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.
» The Role Of Rating Agencies
» Moody's Downgrades Residential Mortgage-Backed Securities
» 612 Classes of RMBS Backed By Subprime Placed On Watch
» Standard & Poor’s Says It Will Tighten Rating Standards
» Greenspan On CDOs
» Pricing A CDO: Firms Slash Subprime Mortgage Value
» Largest U.S. Pension Fund Sues Over Misleading Ratings

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.
> Countrywide Loses $1.2 Billion

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.
> Bank Of America’s Bets $4 Billion On Countrywide
> Countrywide Continues To Post Losses Because Of Mortgages
> Bank Of America Profits Drop 77 Percent

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.
» Dow Down 778 Points
» CNBC Special Report: Crash and Comeback
» Comparing Stock Market Crashes Over The Years
» Remembering The Crash Of 1987

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.
» Bernanke Stresses Housing And Mortgage Lending In Testimony
» Chairman Bernanke Testifies Before House Financial Services Committee
» Bernanke Delivers The Semi-Annual Monetary Policy Report

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