 5thro'$h ta7 rebates6 to be redistrib'ted to ho'seholds and ,irms, notably those in#estin$ in rene(able ener$y, 3F billion to be dedicated to social assistance ,or the 'nem"loyed and ,amilies, *% billion o, direct assistance to states to hel" them ,inance health e7"endit'res o, >edicaid, and ,inally 8G billion s"ent to im"ro#e access to di$ital technolo$ies+ The administration also attrib'ted o, 8G+F billion dollars aid to a'tomobile

man',act'rers eneral >otors and Chrysler, b't this "lan is not incl'ded in the stim'l's "lan+ These "lans are meant to abate ,'rther economic contraction, ho(e#er, (ith the "resent economic conditions di,,erin$ ,rom "ast recessions, in, that, many tenets o, the 9merican economy s'ch as man',act'rin$, te7tiles, and technolo$ical de#elo"ment ha#e been o'tso'rced to other co'ntries+ 0'blic (or&s "ro<ects associated (ith the economic reco#ery "lan o'tlined by the Obama 9dministration ha#e been de$raded by the lac& o, road and brid$e de#elo"ment "ro<ects that (ere hi$hly ab'ndant in the reat De"ression b't are no( mostly constr'cted and are mostly in need o, maintenance+ Re$'lations to establish mar&et stability and con,idence ha#e been ne$lected in the Obama "lan and ha#e yet to be incor"orated+

?ederal Reser#e res"onse

In an e,,ort to increase a#ailable ,'nds ,or commercial ban&s and lo(er the ,ed ,'nds rate, on )e"tember 23, 200* the U+)+ ?ederal Reser#e anno'nced "lans to do'ble its Term 9'ction ?acility to EG00 billion+ 1eca'se there a""eared to be a shorta$e o, U+)+ dollars in E'ro"e at that time, the ?ederal Reser#e also anno'nced it (o'ld increase its s(a" ,acilities (ith ,orei$n central ban&s ,rom E230 billion to E@20 billion+J3*K 9s o, December 2F, 200*, the ?ederal Reser#e had 'sed its inde"endent a'thority to s"end E8+2 trillion on "'rchasin$ #ario's ,inancial assets and ma&in$ emer$ency loans to address the ,inancial crisis, abo#e and beyond the E%00 billion a'thori-ed by Con$ress ,rom the ,ederal b'd$et+ This incl'des emer$ency loans to ban&s, credit card com"anies, and $eneral

b'sinesses, tem"orary s(a"s o, treas'ry bills ,or mort$a$e-bac&ed sec'rities, the sale o, 1ear )tearns, and the bailo'ts o, 9merican International ro'" 59I 6, ?annie >ae and ?reddie >ac, and Citi$ro'"+J33K

9sia-0aci,ic "olicy res"onses

On )e"tember 8;, 200* China c't its interest rate ,or the ,irst time since 2002+ Indonesia red'ced its o#erni$ht re"o rate, at (hich commercial ban&s can borro( o#erni$ht ,'nds ,rom the central ban&, by t(o "ercenta$e "oints to 80+2; "ercent+ The Reser#e 1an& o, 9'stralia in<ected nearly E8+; billion into the ban&in$ system, nearly three times as m'ch as the mar&etIs estimated re/'irement+ The Reser#e 1an& o, India added almost E8+G2 billion, thro'$h a re,inance o"eration, its bi$$est in at least a month+J800K On No#ember 3, 200* the 200* Chinese economic stim'l's "lan is a R>1U F trillion 5E;*@ billion6 stim'l's "ac&a$e anno'nced by the central $o#ernment o, the 0eo"leIs Re"'blic o, China in its bi$$est mo#e to sto" the $lobal ,inancial crisis ,rom hittin$ the (orldIs third lar$est economy+ 9 statement on the $o#ernmentIs (ebsite said the )tate Co'ncil had a""ro#ed a "lan to in#est F trillion y'an 5E;*@ billion6 in in,rastr'ct're and social (el,are by the end o, 2080+ The stim'l's "ac&a$e (ill be in#ested in &ey areas s'ch as ho'sin$, r'ral in,rastr'ct're, trans"ortation, health and ed'cation, en#ironment, ind'stry, disaster reb'ildin$, incomeb'ildin$, ta7 c'ts, and ,inance+ ChinaIs e7"ort dri#en economy is startin$ to ,eel the im"act o, the economic slo(do(n in the United )tates and E'ro"e, and the $o#ernment has already c't &ey interest rates three times in less than t(o months in

a bid to s"'r economic e7"ansion+ On No#ember 2*, 200*, the >inistry o, ?inance o, the 0eo"leIs Re"'blic o, China and the )tate 9dministration o, Ta7ation <ointly anno'nced a rise in e7"ort ta7 rebate rates on some labor-intensi#e $oods+ These additional ta7 rebates (ill ta&e "lace on December 8, 200*+J808K The stim'l's "ac&a$e (as (elcomed by (orld leaders and analysts as lar$er than e7"ected and a si$n that by boostin$ its o(n economy, China is hel"in$ to stabili-e the $lobal economy+ Ne(s o, the anno'ncement o, the stim'l's "ac&a$e sent mar&ets '" across the (orld+ 4o(e#er, >arc ?aber 2an'ary 8@ said that China accordin$ to him (as in recession+ In Tai(an, the central ban& on )e"tember 8@, 200* said it (o'ld c't its re/'ired reser#e ratios ,or the ,irst time in ei$ht years+ The central ban& added EG+;3 billion into the ,orei$n-c'rrency interban& mar&et the same day+ 1an& o, 2a"an "'m"ed E23+G billion into the ,inancial system on )e"tember 8%, 200* and the Reser#e 1an& o, 9'stralia added EG+F; billion the same day+J802K In de#elo"in$ and emer$in$ economies, res"onses to the $lobal crisis mainly consisted in lo(-rates monetary "olicy 59sia and the >iddle East mainly6 co'"led (ith the de"reciation o, the c'rrency a$ainst the dollar+ There (ere also stim'l's "lans in some 9sian co'ntries, in the >iddle East and in 9r$entina+ In 9sia, "lans $enerally amo'nted to 8 to GL o, D0, (ith the notable e7ce"tion o, China, (hich anno'nced a "lan acco'ntin$ ,or 8@L o, D0 5@L o, D0 "er year6+

E'ro"ean "olicy res"onses

Until )e"tember 200*, E'ro"ean "olicy meas'res (ere limited to a small n'mber o, co'ntries 5)"ain

and Italy6+ In both co'ntries, the meas'res (ere dedicated to ho'seholds 5ta7 rebates6 re,orm o, the ta7ation system to s'""ort s"eci,ic sectors s'ch as ho'sin$+ The E'ro"ean Commission "ro"osed a V200 billion stim'l's "lan to be im"lemented at the E'ro"ean le#el by the co'ntries+ 9t the be$innin$ o, 2003, the U= and )"ain com"leted their initial "lans, (hile ermany anno'nced a ne( "lan+ On )e"tember 23, 200* the 1el$ian, !'7embo'r$ and D'tch a'thorities "artially nationali-ed ?ortis+ The erman $o#ernment bailed o't 4y"o Real Estate+ On * October 200* the 1ritish o#ernment anno'nced a ban& resc'e "ac&a$e o, aro'nd W;00 billionJ80GK 5E*;0 billion at the time6+ The "lan com"rises three "arts+ The ,irst W200 billion (o'ld be made in re$ards to the ban&s in li/'idity stac&+ The second "art (ill consist o, the state $o#ernment increasin$ the ca"ital mar&et (ithin the ban&s+ 9lon$ (ith this, W;0 billion (ill be made a#ailable i, the ban&s needed it, ,inally the $o#ernment (ill (rite a(ay any eli$ible lendin$ bet(een the 1ritish ban&s (ith a limit to W2;0 billion+ In early December erman ?inance >inister 0eer )teinbrXc& indicated a lac& o, belie, in a . reat Resc'e 0lan. and rel'ctance to s"end more money addressin$ the crisis+J80FK In >arch 2003, The E'ro"ean Union 0residency con,irmed that the EU (as at the time stron$ly resistin$ the U) "ress're to increase E'ro"ean b'd$et de,icits+J80;K

lobal res"onses

Res"onses by the U= and U) in "ro"ortion to their D0s >ost "olitical res"onses to the economic and ,inancial crisis has been ta&en, as seen abo#e, by indi#id'al nations+ )ome coordination too& "lace at the E'ro"ean le#el, b't the need to coo"erate at the $lobal le#el has led leaders to acti#ate the -20 ma<or economies entity+ 9 ,irst s'mmit dedicated to the crisis too& "lace, at the 4eads o, state le#el in No#ember 200* 5200* -20 :ashin$ton s'mmit6+ The -20 co'ntries met in a s'mmit held on No#ember 200* in :ashin$ton to address the economic crisis+ 9"art ,rom "ro"osals on international ,inancial re$'lation, they "led$ed to ta&e meas'res to s'""ort their economy and to coordinate them, and re,'sed any resort to "rotectionism+ 9nother -20 s'mmit (as held in !ondon on 9"ril 2003+ ?inance ministers and central ban&s leaders o, the -20 met in 4orsham on >arch to "re"are the s'mmit, and "led$ed to restore $lobal $ro(th as soon as "ossible+ They decided to coordinate their actions and to stim'late demand and em"loyment+ They also "led$ed to ,i$ht a$ainst all ,orms o, "rotectionism and to maintain trade and ,orei$n in#estments+ They also committed to maintain the s'""ly o, credit by "ro#idin$ more li/'idity and

reca"itali-in$ the ban&in$ system, and to im"lement ra"idly the stim'l's "lans+ 9s ,or central ban&ers, they "led$ed to maintain lo(-rates "olicies as lon$ as necessary+ ?inally, the leaders decided to hel" emer$in$ and de#elo"in$ co'ntries, thro'$h a stren$thenin$ o, the I>?+

Co'ntries maintainin$ $ro(th or technically a#oidin$ recession:

0oland is the only member o, the E'ro"ean Union to ha#e a#oided a decline in D0, meanin$ that in 2003 0oland has created the most D0 $ro(th in the EU+ 9s o, December 2003 the 0olish economy had not entered recession nor e#en contracted, (hile its I>? 2080 D0 $ro(th ,orecast o, 8+3 "er cent is e7"ected to be '"$raded+J80@KJ80%KJ80*K 9nalysts ha#e identi,ied se#eral ca'ses: E7tremely lo( le#els o, ban& lendin$ and a relati#ely #ery small mort$a$e mar&etO the relati#ely recent dismantlin$ o, EU trade barriers and the res'ltin$ s'r$e in demand ,or 0olish $oods since 200FO the recei"t o, direct EU ,'ndin$ since 200FO lac& o, o#er-de"endence on a sin$le e7"ort sectorO a tradition o, $o#ernment ,iscal res"onsibilityO a relati#ely lar$e internal mar&etO the ,ree-,loatin$ 0olish -lotyO lo( labo'r costs attractin$ contin'ed ,orei$n direct in#estmentO economic di,,ic'lties at the start o, the decade (hich "rom"ted a'sterity meas'res in ad#ance o, the (orld crisis+ :hile China, India and Iran ha#e e7"erienced slo(in$ $ro(th, they ha#e not entered recession+ )o'th =orea narro(ly a#oided technical recession in the ,irst /'arter o, 2003+J803K The International Ener$y 9$ency stated in mid )e"tember that )o'th =orea co'ld be the only lar$eOECD co'ntry to a#oid recession ,or the (hole o, 2003+J880K It (as the only

de#elo"ed economy to e7"and in the ,irst hal, o, 2003+ On October @, 9'stralia became the ,irst 20 co'ntry to raise its main interest rate, (ith the Reser#e 1an& o, 9'stralia decidin$ to mo#e rates '" to G+2;L ,rom G+00L+J888K 9'stralia has a#oided a technical recession a,ter e7"eriencin$ only one /'arter o, ne$ati#e $ro(th in the ,o'rth /'arter o, 200*, (ith D0 ret'rnin$ to "ositi#e in the ,irst /'arter o, 2003+J882KJ88GK

Co'ntries in economic recession or de"ression

>any co'ntries e7"erienced recession in 200*+J88FK The co'ntriesRterritories c'rrently in a technical recession are Estonia, !at#ia, Ireland, Ne( Healand, 2a"an, 4on$ =on$, )in$a"ore, Italy, R'ssia and ermany+ Denmar& (ent into recession in the ,irst /'arter o, 200*, b't came o't a$ain in the second /'arter+ J88;K Iceland ,ell into an economic de"ression in 200* ,ollo(in$ the colla"se o, its ban&in$ system+ 5see 'celandic financial crisis6 The ,ollo(in$ co'ntries (ent into recession in the second /'arter o, 200*: Estonia,J88@K !at#ia, J88%K IrelandJ88*K and Ne( Healand+J883K The ,ollo(in$ co'ntriesRterritories (ent into recession in the third /'arter o, 200*: 2a"an,J820K )(eden, J828K 4on$ =on$,J822K )in$a"ore,J82GK Italy, J82FK T'r&eyJ88FK and ermany+J82;K 9s a (hole the ,i,teen nations in the E'ro"ean Union that 'se the e'ro (ent into recession in the third /'arter,J82@K and the United =in$dom+ In addition, the E'ro"ean Union, the %, and the OECD all e7"erienced ne$ati#e $ro(th in the third /'arter+J88FK

The ,ollo(in$ co'ntriesRterritories (ent into technical recession in the ,o'rth /'arter o, 200*: United )tates, )(it-erland,J82%K )"ain,J82*K and Tai(an+J823K )o'th =orea .mirac'lo'sly. a#oided recession (ith D0 ret'rnin$ "ositi#e at a 0+8L e7"ansion in the ,irst /'arter o, 2003+J8G0K O, the se#en lar$est economies in the (orld by D0, only China and ?rance a#oided a recession in 200*+ ?rance e7"erienced a 0+GL contraction in Q2 and 0+8L $ro(th in QG o, 200*+ In the year to the third /'arter o, 200* China $re( by 3L+ This is interestin$ as China has 'ntil recently considered *L D0 $ro(th to be re/'ired sim"ly to create eno'$h <obs ,or r'ral "eo"le mo#in$ to 'rban centres+J8G8K This ,i$'re may more acc'rately be considered to be ;D%L no( that the main $ro(th in (or&in$ "o"'lation is recedin$+ ro(th o, bet(een ;LD*L co'ld (ell ha#e the ty"e o, e,,ect in China that a recession has else(here+ U&raine (ent into technical de"ression in 2an'ary 2003 (ith a nominal ann'ali-ed D0 $ro(th o, Y20L+
J8G2K

The recession in 2a"an intensi,ied in the ,o'rth /'arter o, 200* (ith a nominal ann'ali-ed D0 $ro(th o, Y82+%L,J8GGK and dee"ened ,'rther in the ,irst /'arter o, 2003 (ith a nominal ann'ali-ed D0 $ro(th o, Y8;+2L+J8GFK >a<or economies a,,ected by the recession+J8G;K

Co'ntry 0oland 9'stralia Israel 9r$entina )o'th 9,rica Cy"r's )(it-erland Canada >alta Nor(ay Ne( Healand 0ort'$al ?rance Chile United )tates 1el$i'm =orea, )o'th )"ain C-ech Re"'blic Netherlands 9'stria 1ra-il United =in$dom

Total D0 Recession len$th 5n'mber loss o, /'arters6 -0+F0L -8+00L -8+28L -8+@3L -2+@;L -2+*;L -G+2;L -G+G@L -G+G%L -G+FFL -G+F;L -G+@*L -G+*%L -F+88L -F+8FL -F+2GL -F+;*L -F+*3L -F+3FL -;+23L -;+FFL -@+8FL -@+8;L 8 8 2 2 G F F @ F 88 ; F F F @ G 2 % G ; F 2 @

ermany Italy 1'l$aria Croatia )(eden )lo#a&ia Denmar& 4'n$ary !'7embo'r$ >e7ico reece )lo#enia ?inland Romania R'ssia Ireland T'r&ey Iceland !ith'ania Estonia !at#ia

-@+@2L -@+%@L -%+0;L -%+F8L -%+FGL -%+@2L -*+0@L -*+G2L -*+GFL -*+F%L -*+3;L -3+%8L -3+3@L -80+00L -80+*@L -82+2FL -82+*2L -8;+0%L -8@+3;L -20+GGL -2;+8FL

F % ; * % 8 @ @ ; F 3 G F 3 F 8G F 88 @ %

Com"arisons (ith the

reat De"ression

On 9"ril 8%, 2003, head o, the I>? Domini/'e )tra'ss-=ahn said that there (as a chance that certain co'ntries may not im"lement the "ro"er "olicies to a#oid ,eedbac& mechanisms that co'ld e#ent'ally t'rn the recession into a de"ression+ .The ,ree-,all in the $lobal economy may be startin$ to

abate, (ith a reco#ery emer$in$ in 2080, b't this de"ends cr'cially on the ri$ht "olicies bein$ ado"ted today+. The I>? "ointed o't that 'nli&e the reat De"ression, this recession (as synchroni-ed by $lobal inte$ration o, mar&ets+ )'ch synchroni-ed recessions (ere e7"lained to last lon$er than ty"ical economic do(nt'rns and ha#e slo(er reco#eries+J8F@K The chie, economist o, the I>?, Dr+ Oli#ier 1lanchard, stated that the "ercenta$e o, (or&ers laid o,, ,or lon$ stints has been risin$ (ith each do(nt'rn ,or decades b't the ,i$'res ha#e s'r$ed this time+ .!on$-term 'nem"loyment is alarmin$ly hi$h: in the U), hal, the 'nem"loyed ha#e been o't o, (or& ,or o#er si7 months, somethin$ (e ha#e not seen since the reat De"ression+. The I>? also stated that a lin& bet(een risin$ ine/'ality (ithin :estern economies and de,latin$ demand may e7ist+ The last time that the (ealth $a" reached s'ch s&e(ed e7tremes (as in 832*-8323+J8F%K

In the United )tates:

Do( 2ones Ind'strial 9#era$e ,i$'res ,or "ercenta$e lost in 83G%-83FG #s 200*-2088 5based on initial 83G% and 200* D2I9 month end amo'nt, res"ecti#ely6 9ltho'$h some cas'al com"arisons bet(een the late2000s recession and the reat De"ression ha#e been

made, there remain lar$e di,,erences bet(een the t(o e#ents+J8F*KJ8F3KJ8;0K The consens's amon$ economists in >arch 2003 (as that a de"ression (as not li&ely to occ'r+J8;8K UC!9 9nderson ?orecast director Ed(ard !eamer said on >arch 2;, 2003 that there had not been any ma<or "redictions at that time (hich resembled a second reat De"ression: .:eI#e ,ri$htened cons'mers to the "oint (here they ima$ine there is a $ood "ros"ect o, a reat De"ression+ That certainly is not in the "ros"ect+ No re"'table ,orecaster is "rod'cin$ anythin$ li&e a reat De"ression+.J8;2K Di,,erences e7"licitly "ointed o't bet(een the recession and the reat De"ression incl'de the ,acts that o#er the %3 years bet(een 8323 and 200*, $reat chan$es occ'rred in economic "hiloso"hy and "olicy, J8;GK the stoc& mar&et had not ,allen as ,ar as it did in 83G2 or 83*2, the 80-year "rice-to-earnin$s ratio o, stoc&s (as not as lo( as in the IG0s or I*0s, in,lationad<'sted U+)+ ho'sin$ "rices in >arch 2003 (ere hi$her than any time since 8*30 5incl'din$ the ho'sin$ booms o, the 83%0s and I*0s6,J8;FK the recession o, the early IG0s lasted o#er three-and-ahal, years,J8;GK and d'rin$ the 83G0s the s'""ly o, money 5c'rrency "l's demand de"osits6 ,ell by 2;L 5(here as in 200* and 2003 the ?ed .has ta&en an 'ltraloose credit stance.6+J8;;K?'rthermore, the 'nem"loyment rate in 200* and early 2003 and the rate at (hich it rose (as com"arable to most o, the recessions occ'rrin$ a,ter :orld :ar II, and (as d(ar,ed by the 2;L 'nem"loyment rate "ea& o, the reat De"ression+J8;GK Nobel 0ri-e (innin$ economist 0a'l =r'$man "redicted a series o, de"ressions in his "eturn to (epression #conomics 520006, based on

.,ail'res on the demand side o, the economy+. On 2an'ary ;, 2003, he (rote that ."re#entin$ de"ressions isnIt that easy a,ter all. and that .the economy is still in ,ree ,all+.J8;@K In >arch 2003, =r'$man e7"lained that a ma<or di,,erence in this sit'ation is that the ca'ses o, this ,inancial crisis (ere ,rom the shado( ban&in$ system+ .The crisis hasnIt in#ol#ed "roblems (ith dere$'lated instit'tions that too& ne( ris&s+++ Instead, it in#ol#ed ris&s ta&en by instit'tions that (ere ne#er re$'lated in the ,irst "lace+.J8;%K On No#ember 8;, 200*, a'thor and )o'thern >ethodist Uni#ersity economics "ro,essor Ra#i 1atra said he is .a,raid the $lobal ,inancial debacle (ill t'rn into a stee" recession and be the (orst since the reat De"ression, e#en (orse than the "ain,'l sl'm" o, 83*0D83*2 that a,,licted the (hole (orld.+ J8;*K In 83%*, 1atraIs boo& $he (ownfall of Capitalism and Communism(as "'blished+ 4is ,irst ma<or "rediction came tr'e (ith the colla"se o, )o#iet Comm'nism in 8330+ 4is second ma<or "rediction ,or a ,inancial crisis to en$'l, the ca"italist systemseems to be 'n,oldin$ since 200% (ith increasin$ attention bein$ "aid to his (or&+J8;3KJ8@0KJ8@8K On ?ebr'ary 22, 2003, NPU economics "ro,essor No'riel Ro'bini said that the crisis (as the (orst since the reat De"ression, and that (itho't coo"eration bet(een "olitical "arties and ,orei$n co'ntries, and i, "oor ,iscal "olicy decisions 5s'ch as s'""ort o, -ombie ban&s6 are "'rs'ed, the sit'ation .co'ld become as bad as the reat De"ression+.J8@2K On 9"ril 2%, 2003, Ro'bini e7"ressed a more '"beat assessment by notin$ that .the bottom o, the economy J(ill be seenK to(ard the be$innin$ or middle o, ne7t year+.J8@GK

On 9"ril @, 2003 Sernon !+ )mith and )te#en <erstad o,,ered the hy"othesis .that a ,inancial crisis that ori$inates in cons'mer debt, es"ecially cons'mer debt concentrated at the lo( end o, the (ealth and income distrib'tion, can be transmitted /'ic&ly and ,orce,'lly into the ,inancial system+ It a""ears that (eIre (itnessin$ the second $reat cons'mer debt crash, the end o, a massi#e cons'm"tion bin$e+.J8@FK In his ,inal "ress con,erence as "resident, eor$e :+ 1'sh claimed that in )e"tember 200* his chie, economic ad#isors had said that the economic sit'ation co'ld at some "oint become (orse than the reat De"ression+J8@;K 9 tent city in )acramento, Cali,ornia (as described as .ima$es, ha'ntin$ly reminiscent o, the iconic "hotos o, the 83G0s and the reat De"ression. and .e#ocati#e De"ression-era ima$es+.J8@@K In the United =in$dom On 22 9'$'st 200*, the O,,ice ,or National )tatistics re"orted that the economy had reached a standstill, (ith 0L $ro(th, d'rin$ the second /'arter o, that year+J8@%KOn 2F October, statistics ,or the third /'arter o, the year sho(ed the ,irst contraction in the national economy ,or 8@ years+J8@*K:ith ,'rther contraction in the ,inal /'arter o, 200*, the recession (as o,,icially declared on 2G 2an'ary 2003+J8@3K On 80 ?ebr'ary 2003, Ed 1alls, )ecretary o, )tate ,or Children, )chools and ?amilies o, the United =in$dom, said that .I thin& that this is a ,inancial crisis more e7treme and more serio's than that o, the 83G0s and (e all remember ho( the "olitics o, that era (ere sha"ed by the economy+.J8%0K On 2F 2an'ary 2003, Edm'nd Con(ay, Economics Editor ,or $he (aily $elegraph, had (ritten that .The "li$ht ,acin$ 1ritain

is 'ncannily similar to the 83G0s, since "rices o, many assets D ,rom shares to ho'se "rices D are ,allin$ at record rates Jin 1ritainK, b't the #al'e o, the debt a$ainst (hich they are held remains 'nchan$ed+.J8%8K On 2G October 2003, it (as re"orted that the 1ritish economy had contracted ,or si7 s'ccessi#e /'arters the lon$est r'n o, contraction since /'arterly ,i$'res (ere ,irst recorded in 83;;+J8%2KThe end o, the recession (as declared on 2@ 2an'ary 2080, (hen it (as re"orted that the economy had $ro(n by 0+8L in the ,inal /'arter o, 2003+J8%GK ?ears o, a do'ble-di" recession (ere s"ar&ed on 2; 2an'ary 2088 (hen it (as re"orted that the economy had contracted by 0+;L d'rin$ the ,inal /'arter o, 2080 ,ollo(in$ a ,'ll year o, $ro(th, altho'$h this (as lar$ely blamed on the se#ere (eather (hich a,,ected the nation in late No#ember and almost all o, December+J8%FKThese ,ears (ere eased on 2% 9"ril 2088 (hen it (as re"orted that the economy had $ro(n by 0+;L in the ,irst /'arter o, 2088,J8%;Kand then on 2@ 2'ly 2088 (hen 0+2L $ro(th (as re"orted ,or the second /'arter o, the year+J8%@K In Ireland Ireland entered into an economic de"ression in 2003+ J8%%K The E)RI 5Economic and )ocial Research Instit'te6 "redict an economic contraction o, 8FL by 2080, J8%*K ho(e#er this n'mber may ha#e already been e7ceeded (ith D0 dro""in$ %+8L /'arter on /'arter d'rin$ the ,o'rth /'arter o, 200*,J8%3K and a "ossible $reater contraction in the ,irst /'arter o, 2003 (ith the ,all in all OECD co'ntries (ith the e7ce"tion o, ?rance e7ceedin$ the dro" o, the "re#io's /'arter+ J8*0K Unem"loyment is '" *+%;LJ8*8K to 88+FL+J8*2KJ8*GK J8*FK o#ernment borro(in$ and the ,inancial bailo't

and Nationalisation o, one o, IrelandIs ban&sJ8*;K (hich (ere loaded (ith debt d'e to the Irish "ro"erty b'bble+

2ob losses and 'nem"loyment rates:

>any <obs ha#e been lost (orld(ide ,ollo(in$ the onset o, a recession in 200%+ )o ,ar, the <ob losses ha#e been demonstrably less than d'rin$ the reat De"ression o, the 83G0s, (hen U) 'nem"loyment "ea&ed at 2;L o, the labo'r ,orce+J8*@K The United )tates entered into recession in December 200%J8*%K (hen <ob losses be$an+ Unem"loyment increased drastically startin$ in )e"tember 200* ,ollo(in$ the ban&r'"tcy o, !ehman 1rothers+J8**K In >arch 2003, U-G 'nem"loyment had risen to *+;L+ J8*3K In >arch 2003, statisticianJ830K 2ohn :illiams .ar$'eJdK that meas'rement chan$es im"lemented o#er the years ma&e it im"ossible to com"are the c'rrent 'nem"loyment rate (ith that seen d'rin$ the reat De"ression.+J830K 1y December 2080, the o,,icial U+)+ 'nem"loyment rate had increased to 3+*L+ Economics B In#estin$: Ris&s o, a 200* style crisis are risin$ :ith the E'ro"ean economies (ea&enin$ ,ast, le,t and centre, its ca"ital mar&ets s',,erin$ ,rom (a#e a,ter (a#e o, "anic sellin$, any one o, the ,ollo(in$ threats co'ld set o,, a 200*-style crisis+ Tri"le Z9[ E'ro"ean economies (ea&enin$ )'""osedly Zstron$[ Tri"le Z9[ E'ro"ean co'ntries s'ch as ermany and ?rance ha#e so ,ar "led$ed tens o, billions o, E'ros in aid to their (ea&er E'ro "artners 0ort'$al, Ireland, reece and )"ain+ 4o(e#er, they co'ld be called on to s"end

e#en more to s'""ort 1el$i'm, Cy"r's, and the "otential bi$$est crises candidate o, all D so ,ar, at least D Italy+ 1't there is a bit o, a "roblem+ 9s I mentioned earlier last (ee&, these once-stron$ economies are no( also sin&in$ ,ast+ In ,act, erman D0 $re( <'st 0+8 "er cent in the second /'arter, m'ch (orse that its 0+* "er cent $ro(th in the ,irst /'arter+ ?ranceIs economy did e#en (orse, ,lat-linin$ in the most recent /'arter+ In the last ,e( days, a "ossible do(n$rade in ?ranceIs 999 ratin$s, as (ell as se#eral o, its lar$est ban&s, d'e to their immense ree& bond holdin$s, has s"oo&ed the mar&ets+ I, this (ere to ha""en, ?rance may (ell need to decide to bac& o't ,rom any additional massi#e bailo'ts o, some o, the other e#en (ea&er E'ro"ean co'ntries i, and (hen re/'ired+ 1oth ?rance and Italy may (ell decide to sell o,, "art o, ther $old holdin$s, as (ell as embar& on additonal ro'nds o, a'sterity c't bac&s+ :hether 0resident )ar&o-yIs tar$et o, a""ro7imately E8%bn in b'd$et c'ts to $et his co'ntry\s de,icit 'nder control (ill be eno'$h i, and (hen it loses its Tri"le 9 ratin$ is do'bt,'l+ ree& bailo't "lan 'nder threat reece mana$ed to sec're a E'ro 803 bn bail-o't "ro$ram o't o, its E'ro"ean nei$hbo'rs in 2'ly+ 1't, the im"lementation o, this "lan is still in serio's <eo"ardy (ith ?inland (antin$ ree& national assets as collateral ,or its contrib'tion to the bail-o't "ac&a$e+ >ean(hile, the bail-o't is also contin$ent on 30 "er cent o, ree& bond in#estors a$reein$ to a debt s(a" to lo(er the co'ntry\s ,inancin$ costs+ >any creditors are ba'l&in$ to si$n '" to this+ 4o(e#er, i, not more creditors a$ree to this hairc't, it co'ld sabota$e the entire ree& bail-o't+ :ith "otential dire conse/'ences ,or other bail-o't "ro$rams ,or 0ort'$al and Ireland+

9re they chasin$ the (ron$ "roblem]

E'ro"ean o,,icials a""ear to contin'e to treat the ban&in$ "roblems as a li/'idity crisis D short-term cash s/'ee-e+ 4o(e#er, many analysts o'tside o, $o#ernment claim (hat (e ha#e here is a sol#ency crisis+ They claim the ban&s sim"ly do not ha#e eno'$h ca"ital to absorb losses on the E'ro"ean so#erei$n bonds they are holdin$+ Either they (ill ha#e to raise a lot more money or some ban&s may ,ace o'tri$ht ,ail're+ !one ran$er ne(ly a""ointed I>? mana$in$ director !a$arde con,irms that Zthe need to reca"italise Jthe ban&sK is 'r$ent[ and that Z(e co'ld easily see the ,'rther s"read o, economic (ea&ness to core JE'ro"eanK co'ntries, or e#en a debilitatin$ li/'idity crisis[+ >any re$ard the idea o, iss'in$ E'ro bonds D bonds bac&ed by all the E'ro -one co'ntries D as one o, the last best ho"es ,or a "an-E'ro"ean sol'tion to their s"readin$ credit crisis+ The idea behind this is to "'t the balance sheets o, e#ery sin$le E'ro--one co'ntry at ris& to s'""ort the (ea&er E'ro co'ntries+ 1't ermany is ha#in$ none o, it+ Not only has Chancellor >er&el all b't r'led o't increasin$ the E@G;bn E'ro"ean ?inancial )tability ?acility, she also remains #i$oro'sly a$ainst the idea o, iss'in$ E'ro bonds+ The o'tcome o, se#eral ,orthcomin$ re$ional elections in ermany may (ell lead to a chan$e o, "olicy+ Ne#ertheless, ermany has e#ery reason to be (orried abo't the iss'e o, E'ro bonds+ I, ermany "'t their balance sheet at ris& <'st to s'""ort reece, 0ort'$al and Ireland, it co'ld dri#e '" erman borro(in$ costs by do-ens o, billions+ :hat i, some o, the other E'ro"ean states ,ollo( therea,ter + + +

!E4>9N 1ROT4ER):

!ehman 1rothers 4oldin$s Inc+ 5,ormer NP)E tic&er symbol !E46 (as a $lobal ,inancial ser#ices ,irm+ 1e,ore declarin$ ban&r'"tcy in 200*, !ehman (as the ,o'rth lar$est in#estment ban& in the U)9 5behind oldman )achs, >or$an )tanley, and >errill !ynch6, doin$ b'siness in in#estment ban&in$, e/'ity and ,i7ed-income sales and tradin$ 5es"ecially U+)+ Treas'ry sec'rities6, research,in#estment mana$ement, "ri#ate e/'ity, and "ri#ate ban&in$+ On )e"tember 8;, 200*, the ,irm ,iled ,or Cha"ter 88 ban&r'"tcy "rotection ,ollo(in$ the massi#e e7od's o, most o, its clients, drastic losses in its stoc&, and de#al'ation o, its assets by credit ratin$ a$encies+ The ,ilin$ mar&ed the lar$est ban&r'"tcy in U+)+ history,JFK and is tho'$ht to ha#e "layed a ma<or role in the 'n,oldin$ o, the late-2000s $lobal ,inancial crisis+ The ,ollo(in$ day, 1arclays anno'nced its a$reement to "'rchase, s'b<ect to re$'latory a""ro#al, !ehmanIs North 9merican in#estmentban&in$ and tradin$ di#isions alon$ (ith its Ne( Por& head/'arters b'ildin$+J;KJ@K On )e"tember 20, 200*, a re#ised #ersion o, that a$reement (as a""ro#ed by U) 1an&r'"tcy Co'rt2'd$e 2ames >+ 0ec&+J%K The ne7t (ee&, Nom'ra 4oldin$s anno'nced that it (o'ld ac/'ire !ehman 1rothersI ,ranchise in the 9sia-0aci,ic re$ion, incl'din$ 2a"an, 4on$ =on$ and 9'stralia,J*K as (ell as !ehman 1rothersI in#estment ban&in$ and e/'ities b'sinesses in E'ro"e and the >iddle East+ The deal became e,,ecti#e on October 8G, 200*+J3K 4istory JeditKUnder the !ehman ,amily 58*;0D83@36

Eman'el and >ayer !ehman In 8*FF, 2G-year-old 4enry !ehman,J80K the son o, a cattle merchant, emi$rated to the United )tates ,rom Rim"ar, 1a#aria+J88K 4e settled in>ont$omery, 9labama,J80K (here he o"ened a dry-$oods store, .4+ !ehman.+J82K In 8*F%, ,ollo(in$ the arri#al o, his brother Eman'el !ehman, the ,irm became .4+ !ehman and 1ro+.J8GK :ith the arri#al o, their yo'n$est brother, >ayer !ehman, in 8*;0, the ,irm chan$ed its name a$ain and .!ehman 1rothers. (as ,o'nded+J82KJ8FK D'rin$ the 8*;0s, cotton (as one o, the most im"ortant cro"s in the United )tates+ Ca"itali-in$ on cottonIs hi$h mar&et #al'e, the three brothers be$an to ro'tinely acce"t ra( cotton ,rom c'stomers as "ayment ,or merchandise, e#ent'ally be$innin$ a second b'siness tradin$ in cotton+ :ithin a ,e( years this b'siness $re( to become the most si$ni,icant "art o, their o"eration+ ?ollo(in$ 4enryIs death ,rom yello( ,e#er in 8*;;,J82KJ8;K the remainin$ brothers contin'ed to ,oc's on their commoditiestradin$Rbro&era$e o"erations+ 1y 8*;*, the center o, cotton tradin$ had shi,ted ,rom the )o'th to Ne( Por& City, (here ,actors and commission ho'ses (ere based+ !ehman o"ened its ,irst branch o,,ice in Ne( Por& CityIs >anhattan boro'$h at 883 !iberty )treet, J8;K and G2-year-old Eman'el relocated there to r'n

the o,,ice+J82K In 8*@2, ,acin$ di,,ic'lties as a res'lt o, the Ci#il :ar, the ,irm teamed '" (ith a cotton merchant named 2ohn D'rr to ,orm !ehman, D'rr B Co+J8@KJ8%K?ollo(in$ the (ar the com"any hel"ed ,inance 9labamaIs reconstr'ction+ The ,irmIs head/'arters (ere e#ent'ally mo#ed to Ne( Por& City, (here it hel"ed ,o'nd the Ne( Por& Cotton E7chan$e in 8*%0OJ8;KJ8*K Eman'el sat on the 1oard o, o#ernors 'ntil 8**F+ The ,irm also dealt in the emer$in$ mar&et ,or railroad bonds and entered the ,inancial-ad#isory b'siness+

4erbert 4+ !ehman O,,icial U+)+ )enate 0hoto !ehman became a member o, the Co,,ee E7chan$e as early as 8**G and ,inally the Ne( Por& )toc& E7chan$e in 8**%+J8;KJ8*K In 8*33, it 'nder(rote its ,irst "'blic o,,erin$, the "re,erred and common stoc& o, the International )team 0'm" Com"any+ Des"ite the o,,erin$ o, International )team, the ,irmIs real shi,t ,rom bein$ a commodities ho'se to a ho'se o, iss'e did not be$in 'ntil 830@+ In that year, 'nder 0hili" !ehman, the ,irm "artnered (ith oldman, )achs B Co+,J83KJ20K to brin$ the eneral Ci$ar Co+ to mar&et,J28K ,ollo(ed closely by )ears,

Roeb'c& and Com"any+J28K D'rin$ the ,ollo(in$ t(o decades, almost one h'ndred ne( iss'es (ere 'nder(ritten by !ehman, many times in con<'nction (ith oldman, )achs+ 9mon$ these (ere ?+:+ :ool(orth Com"any,J28KJ22K >ay De"artment )tores Com"any, imbel 1rothers, Inc+,J2GK R+4+ >acy B Com"any,J2GK The )t'deba&er Cor"oration,J22K the 1+?+ oodrich Co+ and Endicott 2ohnson Cor"oration+ ?ollo(in$ 0hili" !ehmanIs retirement in 832;, his son Robert .1obbie. !ehman too& o#er as head o, the ,irm+ D'rin$ 1obbieIs ten're, the com"any (eathered the ca"ital crisis o, the reat De"ression by ,oc'sin$ on #ent're ca"ital (hile the e/'ities mar&et reco#ered+ Traditionally, a ,amily-only "artnershi", in 832F 2ohn >+ 4ancoc& became the ,irst non-,amily member to <oin the ,irm,J83KJ2FK ,ollo(ed by >onroe C+ 'tman and 0a'l >a-'r in 832%+ 1y 832*, the ,irm mo#ed to its no( ,amo's One :illiam )treet location+

0ete 0eterson In the 83;0s, !ehman 'nder(rote the I0O o, Di$ital E/'i"ment Cor"oration+ In the 83G0s, !ehman 'nder(rote the initial "'blic o,,erin$ o, the ,irst tele#ision man',act'rer, D'>ont, and hel"ed ,'nd the Radio Cor"oration o, 9merica 5RC96+J2;K It also hel"ed ,inance the ra"idly

$ro(in$ oil ind'stry, incl'din$ the com"anies 4allib'rton and =err->c ee+ !ater, it arran$ed the ac/'isition o, Di$ital by Com"a/+ JeditK9n e#ol#in$ "artnershi" 583@3D83*F6 Robert !ehman died in 83@3 a,ter ,orty-,o'r years as the "atriarch o, the ,irm, lea#in$ no member o, the !ehman ,amily acti#ely in#ol#ed (ith the "artnershi"+ J2@K RobertIs death, co'"led (ith a lac& o, a clear s'ccessor ,rom (ithin the !ehman ,amily le,t a #oid in the com"any+ 9t the same time, !ehman (as ,acin$ stron$ head(inds amidst the di,,ic'lt economic en#ironment o, the early 83%0s+ 1y 83%2, the ,irm (as ,acin$ hard times and in 83%G,0ete 0eterson, Chairman and Chie, E7ec'ti#e O,,icer o, the 1ell B 4o(ell Cor"oration, (as bro'$ht in to sa#e the ,irm+
J2@K

Under 0etersonIs leadershi" as Chairman and CEO, the ,irm ac/'ired 9braham B Co+ in 83%;, and t(o years later mer$ed (ith the #enerable, b't str'$$lin$, ='hn, !oeb B Co+,J2@K to ,orm !ehman 1rothers, ='hn, !oeb Inc+, the co'ntryIs ,o'rth-lar$est in#estment ban&, behind )alomon 1rothers, oldman )achs and ?irst 1oston+J2%K 0eterson led the ,irm ,rom si$ni,icant o"eratin$ losses to ,i#e consec'ti#e years o, record "ro,its (ith a ret'rn on e/'ity amon$ the hi$hest in the in#estment-ban&in$ ind'stry+ 1y the early 83*0s, hostilities bet(een the ,irmIs in#estment ban&ers and traders 5(ho (ere dri#in$ most o, the ,irmIs "ro,its6 "rom"ted 0eterson to "romote !e(is l'c&sman, the ,irmIs 0resident, COO and ,ormer trader, to be his co-CEO in >ay 83*G+ l'c&sman introd'ced a n'mber o, chan$es that had the e,,ect o, increasin$ tensions, (hich (hen co'"led (ith l'c&sman\s mana$ement style and a do(nt'rn

in the mar&ets, res'lted in a "o(er str'$$le that o'sted 0eterson and le,t l'c&sman as the sole CEO+
J2*K

U"set ban&ers (ho had so'red o#er the "o(er str'$$le, le,t the com"any+ )te#e )ch(ar-man, chairman o, the ,irmIs >B9 committee, recalled in a ?ebr'ary 200G inter#ie( (ith &ri)ate #*uity 'nternational that .!ehman 1rothers had an e7tremely com"etiti#e internal en#ironment, (hich 'ltimately became dys,'nctional+. The com"any s',,ered 'nder the disinte$ration, and l'c&sman (as "ress'red into sellin$ the ,irm+ JeditK>er$er (ith 9merican E7"ress 583*FD833F6

)hearson !ehmanR9merican E7"ress !o$o +ain article: Shearson ,ehman -utton )hearsonR9merican E7"ress, an 9merican E7"resso(ned sec'rities com"any ,oc'sed on bro&era$e rather than in#estment ban&in$, ac/'ired !ehman in 83*F, ,or EG@0 million+ On >ay 88, the combined ,irms became )hearson !ehmanR9merican E7"ress+J2*K In 83**, )hearson !ehmanR9merican E7"ress and E+?+ 4'tton B Co+ mer$ed as )hearson !ehman 4'tton Inc+
J23K

?rom 83*G to 8330, 0eter 9+ Cohen (as CEO and Chairman o, )hearson !ehman 1rothers,JG0K (here he led the one billion dollar "'rchase o, E+?+ 4'tton to

,orm )hearson !ehman 4'tton+JG8K D'rin$ this "eriod, )hearson !ehman (as a$$ressi#e in b'ildin$ its le#era$ed ,inance b'siness in the model o, ri#al Dre7el 1'rnham !ambert+ In 83*3, )hearson bac&ed ?+ Ross 2ohnsonIs mana$ement team in its attem"ted mana$ement b'yo't o, R2R Nabisco b't (ere 'ltimately o'tbid by "ri#ate e/'ity ,irm =ohlber$ =ra#is Roberts, (ho (as bac&ed by Dre7el+ JeditKDi#estment and inde"endence 5833FD200*6 In 833G, 'nder ne(ly a""ointed CEO, 4ar#ey ol'b, 9merican E7"ress be$an to di#est itsel, o, its ban&in$ and bro&era$e o"erations+ It sold its retail bro&era$e and asset mana$ement o"erations to 0rimericaJG2K and in 833F it s"'n o,, !ehman 1rothers ='hn !oeb in an initial "'blic o,,erin$, as !ehman 1rothers 4oldin$s, Inc+JGGK Des"ite r'mors that it (o'ld be ac/'ired a$ain, !ehman "er,ormed /'ite (ell 'nder Chairman and CEO Richard )+ ?'ld, 2r++ 1y 200*, ?'ld had been (ith the com"any ,or G0 years, and (o'ld be the lon$estten'red CEO on :all )treet+ ?'ld had steered !ehman thro'$h the 833% 9sian ?inancial Crisis, a "eriod (here the ,irmIs share "rice dro""ed to E22 U)D in 833*, b't he (as said to ha#e 'nderestimated the do(nt'rn in the U) ho'sin$ mar&et and its e,,ect on !ehmanIs mort$a$e bond 'nder(ritin$ b'siness+ ?'ld &e"t his <ob as the s'b"rime mort$a$e crisis too& hold, (hile CEOs o, ri#als li&e 1ear )tearns, >errill !ynch, and Citi$ro'" (ere ,orced to resi$n+JGFK In addition, !ehmanIs board o, directors, (hich incl'des retired CEOs li&e Soda,oneIs Christo"her ent and I1>Is 2ohn 9&ers (ere rel'ctant to challen$e ?'ld as the ,irmIs share "rice s"iraled lo(er+ JGFK

?'ld had a s'ccession o, .n'mber t(os. 'nder him, 's'ally titled as 0resident and Chie, O"eratin$ O,,icer+ Chris 0ettit (as ?'ldIs second-in-command ,or t(o decades 'ntil No#ember 2@, 833@, (hen he resi$ned as 0resident and board member+ 0ettit lost a "o(er str'$$le (ith his de"'ties 5 )te#e !essin$, and 2ose"h >+ re$ory6 bac& on >arch 8; that year that ca'sed him to relin/'ish its COO title, li&ely bro'$ht abo't a,ter 0ettit had a mistress (hich #iolated ?'ldIs 'n(ritten r'les on marria$e and social eti/'ette+ 1radley 2ac& and 2ose"h >+ re$ory (ere a""ointed co-COOs in 2002, ho(e#er 2ac& (as demoted to the O,,ice o, the Chairman in >ay 200F and de"arted in 2'ne 200; (ith a se#erance "ac&a$e o, E*0 million, ma&in$ re$ory the sole COO and 0resident+ re$ory (as demoted on 2'ne 82, 200* and re"laced by 1art >cDade, (ho (o'ld see !ehman thro'$h ban&r'"tcy+ JG;KJG@K In 2008, the ,irm ac/'ired the "ri#ate-client ser#ices, or .0C)., b'siness o, Co(en B Co+JG%K and later, in 200G, a$$ressi#ely re-entered the asset-mana$ement b'siness, (hich it had e7ited in 83*3+JG*K 1e$innin$ (ith E2 billion in assets 'nder mana$ement, the ,irm ac/'ired the Crossroads ro'", the ,i7ed-income di#ision o, !incoln Ca"ital >ana$ementJG*K andNe'ber$er 1erman+JG3K These b'sinesses, to$ether (ith the 0C) b'siness and !ehmanIs "ri#ate-e/'ity b'siness, com"rised the In#estment >ana$ement Di#ision, (hich $enerated a""ro7imately EG+8 billion in net re#en'e and almost E*00 million in "reta7 income in 200%+ 0rior to $oin$ ban&r'"t, the ,irm had in e7cess o, E2%; billion in assets 'nder mana$ement+ 9lto$ether, since $oin$ "'blic in 833F, the ,irm had increased net re#en'es o#er @00L ,rom E2+%G billion to E83+2 billion and had

increased em"loyee headco'nt o#er 2G0L ,rom *,;00 to almost 2*,@00+ 9t the 2008 A, China ,aw Awards,JF0K !ehman 1rothers (as cro(ned:

Deal o, the Pear D Debt >ar&et Deal o, the Pear Deal o, the Pear D E/'ity >ar&et Deal o, the Pear

JeditKRes"onse to )e"tember 88 terrorist attac&s

The ?ormer Ne( Por& City head/'arters no( o(ned by 1arclays+ On )e"tember 88, 2008, !ehman occ'"ied three ,loors o, One :orld Trade Center (here one o, its em"loyees (as &illed in the attac&s o, that day+ Its $lobal head/'arters in Three :orld ?inancial Center (ere se#erely dama$ed and rendered 'n'sable by ,allin$ debris, dis"lacin$ o#er @,;00 em"loyees+ The ban& reco#ered /'ic&ly and reb'ilt its "resence+ Tradin$ o"erations mo#ed across the 4'dson Ri#er to its 2ersey City,Ne( 2ersey, ,acilities, (here an im"rom"t' tradin$ ,loor (as b'ilt in a hotel and bro'$ht online less than ,orty-ei$ht ho'rs a,ter

the attac&s+ :hen stoc& mar&ets reo"ened on )e"tember 8%, 2008, !ehmanIs sales and tradin$ ca"abilities (ere restored+ In the ens'in$ months, the ,irm ,anned o't its o"erations across the Ne( Por& City metro"olitan area in o#er ,orty tem"orary locations+ Notably, the in#estment-ban&in$ di#ision con#erted the ,irst-,loor lo'n$es, resta'rants, and all @@; $'estrooms o, the )heraton >anhattan 4otel into o,,ice s"ace+ The ban& also e7"erimented (ith ,le7time 5to share o,,ice s"ace6 and telecomm'tin$ #ia #irt'al "ri#ate net(or&in$+ In October 2008, !ehman "'rchased a G2story, 8,0;0,000-s/'are-,oot 53*,000 m26 o,,ice b'ildin$ ,or a re"orted s'm o, E%00 million+ The b'ildin$, located at %F; )e#enth 9#en'e, had recently been b'ilt, and not yet occ'"ied, by ri#al >or$an )tanley+ :ith >or$an )tanleyIs (orld head/'arters located only t(o bloc&s a(ay at 8;*; 1road(ay, in the (a&e o, the attac&s the ,irm (as re-e#al'atin$ its o,,ice "lans (hich (o'ld ha#e "'t o#er 80,000 em"loyees in the Times )/'are area o, Ne( Por& City+ !ehman be$an mo#in$ into the ne( ,acility in 2an'ary and ,inished in >arch 2002, a mo#e that si$ni,icantly boosted morale thro'$ho't the ,irm+Jcitation neededK The ,irm (as critici-ed ,or not mo#in$ bac& to its ,ormer head/'arters in lo(er >anhattan+ ?ollo(in$ the attac&s, only De'tsche 1an&, oldman )achs, and >errill !ynch o, the ma<or ,irms remained in the do(nto(n area+ !ehman, ho(e#er, "oints to the ,acts that it (as committed to stay in Ne( Por& City, that the ne( head/'arters re"resented an ideal circ'mstance (here the ,irm (as des"erate to b'y and >or$an )tanley (as des"erate to sell, that (hen

the ne( b'ildin$ (as "'rchased, the str'ct'ral inte$rity o, Three :orld ?inancial Center had not yet been $i#en a clean bill o, health, and that in any case, the com"any co'ld not ha#e (aited 'ntil >ay 2002 ,or re"airs to Three :orld ?inancial Center to concl'de+ 9,ter the attac&s, !ehmanIs mana$ement "laced increased em"hasis on b'siness contin'ity "lannin$+ Unli&e its ri#als, the com"any (as 'n's'ally concentrated ,or a b'l$e-brac&etin#estment ban&+ ?or e7am"le, >or$an )tanley maintains a %;0,000s/'are-,oot 5%0,000 m26 tradin$-and-ban&in$ ,acility in :estchester Co'nty, Ne( Por&+ The tradin$ ,loor o, U1) is located in )tam,ord, Connectic't+ >errill !ynchIs asset-mana$ement di#ision is located in 0lainsboro To(nshi", Ne( 2ersey+ 9side ,rom its head/'arters in Three :orld ?inancial Center, !ehman maintained o"erations-and-bac&o,,ice ,acilities in 2ersey City, s"ace that the ,irm considered lea#in$ "rior to 3R88+ The s"ace (as not only retained, b't e7"anded, incl'din$ the constr'ction o, a bac&'"-tradin$ ,acility+ In addition, telecomm'tin$ technolo$y ,irst rolled o't in the days ,ollo(in$ the attac&s to allo( em"loyees to (or& ,rom home (as e7"anded and enhanced ,or $eneral 'se thro'$ho't the ,irm+JF8K JeditK200G )EC liti$ation In 200G, the com"any (as one o, ten ,irms (hich sim'ltaneo'sly entered into a settlement (ith the U+)+ )ec'rities and E7chan$e Commission 5)EC6, the O,,ice o, the Ne( Por& )tate 9ttorney eneral and #ario's other sec'rities re$'lators, re$ardin$ 'nd'e in,l'ence o#er each ,irmIs research analysts by their in#estment-ban&in$ di#isions+ )"eci,ically, re$'lators alle$ed that the ,irms had im"ro"erly associated analyst com"ensation (ith the ,irmsI in#estment-

ban&in$ re#en'es, and "romised ,a#orable, mar&etmo#in$ research co#era$e, in e7chan$e ,or 'nder(ritin$ o""ort'nities+ The settlement, &no(n as the Z$lobal settlement[, "ro#ided ,or total ,inancial "enalties o, E8+F billion, incl'din$ E*0 million a$ainst !ehman, and str'ct'ral re,orms, incl'din$ a com"lete se"aration o, in#estment ban&in$ de"artments ,rom research de"artments, no analyst com"ensation, directly or indirectly, ,rom in#estment-ban&in$ re#en'es, and the "ro#ision o, ,ree, inde"endent, third-"arty, research to the ,irmsI clients+ JeditKColla"se +ain article: JeditKCa'ses an.ruptcy of ,ehman rothers

JeditK>al,easance 9 >arch 2080 re"ort by the co'rt-a""ointed e7aminer indicated that !ehman e7ec'ti#es re$'larly 'sed cosmetic acco'ntin$ $immic&s at the end o, each /'arter to ma&e its ,inances a""ear less sha&y than they really (ere+ This "ractice (as a ty"e o, re"'rchase a$reement that tem"orarily remo#ed sec'rities ,rom the com"anyIs balance sheet+ 4o(e#er, 'nli&e ty"ical re"'rchase a$reements, these deals (ere described by !ehman as the o'tri$ht sale o, sec'rities and created .a materially misleadin$ "ict're o, the ,irm\s ,inancial condition in late 200% and 200*+.JF2K JeditK)'b"rime mort$a$e crisis In 9'$'st 200%, the ,irm closed its s'b"rime lender, 1NC >ort$a$e, eliminatin$ 8,200 "ositions in 2G locations, and too& an a,ter-ta7 char$e o, E2; million and a E2% million red'ction in$ood(ill+ !ehman said that "oor mar&et conditions in the mort$a$e s"ace

.necessitated a s'bstantial red'ction in its reso'rces and ca"acity in the s'b"rime s"ace.+JFGK In 200*, !ehman ,aced an 'n"recedented loss to the contin'in$ s'b"rime mort$a$e crisis+ !ehmanIs loss (as a res'lt o, ha#in$ held on to lar$e "ositions in s'b"rime and other lo(er-rated mort$a$e tranches (hen sec'rin$ the 'nderlyin$ mort$a$esO (hether !ehman did this beca'se it (as sim"ly 'nable to sell the lo(er-rated bonds, or made a conscio's decision to hold them, is 'nclear+ In any e#ent, h'$e losses accr'ed in lo(er-rated mort$a$ebac&ed sec'rities thro'$ho't 200*+ In the second ,iscal /'arter, !ehman re"orted losses o, E2+* billion and (as ,orced to sell o,, E@ billion in assets+JFFK In the ,irst hal, o, 200* alone, !ehman stoc& lost %GL o, its #al'e as the credit mar&et contin'ed to ti$hten+JFFK In 9'$'st 200*, !ehman re"orted that it intended to release @L o, its (or& ,orce, 8,;00 "eo"le, <'st ahead o, its third-/'arter-re"ortin$ deadline in )e"tember+
JFFK

On 9'$'st 22, 200*, shares in !ehman closed '" ;L 58@L ,or the (ee&6 on re"orts that the statecontrolled =orea De#elo"ment 1an& (as considerin$ b'yin$ the ban&+JF;K >ost o, those $ains (ere /'ic&ly eroded as ne(s came in that =orea De#elo"ment 1an& (as .,acin$ di,,ic'lties "leasin$ re$'lators and attractin$ "artners ,or the deal+.JF@K It c'lminated on )e"tember 3, (hen !ehmanIs shares "l'n$ed F;L to E%+%3, a,ter it (as re"orted that the state-r'n )o'th =orean ,irm had "'t tal&s on hold+JF%K On )e"tember 8%, 200* )(iss Re estimated its o#erall net e7"os're to !ehman 1rothers as a""ro7imately C4? ;0 million+JF*K

In#estor con,idence contin'ed to erode as !ehmanIs stoc& lost ro'$hly hal, its #al'e and "'shed the )B0 ;00 do(n G+FL on )e"tember 3+ The Do( 2ones lost G00 "oints the same day on in#estorsI concerns abo't the sec'rity o, the ban&+JF3K The U+)+ $o#ernment did not anno'nce any "lans to assist (ith any "ossible ,inancial crisis that emer$ed at !ehman+J;0K The ne7t day, !ehman anno'nced a loss o, EG+3 billion and their intent to sell o,, a ma<ority sta&e in their in#estment-mana$ement b'siness, (hich incl'des Ne'ber$er 1erman+J;8KJ;2K The stoc& slid se#en "ercent that day+J;2KJ;GK !ehman, a,ter earlier re<ectin$ /'estions on the sale o, the com"any, (as re"ortedly searchin$ ,or a b'yer as its stoc& "rice dro""ed another F0 "ercent on )e"tember 88, 200*+J;GK 2'st be,ore the colla"se o, !ehman 1rothers, e7ec'ti#es at Ne'ber$er 1erman sent e-mail memos s'$$estin$, amon$ other thin$s, that the !ehman 1rothersI to" "eo"le ,or$o m'lti-million dollar bon'ses to .send a stron$ messa$e to both em"loyees and in#estors that mana$ement is not shir&in$ acco'ntability ,or recent "er,ormance+.J;FK !ehman 1rothers In#estment >ana$ement Director eor$e 4erbert :al&er IS dismissed the "ro"osal, $oin$ so ,ar as to act'ally a"olo$i-e to other members o, the !ehman 1rothers e7ec'ti#e committee ,or the idea o, bon's red'ction ha#in$ been s'$$ested+ 4e (rote, .)orry team+ I am not s're (hatIs in the (ater at Ne'ber$er 1erman+ IIm embarrassed and I a"olo$i-e+.J;FK JeditK)hort-sellin$ alle$ations D'rin$ hearin$s on the ban&r'"tcy ,ilin$ by !ehman 1rothers and bailo't o, 9I be,ore the 4o'se Committee on O#ersi$ht and o#ernment Re,orm,

J;;K

,ormer !ehman 1rothers CEO Richard ?'ld said a host o, ,actors incl'din$ a crisis o, con,idence and na&ed short-sellin$ attac&s ,ollo(ed by ,alse r'mors contrib'ted to both the colla"se o, 1ear )tearns and !ehman 1rothers+ 4o'se committee Chairman 4enry :a7man said the committee recei#ed tho'sands o, "a$es o, internal doc'ments ,rom !ehman and these doc'ments "ortray a com"any in (hich there (as Zno acco'ntability ,or ,ail're.+J;@KJ;%KJ;*K 9n article by <o'rnalist >att Taibbi in Rollin$ )tone contended that na&ed short sellin$ contrib'ted to the demise o, both !ehman and 1ear )tearns+J;3K 9 st'dy by ,inance researchers at the Uni#ersity o, O&lahoma 0rice Colle$e o, 1'siness st'died tradin$ in ,inancial stoc&s, incl'din$ !ehman 1rothers and 1ear )tearns, and ,o'nd .no e#idence that stoc& "rice declines (ere ca'sed by na&ed short sellin$.+J@0K JeditK1an&r'"tcy On )at'rday, )e"tember 8G, 200*, Timothy ?+ eithner, the "resident o, the ?ederal Reser#e 1an& o, Ne( Por& called a meetin$ on the ,'t're o, !ehman, (hich incl'ded the "ossibility o, an emer$ency li/'idation o, its assets+J@8K !ehman re"orted that it had been in tal&s (ith 1an& o, 9merica and 1arclays ,or the com"anyIs "ossible sale+ 4o(e#er, both 1arclays and 1an& o, 9merica 'ltimately declined to "'rchase the entire com"any+
J@8KJ@2K

The ne7t day, )'nday, )e"tember 8F, the International )(a"s and Deri#ati#es 9ssociation 5I)D96 o,,ered an e7ce"tional tradin$ session to allo( mar&et "artici"ants to o,,set "ositions in #ario's deri#ati#es on the condition o, a !ehman ban&r'"tcy later that day+J@GKJ@FK 9ltho'$h the

ban&r'"tcy ,ilin$ missed the deadline, many dealers honored the trades they made in the s"ecial session+
J@;K

!ehman 1rothers head/'arters in Ne( Por& City on )e"tember 8;, 200* )hortly be,ore 8 am >onday mornin$ 5Ne( Por& time6, !ehman 1rothers 4oldin$s anno'nced it (o'ld ,ile ,or Cha"ter 88 ban&r'"tcy "rotectionJ@@K citin$ ban& debt o, E@8G billion, E8;; billion in bond debt, and assets (orth E@G3 billion+J@%K It ,'rther anno'nced that its s'bsidiaries (o'ld contin'e to o"erate as normal+J@*K 9 $ro'" o, :all )treet ,irms a$reed to "ro#ide ca"ital and ,inancial assistance ,or the ban&Is orderly li/'idation and the ?ederal Reser#e, in t'rn, a$reed to a s(a" o, lo(er-/'ality assets in e7chan$e ,or loans and other assistance ,rom the $o#ernment+ J@3K The mornin$ (itnessed scenes o, !ehman em"loyees remo#in$ ,iles, items (ith the com"any lo$o, and other belon$in$s ,rom the (orld head/'arters at %F; )e#enth 9#en'e+ The s"ectacle contin'ed thro'$ho't the day and into the ,ollo(in$ day+ !ater that day, the 9'stralian )ec'rities E7chan$e 59)X6 s's"ended !ehmanIs 9'stralian s'bsidiary as a mar&et "artici"ant a,ter clearin$ho'ses terminated their contracts (ith the ,irm+ J%0K !ehman shares t'mbled o#er 30L on )e"tember

8;, 200*+J%8KJ%2K The Do( 2ones closed do(n <'st o#er ;00 "oints on )e"tember 8;, 200*, (hich (as at the time the lar$est dro" in a sin$le day since the days ,ollo(in$ the attac&s on )e"tember 88, 2008+J%GK In the United =in$dom, the in#estment ban& (ent into administration (ith 0rice(aterho'seCoo"ers a"" ointed as administrators+J%FK In 2a"an, the 2a"anese branch, !ehman 1rothers 2a"an Inc+, and its holdin$ com"any ,iled ,or ci#il reor$ani-ation on )e"tember 8@, 200*, in To&yo District Co'rt+J%;K On )e"tember 8%, 200*, the Ne( Por& )toc& E7chan$e delisted !ehman 1rothers+J%@K On >arch 8@, 2088 some three years a,ter ,ilin$ ,or ban&r'"tcy and ,ollo(in$ a ,ilin$ in a >anhattan U+)+ ban&r'"tcy co'rt, !ehman 1rothers 4oldin$s Inc anno'nced it (o'ld see& creditor a""ro#al o, its reor$ani-ation "lan by October 8F ,ollo(ed by a con,irmation hearin$ to ,ollo( on No#ember 8%+J%%K JeditK!i/'idation JeditK1arclays ac/'isition On T'esday, )e"tember 8@, 200*, 1arclays "lc anno'nced that they (o'ld ac/'ire a .stri""ed clean. "ortion o, !ehman ,or E8+%; billion, incl'din$ most o, !ehmanIs North 9merica o"erations+J;KJ%*K On )e"tember 20, this transaction (as a""ro#ed by U+)+ 1an&r'"tcy 2'd$e 2ames 0ec&+J%3KJ*0K On )e"tember 20, 200*, a re#ised #ersion o, the deal, a E8+G; billion 5W%00 million6 "lan ,or 1arclays to ac/'ire the core b'siness o, !ehman 5mainly its E3@0million head/'arters, a G*-story o,,ice b'ildin$J*8K in >idto(n >anhattan, (ith res"onsibility ,or 3,000 ,ormer em"loyees6, (as a""ro#ed+ >anhattan co'rt ban&r'"tcy 2'd$e 2ames 0ec&, a,ter a %-ho'r hearin$, r'led: .I ha#e to a""ro#e

this transaction beca'se it is the only a#ailable transaction+ !ehman 1rothers became a #ictim, in e,,ect the only tr'e icon to ,all in a ts'nami that has be,allen the credit mar&ets+ This is the most momento's ban&r'"tcy hearin$ II#e e#er sat thro'$h+ It can ne#er be deemed "recedent ,or ,'t're cases+ ItIs hard ,or me to ima$ine a similar emer$ency+.J*2K !'c Des"ins, then a "artner at >ilban&, T(eed, 4adley B >cCloy, the creditors committee co'nsel, said: .The reason (eIre not ob<ectin$ is really based on the lac& o, a #iable alternati#e+ :e did not s'""ort the transaction beca'se there had not been eno'$h time to "ro"erly re#ie( it+.Jcitation neededK In the amended a$reement, 1arclays (o'ld absorb EF%+F billion in sec'rities and ass'me EF;+; billion in tradin$ liabilities+ !ehmanIs attorney 4ar#ey R+ >iller o, :eil, otshal B >an$es, said .the "'rchase "rice ,or the real estate com"onents o, the deal (o'ld be E8+23 billion, incl'din$ E3@0 million ,or !ehmanIs Ne( Por& head/'arters and EGG0 million ,or t(o Ne( 2ersey data centers+ !ehmanIs ori$inal estimate #al'ed its head/'arters at E8+02 billion b't an a""raisal ,rom C1 Richard Ellis this (ee& #al'ed it at E300 million+.Jcitation neededK ?'rther, 1arclays (ill not ac/'ire !ehmanIs Ea$le Ener$y 'nit, b't (ill ha#e entities &no(n as !ehman 1rothers Canada Inc, !ehman 1rothers )'damerica, !ehman 1rothers Ur'$'ay and its 0ri#ate In#estment >ana$ement b'siness ,or hi$h net-(orth indi#id'als+ ?inally, !ehman (ill retain E20 billion o, sec'rities assets in !ehman 1rothers Inc that are not bein$ trans,erred to 1arclays+J*GK 1arclays ac/'ired a "otential liability o, E2+; billion to be "aid as se#erance, i, it chooses not to retain some !ehman em"loyees beyond the $'aranteed 30 days+J*FKJ*;K

JeditKNom'ra ac/'isition Nom'ra 4oldin$s, 2a"anIs to" bro&era$e ,irm, a$reed to b'y the 9sian di#ision o, !ehman 1rothers ,or E22; million and "arts o, the E'ro"ean di#ision ,or a nominal ,ee o, E2+J*@KJ*%K It (o'ld not ta&e on any tradin$ assets or liabilities in the E'ro"ean 'nits+ Nom'ra ne$otiated s'ch a lo( "rice beca'se it ac/'ired only !ehmanIs em"loyees in the re$ions, and not its stoc&s, bonds or other assets+ The last !ehman 1rothers 9nn'al Re"ort identi,ied that these non-U) s'bsidiaries o, !ehman 1rothers (ere res"onsible ,or o#er ;0L o, $lobal re#en'e "rod'ced+J**K JeditK)ale o, Ne'ber$er 1erman On )e"tember 23, 200*, !ehman a$reed to sell Ne'ber$er 1erman, the b'l& o, its in#estment mana$ement b'siness, to a "air o, "ri#ate-e/'ity ,irms, 1ain Ca"ital 0artners and 4ellman B ?riedman, ,or E2+8; billion+J*3K The transaction (as e7"ected to close in early 2003, s'b<ect to a""ro#al by the U+)+ 1an&r'"tcy Co'rt,J30K b't a com"etin$ bid (as entered by the ,irmIs mana$ement, (ho 'ltimately "re#ailed in a ban&r'"tcy a'ction on December G, 200*+ Creditors o, !ehman 1rothers 4oldin$s Inc+ retain a F3L common e/'ity interest in the ,irm, no( &no(n as Ne'ber$er 1erman ro'" !!C+J38K It is the ,o'rth lar$est "ri#ate em"loyee-controlled asset mana$ement ,irm $lobally, behind ?idelity In#estments, The Ca"ital ro'" Com"anies and :ellin$ton >ana$ement Com"any+ JeditK?inancial ,allo't !ehmanIs ban&r'"tcy (as the lar$est ,ail're o, an in#estment ban& since Dre7el 1'rnham !ambert colla"sed amid ,ra'd alle$ations 8* years "rior+J@3K Immediately ,ollo(in$ the ban&r'"tcy ,ilin$,

an already distressed ,inancial mar&et be$an a "eriod o, e7treme #olatility, d'rin$ (hich the Do( e7"erienced its lar$est one day "oint loss, lar$est intra-day ran$e 5more than 8,000 "oints6 and lar$est daily "oint $ain+ :hat ,ollo(ed (as (hat many ha#e called the Z"er,ect storm[ o, economic distress ,actors and e#ent'ally a E%00bn bailo't "ac&a$e 5Tro'bled 9sset Relie, 0ro$ram6 "re"ared by 4enry 0a'lson, )ecretary o, the Treas'ry, and a""ro#ed by Con$ress+ The Do( e#ent'ally closed at a ne( si7year lo( o, %,;;2+23 on No#ember 20, ,ollo(ed by a ,'rther dro" to @@2@ by >arch o, the ne7t year+ The ,all o, !ehman also had a stron$ e,,ect on small "ri#ate in#estors s'ch as bond holders and holders o, so-called >inibonds+ In ermany str'ct'red "rod'cts, o,ten based on an inde7, (ere sold mostly to "ri#ate in#estors, elderly, retired "ersons, st'dents and ,amilies+ >ost o, those no( (orthless deri#ati#es (ere sold by the erman arm o, Citi$ro'", the erman Citiban& no( o(ned by Cr^dit >'t'el+ JeditKOn$oin$ liti$ation On >arch 88, 2080, >an$al 0 0andey, a co'rta""ointed e7aminer, "'blished the res'lts o, its yearlon$ in#esti$ation into the ,inances o, !ehman 1rothers+J32K This re"ort re#ealed that !ehman 1rothers 'sed an acco'ntin$ "roced're termed re"o 80; to tem"orarily e7chan$e E;0 billion o, assets into cash <'st be,ore "'blishin$ its ,inancial statements+ J3GK The action co'ld be seen to im"licate both Ernst B Po'n$, the ban&Is acco'ntancy ,irm and Richard )+ ?'ld, 2r, the ,ormer CEO+J3FK This co'ld "otentially lead to Ernst B Po'n$ bein$ ,o'nd $'ilty o, ,inancial mal"ractice and ?'ld ,acin$ time in "rison+J3;K

9ccordin$ to the %all Street /ournal, in >arch 2088, the )EC anno'nced that they (erenIt con,ident that they co'ld "ro#e that !ehman 1rothers #iolated U) la(s in its acco'ntin$ "ractices+J3@K

Concl'sion:
:e ha#e a "ain,'l combination o, a lo'sy economy, colla"sin$ ,inancial stoc&s, a dee"enin$ E'ro"ean debt crisis and, no ne( credible bail o't "ro$rams on the hori-on+ :hen yo' "'t the "ieces to$ether, it is #ery easy to see (hy the stoc& mar&et may (ell retest its 2003 lo(s be,ore the year is o't+