September 8th and 9th, both Fannie Mae and Freddie Mac topple over, the Government steps in to secure the two mortgage giants, by the 10th, markets are in free-fall and liquidity is evaporating – money simply isn’t showing up. Lehman Brothers, in particular, stands out.
One of the world’s largest broker dealers, a 1 trillion dollar a day turnover giant, suddenly faces shortfalls in managing its daily book. JP Morgan stands by its broker-dealer arm, going as far as ensuring intra-day funding requirements above and over ordinary requirements, but the parent company is still scrambling to match-off its cash requirements. Merrill Lynch, the charging bull, is taken over by BofA and Lehman is left with one less suitor in the mix. By September 15th, the game is over – Richard ‘Dick’ Fuld files for chapter 11 protection and the world changes – brutally so.
By the next day, Reserve Primary, one of the largest money market funds in the US, ‘breaks the buck’ and equity markets suddenly implode.
The recent Financial Crisis Inquiry Commission hearings in the United States have sought to bring back some of the key actors to these events in the same room for a frank discussion over what went wrong and why. The discussion was hard to listen to live. Fuld believes the bank was solvent, the Fed believe they did everything they could, the JP Morgan risk experts believe they were already operating beyond their means prior to the event, and no-one can really say how to avoid this next time around. More worrying to hear were the small anecdotes behind the event.
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