While the talking heads at the Federal Reserve would want you to believe otherwise, the Crisis (with a capital ‘C’) has just begun. The United States’ economy has transitioned into phase 1 of what is going to be a bear market for the history books. The market is waking up to the reality that the past years of “prosperity” were built on faulty credit expansion and not economic growth. Remember, if there is economic growth, living standards improve and prices go down. But this has not been the case, as prices on most consumer goods have increased, the main culprits being gasoline and food. While YouTube and Facebook have made life a whole lot easier, they are not the essentials of life that a person needs to survive. Below highlights the major events that have moved the US to the brink of financial collapse.

2007

• April – New Century Financial, the largest US subprime lender, files for bankruptcy.
• August – American Home Mortgage fails. Countrywide has to borrow $11B to avoid
  bankruptcy. Fed injects $100B for borrowing.
• September – Failure of UK bank Northern Rock
• November – Fed injects $41B into money supply

2008

• January – Market nearly collapses, and Fed has to perform emergency 75 bps rate cut. TAF auction of $30B to distressed banks. In what is arguably the fastest piece of legislation created by a bunch of idiots, the government injects $150 billion by handing “tax rebates” of $600 to Americans, hoping they’ll spend it back into the economy.
• February – TAF auctions of $60 billion.
• March – Bear Stearns has liquidity crisis and is bailed out by JP Morgan, financed by the Federal Reserve to the tune of $30B. JP Morgan only assumes $1B of that amount. Fed injects $300B.

Federal Reserve Injection Tally including TAFS: $531B

In closing, while a lot on Wall Street have called bottom, we’ve seen nothing yet. Just take a look at the following reset schedule of mortgages. Couple that with an estimated $500T (that’s trillion) of OTC derivatives and you have a recipe that calls for extended visits to the emergency room.

Sources:
http://mobile.reuters.com/mobile/m/FullArticle/CINV/nhotStocksNews_uUSN1755626820080317
http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline
http://www.financialsense.com/market/pretti/2007/0216.html