Most of the people around the globe recall the global financial crisis of 2008 with the collapse of the United States’ fourth largest investment bank Lehman Brothers. Nine years ago on 15 September 2008 investment banking giant, Lehman Brothers filed for Chapter 11 bankruptcy. We recall a few events that followed post the bankruptcy of Lehman Brothers after pessimism and panic hammered the global financial markets.
- The panic was at a high throughout the world markets, especially as Lehman Brothers had assets worth $639 billion, which were inter-dependable on other major banks too.
- The very next day the Federal Reserve was forced into an $85 billion bailout of the insurance giant American International Group (AIG).
- The US SEC (Securities and Exchange Commission) — the capital market regulator in the United States — announced a temporary ban on short selling on all of the financial sector stocks.
- The Dow Jones Industrial Average plummeted over 500 points the day Lehman Brothers filed for bankruptcy. The Dow Jones — benchmark index of New York Stock Exchange — fell as much as 4.4% to 10,917.51 points from the previous close of 11,421.99 points.
- After three days of Lehman bankruptcy, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke went to the US Congress with a proposal for Troubled Asset Relief Program (TARP), which later came to the rescue of the other banks by offering them huge bailout packages.
- The Dow Jones Industrial Average witnessed one of the biggest monthly falls ever seen in the American stock markets as it plunged 20% in a month to 8,758.84 points on 1 October 2008 from 11,069.73 points on 1 September 2008.
- Indian equity markets too reacted very badly as the sentiment all across the globe turned miserable. The 30-share barometer Sensex tumbled 27% in the same period to 9,748.08 points from 13,417.91 points.
- The US Federal Reserve slashed the key rates all the way down to zero. On the other hand, the London Interbank Offered Rate (LIBOR) spiked to historic levels.
- On 1 December 2008, the US government statisticians from the National Bureau of Economic Research announced that the world’s largest economy was slowing down and had been in recession since 2007. The FOMC (Federal Open Market Commission) voted to establish a target range for the US Federal Reserve’s effective policy rate of 0 to 0.25% — lowest in the history.
Lehman Brothers’ bankruptcy was a wake-up call for those at the highest levels of the government. The collapse of Lehman Brothers set off shockwaves throughout global markets and economies, and sprung the powers that be into action.