The Mother of All Bubbles (for now)
The CDS market reaches US$ 62 trillion (million million) worth of credit.
Bear Stearns starts selling the bottom level CDOs (the riskiest) to public pension funds. The bottom level pays the highest annual returns of 20%.
California Public Employees' Retirement System (Calpers) the nation's largest public pension fund buys $140 million of unrated CDOs from Citigroup Inc
"In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call 'a stunning departure from normal legislative practice,' the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm.
There was little debate on the floor. According to the Congressional Record, Gramm promised that the amendment-also known as the Commodity Futures Modernization Act-along with other landmark legislation he had authored, would usher in a new era for the U.S. financial services industry." Patricia Kilday Hart, The Texas Observer
JP Morgan announces that it sees problems in the subprime CDO market.
"We're on the cusp of a serious pullback in liquidity for this market," - Chris Flanagan, global head of ABS and CDO research at JPMorgan Chase [ 1 ]
Meredith Whitney predicts that Citigroup will be forced to cut dividends. Her prediction is met with hate mail and at least one death threat. She also predicted losses at Bank of America, Lehman Brothers, and UBS.
Merrill Lynch wins Risk magazine's Derivatives House of the Year for the year 2007 for rapidly growing its derivatives revenues.
JP Morgan wins Risk magazines Energy Derivatives House of the Year award. JP Morgan won mainly because of its acquisition of Amaranth Advisors' energy after that hedge fund that lost $6 billion.
Bear Stearns collapses due to the value of its derivative holdings dropping in value. In a little reported news piece the reason stated is that a Carlye Group hedge fund goes bankrupt and fails to make good on its derivative obligations.
AIG is nationalized to rescue it from bankruptcy. The company was being forced to pay on hundreds of billions of dollars on insurance of failed mortgage back securities (derivatives).
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