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What Happened: Explore the Timeline

7 Banks Go Into Panic Mode

The ripple effects of the housing slowdown on Main Street were now reaching Wall Street, especially firms that invested heavily in subprime mortgages. The sudden collapse of two Bear Stearns hedge funds in June 2007 triggered the beginning of the panic among institutional investors, including investment banks, hedge funds, and sovereign wealth funds. Their voracious appetites for securitized mortgage products would soon come to an end.

Rating Agency Downgrades Mortgage Securities

Rating Agencies
The role of Moody's, Standard and Poor's, and Fitch in judging the risks of mortgage-backed securities and grading their investment quality. From CNBC's "House of Cards," original air date, February 12, 2009.

In July 2007, three weeks after the Bear funds went bust, Standard & Poor's downgraded the ratings on billions of dollars in mortgage backed securities. In making the change, S&P issued cryptic language that danced around the firm's failure to correctly judge the risks of these investments. If you read between the lines, it's an admission that S&P blew it--- failing to protect investors by failing to adequately assess the risk of CDOs made up of subprime mortgage backed securities.

Subprime Problems Fail To Slow Stocks

Despite the Bear hedge fund fiasco and the S&P downgrades, the stock market continued its upward climb through the summer of 2007. The subprime problems were bubbling under the surface of the investment community, but hadn't become front page news. Subprime wasn't a household word, yet. But it would soon become one.

Mortgage Meltdown Cripples Biggest Lender

The implications of the mortgage mess became much more apparent when the country's biggest lender, Countrywide, received a rescue from Bank of America in August 2007. BofA took a $2 Billion equity stake in Countrywide, whose stock had just hit a 52-week low, losing about half its value in six months. Subprime-related defaults were hitting the lender hard and it needed to shore up its balance sheet. The CEOs of both companies heralded the deal, with Bank of America suggesting Countrywide was undervalued and Countrywide saying the BofA investment would position the lender for future growth and success.

Bank of America Buys Countrywide

BofA-CW Deal
Terms of Bank of America's deal to buy Countrywide Financial, including estimated $85 million severance package for CEO Angelo Mozilo. Original air date: January 11, 2008.

Five months later, with the subprime contagion spreading through the housing and credit markets, Countrywide was in much bigger trouble. The relationship with Bank of America proved to be a lifesaver, when Bank of America bought Countrywide in January 2008.

Dow Sets Record High 20 Years After Crash

In a prescient moment, the Dow's amazing climb came to an end on October 9, closing at an all-time high of 14,164. The record came almost 20 years to the day since the market crash of October 1987.

Stock Market Takes Biggest Dive Ever

Dow down 778
The House rejects the $700 billion economic stimulus package and sends the stock market into a downward spiral--the Dow's biggest point drop in history. CNBC minute-by-minute coverage of the vote, followed by reaction from President Bush, Treasury Secretary Paulson, Rep. Nancy Pelosi, and Rep. Barney Frank. Original air date, September 29, 2008.

It would take nearly a year for the Dow to break another record--- it's biggest one-day point drop in history--- at the height of the economic crisis.

Congress Looks At Housing Crisis

About the same time, in the fourth quarter of 2007, several Congressional committees took an interest in the housing crisis created by the mortgage mess. They held hearings, asked questions, and raised red flags well before the Federal Reserve, the Treasury Department, and the SEC. But no real action was taken until early 2008, when the subprime meltdown brought down one of the most legendary firms on Wall Street.

Financial Firms In Panic Mode

Financial Firm Panic

CNBC reporters discuss the chaos on Wall Street during the days that led up to the 2008 financial crisis.