During these eight trading days, the DJIA dropped a total of 2,399.47 points or 22.11%.  The market rebounded sharply on Monday 13th October and rose 936.42 points only to drop 733.08 points on Wednesday of that same week. October was shaping up to be a volatile month because investors were reacting to the worrisome credit market news that started back in March 2008.

A World View:

During the years preceding the credit market collapse, the sub-prime mortgage industry thrived.  Individuals with poor credit were given access to loans by banks for houses that they really couldn't afford.  But as long as home prices were on the rise, these poor lending practices were simply ignored.That's because lenders (banks) could afford to write these bad loans as long as the homeowners equity in their house outpaced their desire for new debt. If borrowers were to fail to pay back their loans, lenders could always foreclose on the home - an asset with ever-increasing value.

The credit market's problems started when housing prices started to fall in 2007. More and more frequently, homeowners found themselves with underwater loans - they owed lenders more than the home was worth.  When faced with these facts, homeowners no longer feared the threat of foreclosure.  Even more disturbing was the fact that some families even abandoned their homes - choosing to start their lives anew elsewhere rather than worry about paying off their debts.

Bear Stearns' Collapse

As mortgage defaults started to rise, the USA national economy started to falter and fear crept into the credit markets.  Despite the efforts of the Federal Reserve, the destabilization of the credit market quickly spread to the national financial system.  as Lenders began to fear borrowers could no longer repay their loans.

Bear Stearns was the first investment bank to fall victim to this fear.  Investors, as well as other financial institutions, began to worry that money borrowed by Bear Stearns would not be repaid and began pulling money back from Bear Stearns.

On March 13, 2008, Bear Stearns advised the Federal Reserve that its liquidity position had deteriorated and that it would file for bankruptcy  unless alternative sources of funds were made available.  Two days later, Bear Stearns agreed to merge with JP Morgan Chase in a deal that wiped out 90% of Bear Stearns' market value.

Fannie Mae and Freddie Mac Fall

By the year 2008, the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) either owned or guaranteed nearly $6 trillion in mortgage loans.  With a mortgage crisis brewing in the United States, these two corporations quickly began showing signs of financial distress.

On 7th September 2008, the governing authority over these two agencies - the Federal Housing Finance Agency, or FHFA, placed both Fannie Mae and Freddie Mac under their conservatorship.  In addition, the U.S. Treasury department began supplying funds to help stabilize these companies, raising the national debt ceiling by $800 billion in the process.

Financial Instability Grows

On 14th September 2008, Bank of America agreed to acquire Merrill Lynch for $50 billion as a second wave of volatility began in the financial community.  And on 15th September 2008, concerns over the ability of financial institutions to cover their exposure in both the sub-prime loan market as well as credit default swaps led to further market instability.  That same day, Lehman Brothers would be forced to file for Chapter 11 bankruptcy.

On 16th September 2008, American International Group  fell victim to a liquidity crisis as AIG's shares lost 95% of their value and the company reported a $13.2 billion loss in just the first six months of the year.  By 22nd September 2008, AIG was removed from the DJIA, replaced by Kraft Foods.

The Crash of 2008 Begins

Although the market arguably started it crash back on 1st October 2008, the ‘Black Week’ began on 6th October and lasted five trading sessions.  During that week, the Dow Jones Industrial Average would fall 1,874 points or 18.1%.  In that same week, the S&P 500 would fall more than 20%.

After a brief upbeat in mid-October, the market would begin a second decline later in that same month.  On 24th October the Dow would fall 312.30 points to 8,378.95 - its lowest level since 25th April 2003.  The S&P 500 fell 31.24 to 876.77;  its lowest level since 11th April 2003.  Finally, the Nasdaq Composite would fall 51.88 points to 1,552.0;, its lowest level since 23rdMay 2003.”

Sifting through the aforementioned, one can see that as early as March 2008 the danger signs were already posted for all to see that were financially savvy. I am, of course, referring to Storm and the banks involved who should have known better. Storm and the Banks chose instead to ignore the warnings and continue to promote Storm borrowings on a grand scale. In so doing, they failed to notice that the 'Storm Financial model' (on which their policies were based) was coming apart at the seams. Greed had blinded them and common-sense was no where to be found. 

As we are now all aware, Storm's flagship eventually sank because the holes were not plugged in time. The banks and Storm had the means to plug up these holes, but they left it all too late. The victims, us, are now suffering because they failed to act in good time.

There are no excuses although many have been given. The banks and Storm remain culpable! The parties that conspired in this venture were irresponsible and self-serving. They gambled with our money, not theirs! They need to understand this and repay what they took.