This Week In Wall Street History September 20th

By Vince Chiofolo

The aftermath of the 2008 financial collapse of some of Wall Street’s largest financial institutions was apparent in September of that year. The month, riddled with bank failures, included seemingly endless talks and heated debate over whether government action and financial supporting of the banks was necessary to mend the Wall Street woes.

Sept. 20- Treasury Secretary Henry Paulson outlines the details of a potential $700 billion bailout plan for troubled firms struggling as a result of bad mortgage debt.

Sept. 21 – Wall Street’s investment banking model essentially ends as Goldman Sachs and Morgan Stanley become bank holding companies regulated by the Fed.

Sept. 23 – Warren Buffett’s conglomerate holding company Berkshire Hathaway invests $5 billion into Goldman Sachs in an effort to rescue what seemed to be a struggling firm at the time.

Sept. 25 - Washington Mutual becomes largest ever bank failure in the U.S. JPMorgan Chase soon bought the thrift for $1.9 billion. Washington Mutual, also referred to as WaMu, acts as the epitome of what lenders in today’s market should avoid.

The Seattle-based bank ballooned at a rapid yet frightening pace, furiously pumping loans to basically anyone who asked for one – a perfect example of the lazily exacuted lending practice that strongly contributed to the ultimate global recession.

By 2007, WaMu accumulated bad loans totaling up to a phenomenal $11.5b. Instead of being scolded for such hasty lending behavior – often disregarding borrower’s personal income and assets in approving loans – the company’s top executives were rewarded for the firm’s quick expansion. Given the now gigantic super-bank being held up unsteadily by glue and toothpicks, anticipated disaster struck. Unsurprisingly, the debt-ridden firm immediately imploded once the credit crunch hit. On September 26, 2008, WaMu filed for Chapter 11 bankruptcy. All WaMu assets and most liabilities were assumed by JPMorgan Chase.

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