September is traditionally a rough month for the market – far rougher than October, despite the so-called October effect. This week in financial history is no different. It features two bailouts, a high-profile retirement and much more. (For background reading on financial bailouts, check out Bailout Acronyms 101.)

IN PICTURES: 5 "New" Rules For Safe Investing

Chrysler's Bailout
It seems someone is always eager to remake a classic horror movie, but these expensive updates often fail to live up to their predecessors. However, the ongoing taxpayer horror of the Chrysler bailouts proves that sometimes a remake can be more terrifying than the original. On September 7, 1979, Chrysler Corporation asked the U.S. government for $1 billion to help it avoid bankruptcy – approximately $2.65 billion in today's dollars. (Learn more about Chrysler's bailout history in Chrysler And The 1979 Bailout.)

Chrysler later "paid" back the government, but it never settled up for the lower cost of capital the explicit government backing gave it – rates lower than Ford (NYSE:F) got with its solid balance sheet. Fast forward to 2009 and the latest Chrysler bailout came in around $12 billion, although GM (OTC:MTLQQ) is in there now too. Once again, Ford has been left out in the cold when it comes to the support and tax breaks that were given to its weaker compatriots by the U.S. and countries around the world. It seems that history does repeat itself.

The Beginning of the End
On September 7, 1988, an SEC civil complaint was filed against Drexel Lambert. The firm became a Wall Street power broker during the LBO and junk bond craze of the 1980s, with the firm's own Michael Milken popularizing junk bond financing for LBOs and hostile takeovers. The complaint eventually led to Drexel's bankruptcy, as the players involved began to talk. The Drexel Lambert saga was immortalized in "The Predators' Balls", a book that gets its title from an annual Drexel Lambert event where raiders, financiers and even target company executives would gather. (Learn more about the junk bond scandal in 4 History-Making Wall Street Crooks.)

"Neutron Jack" Retires
On September 7, 2001, Jack Welch retired as the CEO of General Electric (NYSE:GE). By this time, Welch was one of the most famous CEOs in the world, well-known for his demanding management strategies and focus on corporate culture. During his tenure, Welch created a soft economic moat for GE, delivering double-digit growth that was thought impossible for the old stalwart. Welch's superstar CEO status is a double-edged sword in that it spurred many companies to spend even more on their management in the hope of building a team like Welch assembled at GE. That said, Welch's record did confirm that the right CEO could be worth a multimillion-dollar salary. (Find out more about Welch's storied career in You Don't Know Jack Welch.)

Fan and Fred Join the Bailout Family
On September 7, 2008, it became clear to the public that Fannie Mae and Freddie Mac would be placed in "public conservatorship" – a term that means "bailout" without having to say it outright. This extraordinary measure meant that taxpayers were on the hook for the trillions in mortgages that Fan and Fred oversaw.

IN PICTURES: 5 Steps To Attaining A Mortgage

The government mandates for affordable housing that the two operated saw the risk and the size of their balance sheets balloon leading up to the subprime meltdown. However, investors still held onto these government-sponsored enterprises (GSE) due to the implied backing of the U.S. government. While they were proved right when implied backing became explicit backing, the toxicity of Fannie's and Freddie's balance sheets meant that there was no money to be made for anyone – and little to be salvaged. To date, the bailout of these former GSEs has lasted two years and cost more than $140 billion. (For related information, see The Government And Risk: A Love-Hate Relationship.)

The Day the Earth Stood Still
Of all the stories that occurred on September 11, 2001, the financial ones were the least significant. However, the destruction of the World Trade Center marks one of only a handful of occasions when the New York Stock Exchange was shut down. After a four-day shutdown, the NYSE opened again to record volume of more than two billion shares.

That's all for this week. Next week we'll look at the greatest currency trade ever and much more.

Find out what happened in financial news this week with Water Cooler Finance: The New iPod And The Roller Coaster Market.

Related Articles
  1. Stock Analysis

    How Rollins Inc. Transformed from Radio to Pest Control

    Discover how Rollins, Inc. grew and expanded, making numerous acquisitions, transitioning from the radio industry to the pest control industry.
  2. Professionals

    Holding Out for Capital Gains Could Be a Mistake

    Holding stocks for the sole purpose of avoiding short-term capital gains taxes may be a mistake, especially if all the signs say get out.
  3. Entrepreneurship

    Mark Cuban Success Story: Net Worth, Education & Top Quotes

    Learn more about America's favorite billionaire: Mark Cuban, outspoken owner of the Dallas Mavericks and star of the hit show "Shark Tank."
  4. Investing Basics

    Learn About the New York Stock Exchange

    The New York Stock Exchange (NYSE) is nicknamed the “Big Board,” and for good reason. It’s the largest, oldest and best-known stock exchange in the world.
  5. Investing News

    Acquisition of Zulily Inc

    On August 17, 2015, Zulily Inc (ZU), an e-commerce company that caters mothers and children, announced that it will be strategically acquired by QVC, a part of Liberty Media Corporation (LMCA), ...
  6. Investing News

    Will Arch Coal file for Bankruptcy?

    In the last four years, Arch Coal Inc. (ACI) has been facing headwinds from lower price of coal amid global oversupply. The shares of ACI have lost nearly 99% of their value this year.
  7. Economics

    Is The EU Holding Germany Back?

    As Germany agrees to initiate bailout talks with Greece once again, could all of the EU's economic turmoil result in Germany being better off alone?
  8. Investing Basics

    3 Companies You Never Thought Would Go Bankrupt

    Understand more about company bankruptcy and why a company would file for bankruptcy. Learn about three companies that went from industry leaders to bankruptcy.
  9. Stock Analysis

    Drugmaker Extraordinaire: How Eli Lilly Grows

    Drugs mean big profits in America. Here's how the country's oldest pharmaceutical firm keeps its toehold in the market.
  10. Economics

    The Biggest Items Obama Is Still Missing From His Mandate

    Learn how the biggest items missing from Obama's mandate include various forms of tax reform and closing the Guantanamo Bay prison in Cuba.
RELATED TERMS
  1. Regional Asset Liquidation Agreement ...

    An agreement between an asset manager and the Federal Deposit ...
  2. The New Deal

    A series of domestic programs designed to help the United States ...
  3. Accelerated Resolution Program ...

    A program designed to reduce the time and cost of resolving failed ...
  4. Altman Z-Score

    The output of a credit-strength test that gauges a publicly traded ...
  5. Estimated Recovery Value (ERV)

    The projected value of an asset that can be recovered in the ...
  6. Recovery Rate

    The extent to which principal and accrued interest on a debt ...
RELATED FAQS
  1. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  2. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  3. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  4. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  5. What measures could the U.S. Government take to prevent another crisis similar to ...

    Some of the measures that the U.S. government can take to prevent another crisis similar to the savings and loan (S&L) ... Read Full Answer >>
  6. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!