2008: The Great Credit Boom Finally Goes Bust; Thin Ice: New York's Rockefeller Centre and Other Giant Symbols of Capitalism Were Shaken to Their Cores as Several Financial Institutions Fell Victim to the Credit Crunch in 2008

Daily Mail (London), December 24, 2008 | Go to article overview

2008: The Great Credit Boom Finally Goes Bust; Thin Ice: New York's Rockefeller Centre and Other Giant Symbols of Capitalism Were Shaken to Their Cores as Several Financial Institutions Fell Victim to the Credit Crunch in 2008


Byline: Geoff Foster

IT was the year that the share boom came shuddering to a halt. The FTSE index plummeted to 5 1 2 year lows of 3,780 as bullish predictions about the market all unravelled before investors' disbelieving eyes.

The worst January since records began in 1936 saw the blue chip index crash more than 800 points - to less than 5,600 - leaving the most seasoned fund manager shaking in his Church loafers.

The credit crunch, sparked by the sub-prime mortgage crisis in the US, was to hold world stock markets in its grip for the rest of a very uncomfortable year.

The FTSE lost 32pc over the painful period, while Wall Street plummeted 35pc and the Hang Seng 45pc.

World banks have had to make a staggering total of around $900bn in asset write-downs as a result of toxic sub-prime loans. Many thousands of City jobs have been lost and the repercussions will continue to be felt after Bear Stearns and then Lehman Brothers went bust in the US.

Fannie Mae and Freddie Mac and insurance giant AIG have all been bailed out by the US government.

The 'Thundering Herd' investment bank Merrill Lynch was forced into the arms of Bank of America, leaving just two independent investment banks - Goldman Sachs and Morgan Stanley - standing, but only just.

Huge 'rescue' investments made by sovereign wealth funds and legendary investor Warren Buffett helped keep them afloat.

Back home, UK mortgage banks Northern Rock and Bradford & Bingley had to be nationalised. A string of other banks had to accept state support.

Beleaguered shareholders will now have to sing for any dividends in the short term while former managements of the failed banks enjoy a long and happy retirement on generous pensions. .

SHORT-selling by hedge funds was partially blamed for the banks' demise. It forced the Government and the Financial Services Authority to ban short selling of financial stocks until January 2009. It made little difference

January 2009. It made little difference because bank share prices continued to fall even after after the ban was enforced.

But it was the Lehman collapse that left investors really shell-shocked.

After that, they were unwilling to touch any share of a financial group believed to be in the mire.

The effect was damaging to say the least. Previously liquid assets suddenly became illiquid. Credit spreads rocketed, inter-bank lending ground to a halt, and the precarious state of investment and commercial banks threatened to drag down the entire financial system.

Central banks and governments around the world took unprecedented action to protect savers' deposits, inject billions of pounds into money markets and recapitalise banks.

Stock markets came crashing down. It was not just the fall in share prices which has made 2008 such a brutal year, it is also the scary manner of the collapse.

Volatility was extreme. Major indices moved by an unprecedented 10pc in a single session and investors have had to become accustomed to new market forces and record-breaking rises and falls in major indices on both sides of the Pond.

The London Stock Exchange's reputation as one of the world's leading bourses was severely tarnished when it suffered its worst systems failure in eight years in August. The problem occurred on what could have been one of London's busiest trading days of the year, as markets rebounded worldwide following the US bailout of Fannie Mae and Freddie Mac.

Back in the days of the dotcom crash, the phrase '90pc club' referred to the alarmingly large constituency of shares that had shed nine-tenths of their value since peaking. The credit crisis this year has produced the 95pc club.

CONSUMER confidence plummeted to historic lows. So it's no surprise to see a retailer taking the wooden spoon. A dramatic slowdown in furniture sales has knocked the stuffing out of Land of Leather, which has crashed over 99pc. …

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2008: The Great Credit Boom Finally Goes Bust; Thin Ice: New York's Rockefeller Centre and Other Giant Symbols of Capitalism Were Shaken to Their Cores as Several Financial Institutions Fell Victim to the Credit Crunch in 2008
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