13 September 2008: A Day of Financial Turmoil
The Global Financial Crisis
September 13, 2008, was a day that will be remembered for generations to come. It was the day when the global financial system teetered on the brink of collapse. The crisis that unfolded on that day would go on to have a profound impact on the world economy, leading to widespread job losses, home foreclosures, and a significant decline in global economic activity.
The Fall of Lehman Brothers
The day began with the news that Lehman Brothers, the fourth-largest investment bank in the United States, had filed for bankruptcy. The news sent shockwaves through the financial markets, causing a panic selling of stocks and a surge in the value of gold, a traditional safe-haven asset.
Lehman Brothers' bankruptcy was the largest in history, with the bank holding over $600 billion in assets. The bank's collapse led to a credit crunch, as banks and other financial institutions became wary of lending to each other.
The Bailout of AIG
Later that day, the U.S. government announced that it would provide an $85 billion bailout to American International Group (AIG), the world's largest insurance company. AIG was on the brink of collapse due to its exposure to subprime mortgages, and its failure would have had a systemic impact on the entire financial system.
The Impact on the Markets
The news of Lehman Brothers' bankruptcy and AIG's bailout sent the stock markets into a tailspin. The Dow Jones Industrial Average plummeted by 504 points, or 4.4%, to close at 10,917.51. The Standard & Poor's 500 Index fell by 4.7% to close at 1,156.39.
The credit markets also seized up, with the London Interbank Offered Rate (LIBOR) surging to a record high. This made it increasingly difficult for banks to access credit, leading to a freeze in the credit markets.
The Aftermath
The events of September 13, 2008, marked a turning point in the global financial crisis. In the following weeks and months, the crisis deepened, with many countries slipping into recession.
The U.S. government was forced to pass the Troubled Asset Relief Program (TARP) to provide a bailout to the financial system. The program authorized the U.S. Treasury to purchase or insure up to $700 billion in troubled assets.
The global financial crisis was eventually brought under control through a combination of monetary and fiscal policy measures. However, the impact of the crisis is still being felt today, with many countries still recovering from the aftermath.
Conclusion
September 13, 2008, was a day that will be remembered for its significance in the global financial crisis. The collapse of Lehman Brothers and the bailout of AIG marked a turning point in the crisis, leading to widespread job losses, home foreclosures, and a significant decline in global economic activity. The crisis served as a reminder of the importance of effective regulation and supervision of the financial system to prevent such crises from occurring in the future.
