Fed Officials Saw Start of Subprime Crisis in August 2007 - Bloomberg: "The transcripts show the committee’s slow grasp on the enormity of contagion that was to spread throughout global markets as a result of billions of dollars in low-quality housing assets that had been securitized into bonds and sold to banks and investors worldwide.
“The odds are that the market will stabilize,” Bernanke told the committee in Aug. 2007, according to the transcripts from that year. “This restrictive effect could come in various magnitudes. It could be moderate, or it could be more severe, and we are just going to have to monitor how it adjusts over time.”
Concern about capital losses from toxic mortgage securities froze interbank lending markets and prompted runs against major investment banks. The Fed and JPMorgan Chase & Co. (JPM) rescued Bear Stearns Cos. in March 2008, and Lehman Brothers Holdings Inc. collapsed into bankruptcy that September. Both Goldman Sachs Group Inc. and Morgan Stanley converted to bank holding companies to access backup funding from the discount window."
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