The stock market crash of 2008
Follow this timeline to understand why the market fell in the biggest fall in history
The 2008 stock market crash occurred on September 29, 2008. The Dow Jones Industrial Average fell 777.68 points in a day. Until the March 2020 stock market crash at the start of the COVID-19 epidemic, it was the biggest fall in history.
The market crashed, in part, because Congress initially rejected the 2008 Emergency Economic Stability Act, known as the Banks' Bailout Bill. But the pressures that led to the crash developed over a long period of time.
On October 9, 2007, the Dow reached its pre-recession peak and closed at 14,164.53. By March 5, 2009, it had dropped more than 50% to 6,594.44.
Although it was not the largest percentage drop in history, it was cruel.
The stock market fell by almost 90% during the Great Depression. But it took almost four years. The 2008 crash lasted just 18 months.
The table below ranks the 10 largest losses in a single day in the history of the Dow Jones Industrial Average:
The following timeline explains exactly how the stock market crash happened in 2008:
2007
The Dow opened the year at 12,474.52. It has risen despite growing concerns about the subprime mortgage crisis. On December 19, 2006, the U.S. Department of Commerce warned that October's new home permits were 28 percent lower than the previous year. But economists did not think the slowdown in housing would affect the rest of the economy. In fact, they were relieved that the real estate market seemed to overheat and return to normal.
But falling house prices have led to failures in subprime mortgages.
By August 2007, the Federal Reserve had recognized that banks did not have enough liquidity to function.
The Fed began to add liquidity by purchasing subprime mortgages from banks. In October, economists warned against the widespread use of guaranteed debt liabilities and other derivatives.
As the year drew to a close, the Bureau of Economic Analysis (BEA) revised its growth estimate higher. She said the country's gross domestic product grew by 0.5% in the third quarter. Her previous estimate said it had shrunk by 0.5%. It seemed that the US economy could shake off the housing recession and bank liquidity restrictions. The Dow ended the year just short of its October high of 13,264.82.
2008
At the end of January, the BEA updated its GDP growth estimate in the fourth quarter of 2007 and said growth was only 0.6%. The economy lost 17,000 jobs, the first time since 2004 the Dow has shaken off the news and ranged from 12,000 to 13,000 by March.
On March 17, the Federal Reserve intervened to save the failed investment bank, Bear Stearns. The Dow fell to a low of 11,650.44 within a day but seemed to be recovering. In fact, many thought Bar Stearns' rescue would prevent it. In May, the Dow rose above 13,000. The worst seemed to be over.
In July 2008, the crisis threatened government-sponsored agencies Fanny Mae and Freddie Mac. They demanded a government rescue. The Treasury has promised an estimated $ 25 billion of their loans and bought shares of Fanny and Freddie. The Federal Housing Authority has guaranteed $ 300 billion in new loans. On July 15, the Dow dropped to 10,962.54. He recovered and stayed over 11,000 for the rest of the summer.
September 2008
The month started with chilling news. On Monday, September 15, 2008, Lehman Brothers declared bankruptcy. The Dow has dropped more than 200 points.
On Tuesday, September 16, 2008, the Fed announced that it was rescuing insurance giant American International Group Inc. It provided a $ 85 billion loan in exchange for 79.9% equity, and actually took ownership. AIG has run out of cash. It has struggled to pay off default exchanges it has issued against failed mortgage-backed securities (MBS).
In the days following the collapse of Lehman, money market funds lost $ 196 billion. This is where most businesses park their cash overnight. Companies panicked, moving to safer treasury bills. They did so because libor rates were high. Banks raised interest rates because they were afraid to lend to each other. On September 17, 2008, the Dow fell 449.36 points.
On Thursday, September 18, 2008, the markets recovered by more than 400 points. Investors learned of a new bailout package for the bank.
On Friday, September 19, 2008, the Dow ended the week at 11,388.44. It was just slightly below its opening on Monday.
The Fed established the Asset-Backed Commercial Paper Money Market Mutual Liquidity Facility. He lent money to banks to buy commercial securities from money market funds. The Fed announcement confirmed that the credit markets have been partially frozen and are in a state of panic.
On Saturday, September 20, 2008, Minister Henry Paulson and Federal Reserve Chairman Ben Bernanke submitted a bill to bail out the bank. The Dow jumped around 11,000 to 29.
In September 2008, the Senate voted against the bailout bill. The Dow lost 777.68 points during intra-day trading The global markets also panicked:
The Ibovespa Stock Exchange in Brazil closed after a 10% decline.
The London FTSE index fell 5.3%.
Gold reached nearly $ 900 an ounce.
Oil fell to $ 95 a barrel.
To restore financial stability, the Fed doubled its currency exchange with foreign central banks in Europe, the UK and Japan to $ 620 billion. World governments have been forced to supply all the liquidity to the frozen credit markets.
אוקטובר 2008
Congress finally passed the bailout bill in early October, but the damage has already been done. The Ministry of Labor reported that the economy lost a huge amount of 159,000 jobs in the previous month. On Monday, October 6, 2008, the Dow fell 800 points, closing below 10,000 for the first time since 2004.
The Fed tried to support banks through $ 540 billion in loans to money market funds. The funds needed cash to withstand an ongoing barrage of redemptions. Since August, about $ 500 billion has been withdrawn from prime money markets.
JPMorgan Chase managed the Fed's MMFF investor finance facility. He purchased up to $ 600 billion in certificates of deposit, bills and commercial documents that reached maturity within 90 days. The remaining $ 60 billion came from the money marketers themselves. But they also purchased the commercial paper from the MMIFF.
The Fed quickly lowered the Fed's interest rate to 1% .29 But the interest rate on Libor Bank's lending remained at a peak of 2.58%. The Fed also coordinated a global bank bailout of the central bank.
The Dow responded with a 15% drop over the course of the month. By the end of October, the BEA had published more alarming news. The economy contracted 0.3% in the third quarter. The country was in recession.
November 2008
The month started with more bad news. The Ministry of Labor reported that the economy lost 240,000 jobs. In October. AIG's bailout plan has grown to $ 150 billion. The Bush administration has announced that it is using part of the $ 700 billion bailout to buy preference shares in United Nations banks.
The three major automakers have sought federal rescue. By November 20, 2008, the Dow had fallen to 7,552.29, a new low. But the stock market crash of 2008 is not over yet.
December 2008
The Fed has lowered the interest rate on Fed funds to 0%, its lowest level in history. The Dow ended the year with a sickening rate of 8,776.39, down nearly 34% year-over-year.
2009
On January 2, 2009, the Dow climbed to 9,034.69. Investors believed the new Obama administration could cope with the recession with its team of economic advisers. But the bad economic news continued. On March 5, 2009, the Dow fell to the bottom of 6,594.44.37
Shortly afterwards, President Barack Obama's economic incentive program activated the confidence needed to stop the panic. On July 24, 2009, the Dow reached a higher plane. It closed at 9,093.24, defeating its record in January. For the most part, the stock market crash of 2008 ended.
after
Investors bore the emotional scars from the crash for the next four years. On June 1, 2012, they were alarmed by the May jobs report and the euro debt crisis. The Dow fell 275 points. The 10-year Treasury Index yield fell to 1.47. This yield has been the lowest rate in more than 200 years. She signaled that the confidence that had evaporated during 2008 had not really returned to Wall Street.
In 2013, the stock market finally recovered. Stock prices rose faster than earnings, creating an asset bubble. The Dow continued to set higher highs until February 2018. Fears of inflation and higher interest rates sent the Dow to the longest correction since 1961. Like many other stock market crashes in the past, it did not lead to a recession.
The correction ended in August 2018, and the Dow ended in 2018 at 23,327.46. In 2019 it set a record of 27,359.16 July. So he began to decline due to concerns about trade wars initiated by President Donald Trump.
When did the stock market collapse in 2008?
The market decline that included the 2008 crash began a year earlier in October 2007. From October 2007, the market spent almost a year in slow decline, then a stock collapse on September 29, 2008. These losses continued over the years until they reached the bottom in March 2009.
How long did it take to recover from the 2008 stock market crash?
It took the stock about five years to recover from the decline in the market that included the 2008 crash. The Dow Jones industrial average recovered from its peak in October 2007 to March 2013.
Can the stock market crash again?
of course. Stock markets are a reflection of the state of the economy and people's expectations for future growth and prosperity. If extreme events like disaster, war or epidemic occur, they can cause people to panic and cause a crash. A severe economic downturn can do the same. As a result, crashes are a regular part of the markets, though rare.
Responses