Timeline: The history of finance

The Financial crisis of 2007 is often referred to as the worst economic catastrophe since the Great
Depression. Many commentators believe that had the Clinton administration not repealed the 1933
Glass-Steagall Act then banks could not have built the excessive risk on their balance sheets that led
to the credit crunch. And in seeking solution to the crisis, lawmakers have looked at how authorities
responded to previous problems, such as the 1992 collapse of the Swedish banking system and the
Long-Term Capital Management hedge fund in 1999. As events from the past can greatly influence
how we see the future, this timeline highlights some of the events that are influencing the debate
over the future of finance.

Date Event Description of the event

1914 End of the World War One ends the period of the classic gold standard, that, since 1870,
Belle had seen unrestricted global capital flows, an automatic adjustment mechanism
Epoque for trade imbalances, and near-full convertibility of currencies into gold at set
rates.
1929 Wall Street A decade of jazz and prosperity comes to an abrupt end in October 1929, when
Crash a crash on Wall Street plunges the US economy into chaos. The collapse sucks
the world into the Great Depression, from which most countries do not emerge
until a decade later, as the next war begins.
1933 The Glass- The US congress passes the Glass-Steagall Act, which separates investment and
Steagall Act commercial banking activities. To prevent a loss of deposits in the event of
investment failures, the act prohibits deposits- taking banks from underwriting,
distributing and dealing in securities, until the act is repealed in 1999.
1944 Bretton With victory in the second World War in sight, US and UK representatives plan
Woods the post-war international monetary system, which will be based on negotiated
rules and multilateral financial institutions. The economist John Keynes, who
represents the UK at the conference, thinks the Great Depression has been
caused largely by unrestricted flows of “hot money” and ensures the agreement
allows for the national imposition of controls on flows of capital and monetary
policy autonomy. Currencies of participating countries are pegged to the dollar
(though adjustable at the behest of the IMF), which will be exchangeable for
gold at a fixed rate.
1954 Stock As the economies of the US and western Europe power ahead, Americans
market cautiously return to the stock market, and the New York Stock Exchange
recovery surpasses 1929 levels for the first time
1963 First The growing Eurodollar markets, initially created by Soviet dollar deposits in UK
Eurobond banks, reestablish London as a global financial centre and eventually serve to
issued undermine international capital controls and financial regulation.
1970 First MBS By purchasing and repacking residential mortgages, Ginnie Mae is able to issue
the first mortgage-backed security to the US market. MBSs represent claims on
the principal and payments on the loans in any particular package of mortgages.
Over the next four decades, they become increasingly important, and, at times,
destructive.
1971 End of the After speculative pressure on the dollar due to the deficit spending on the
gold Vietnam war and elsewhere, US president Richard Nixon announces the
standard unilateral decision to close the “gold window” –the US will no longer exchange
its gold for dollars- signaling the first major plank of the Bretton Woods order to
fall. Over the decade, the system’s capital controls and fixed exchange rates fall
apart in most developed countries, but the dollar remains the main
international reserve currency.
1973 Oil price The decision by the Opec oil cartel to restrict oil supply leads to a quadrupling
shock of world prices. Oil-exporting countries then send huge flows of “petrodollars”
into the Anglo-US banking system, boosting their power and increasing the
depth and complexity of financial markets.
1977 First junk The market for junk bonds reopens for business as Bear Stearns underwrites the
food first original-issue junk bond. After growing exponentially through the next
decade, the market for junk bonds collapses in 1989.
1980 “Neoliberal” The elections of Ronald Reagan and Margaret Thatcher, and the appointment of
era begins Paul Volcker as chairman of the US Federal Reserve a year earlier, signal a strong
commitment to low consumer inflation and market discipline. High interest
rates suck capital into the banking system, bringing finance more forcefully to
the centre of the world economy.
1986 Big Bang The rapid deregulation of the London Stock Exchange- which includes abolishing
fixed commission charges allowing the participation of foreign firms- radically
transforms the structure of the market. It is more open, more transparent and
more cut-throat.
1987 Black Bourses crash worldwide and the Dow Jones Industrial Average drops 22
Monday percent following a period of leveraged buy-outs and computerised hedging
strategies. Though no consensus exists on its causes, the panic end a five-year
euphoric bull market. It takes the Dow two years to return to its pre-crash levels.
1992 Swedish The Swedish government, facing a collapse in its banking system following a
banking housing boom, steps in to save financial institutions, but benefits by first
crisis extracting equity for taxpayers in return. Sweden is one of the fist countries in
the developed world to experience a financial crisis, which have become more
and more common – by 1996 the IMF reports that 132 countries have
experienced macroeconomic and/or financial crises since 1980
1997 Asian crisis A financial crisis stemming from east Asian Countries that had aggressively
deregulated capital markets spreads worldwide and raises the spectre of a
global meltdown. The third biggest point loss in the history of the Dow halts
trading briefly on the NYSE
1998 LCTM hedge The spectacular failure of Long-Term Capital Management, a highly leveraged
fund fails US hedge fund, leads to a massive Fed supervised bailout by other major banks
and investment houses.
1999 Glass- After years of lobbying, the Glass- Steagall Act is repealed by the administrations
Steagall of US President Bill Clinton, which had enthusiastically promoted deregulation
repealed worldwide.
1998- Dotcom Driven by a rapidly expanding bubble in internet stocks, the Dow passes the
2000 bubble 11,000 mark and the FSTE 100 reaches a record peak just as the millennium
bursts turns. However, the bubble bursts dramatically soon afterwards. In six days in
March, the tech-heavy Nasdaq Composite loses nearly 9 percent, and many
dotcom companies simply disappear.
2001 September In the aftermath of the attacks on the World Trade Centre, US financial markets
11 shut down for six days. When trading resumes, the Dow falls 7.1 percent, and
by the end of the week, US stocks have shed $1,400bn.
2003 Markets The Dow and FTSE bottom out and begin a steady rise on the back of rising real
bottom out estate prices in the US and western Europe that does not end until the middle
of 2007. In the period, both indices rose by more than 75 percent.
2007 Credit As housing prices fall and interest rates rise, banks begin to report increasing
crunch levels of defaults - especially on subprime mortgage loans, which through their
begins widespread securitization affect the whole system – and private lending
tightens.
2007 Run on Funding problems at Northern Rock, a UK mortgage lender, lead to the largest
Northern run on a British bank in more than a century
Rock
2008 Lehman Following a dramatic collapse in the value of its shares, Lehman Brothers
brothers investment bank files for Chapter 11 bankruptcy protection. A month later, US
collapse president George Bush announces that some of the $700bn approved in
Congress will be used to directly capitalize banks.
2009 Markets The FTSE 100 bottoms out and begins a seven month sustained recovery as the
begin Bank of England cuts interest rates to 0.5 percent and begins its policy of
recovery quantitative easing. A month earlier, new US president Barack Obama signs a
$787bn stimulus bill after its approval in Congress.
2009 Dow back World leaders promise restrictions on banker’s bonuses and pledge to reduce
above global trade imbalances at the Pittsburgh G20 conference of developed and
10,000 developing nations. At a G20 meeting in London earlier in the year, protesters
vent their anger about the economic crisis by organizing protests outside the
Bank of England. By mid- October, the Dow climbs above 10,000 for the first
time in more than a year, spurred by large profits on Wall Street.