The Subprime Crash Started a Decade Ago


October 2008, a month that’s lived in infamy for many investors, is now a decade in the rear-view mirror.

A decade ago today, the S&P 500 slipped under 1100. It was the lowest close in almost four years and kicked off an historic slide that shook confidence in the American financial system. By the time November rolled around, the index had its worst month in 21 years and the government had stepped in with sweeping measures to support the banks:

  • Congress passed the $700 billion TARP (Troubled Asset Relief Program). The program included the U.S. Treasury investing $125 billion in nine banks. (These were the so-called “bailouts.”)
  • The Federal Reserve started paying interest on bank deposits and established a back-stop program for short-term commercial paper.
  • Policymakers also slashed interest rates 50 basis points, coordinated actions with foreign central banks and took steps to support money-market accounts.
  • The FDIC took the unprecedented step of guaranteeing the senior debt (not just the deposits) of member banks.
  • Some well-known institutions merged to survive: Wells Fargo (WFC) grabbed Wachovia and PNC Financial (PNC) snagged National City.

Selling pressure would continue after these efforts. The S&P 500 declined in three of the next four months before reversing and blasting higher in March 2009.

Where were you when it happened? I was working for Maria Bartiromo at CNBC, right in the thick of the action. It was a strange time to cover markets, but some interesting lessons came out of the episode. Keep reading Market Insights and we’ll recap some of those key points next week.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.