Nightmare on Wall Street: 72 hours that shook the world's economy

The financial crisis which reached its peak yesterday has been rumbling on for months.

But in the vital 72 hours between last Friday and yesterday morning, bankers and government officials played what one described as a game of 'poker' as they tried to come up with a solution.

What ensued was a sleepless weekend which resulted in thousands losing their jobs in New York and London - and a financial despair not seen in decades.

Hour by nail-biting hour, this is how the crisis unfolded:

Down and down: Wall Street experienced its worse day since the September 11 terror attacks

FRIDAY, 6PM NEW YORK TIME:

Thirty of Wall Street's top executives are summoned to the austere, stone headquarters of New York's Federal Reserve.

They are told by America's two most powerful financial figures, Hank Paulson, the Treasury Secretary, and Ben Bernanke, the chairman of the Federal Reserve, that Lehman Brothers is on the brink of bankruptcy, and that Merrill Lynch may soon follow. They are also warned that there will be no government bail-out. Washington's will and resources are exhausted.

The bankers are told 'Come back in the morning and be prepared to do something.'

8PM:

The gravel-voiced Paulson dismisses the meeting saying: 'Everybody is exposed'. Across Wall Street, Lehman is being called a 'dead bank walking'.

SATURDAY 9AM:

The bank chiefs reconvene at the Federal Reserve. They and their teams are broken into groups to discuss the crisis.

John Mack, the burly, Lebanese-born chief executive of Morgan Stanley asks: 'If we're going to do this deal, where does it end?'

Many in the room ask why they should be bearing the cost of the Lehman collapse when others, including hedge funds and foreign investors, got a free ride.

8PM: Across Wall Street, Lehman is being called 'dead bank walking'

Two banks announce that they are in the running to buy the good parts of Lehman: Britain's Barclays and Bank of America.

But by noon, Bank of America is all but out of the running. Barclays, meanwhile, is keen to establish an American beach-head and presses on, hoping the U.S. government will change its mind and provide financing.

2PM:

While the meeting at the Federal Reserve continues, John Thain, the bespectacled head of Merrill Lynch, nicknamed I-Robot because of his clinical, emotionless manner, calls Ken Lewis, head of Bank of America, about being taken over. Lewis is receptive.

Thain is driven down to the Fed where he sees the Lehman deal is collapsing. He must now pursue the deal with Bank of America or risk seeing Merrill Lynch face the same fate.





He cancels a trip to Asia and Merrill and Bank of America begin meetings at Wachtell, Lipton, Rosen & Katz, New York's most fearsome corporate law firm. According to his contract, Thain will collect over £5million as an exit package after the takeover.

All afternoon, Wall Street executives arrive at the Federal Reserve in jeans and blazers. Caterers wheel in trays of sandwiches and fruit and the usually quiet weekend streets are choked with limousines.

5PM:

Those departing the Federal Reserve say the discussions are turning into 'the world's biggest game of poker'.

Will the government blink and bail Lehman out? Meanwhile, even the smartest financial minds in the world are struggling to understand the details of Lehman's books.

Stock broker Andrew O'Connor takes a break from his floor position at the New York Stock Exchange to contemplate the situation

SUNDAY 9AM:

Barclays is the only remaining potential buyer of Lehman and has drawn up documents to pitch a deal. But it insists on federal support.

NOON:



Barclays fails to secure Federal funding and withdraws its offer for Lehman. Wall Street traders are called in to work in anticipation of Lehman's imminent bankruptcy. Meanwhile, word reaches the Fed that Merrill and Bank of America are reaching a deal.

2.30PM:

Government officials announce an extraordinary trading session to help Lehman unwind its trades. One trader calls the four-hour session scene 'utter chaos'.

During this Sunday afternoon trading session, Lehman's famously rambunctious traders send out goodbye messages to colleagues and gather on the bank's trading floor in New York to eat pizza and drink beer, struggling to deal with the speed of their firm's demise.

Workers leave the New York Stock Exchange shortly after the closing bell

6.48PM:

It is reported that Bank of America will buy out the 94-year-old Merrill Lynch. It is a bitter end for the firm which claimed to have brought 'Wall Street to Main Street' with its network of stock brokers.

AIG, one of America's largest insurance firms, is now in trouble. It announces it plans to move capital from its regulated insurance business to its holding company. It had requested a $40 billion bridge loan from the Federal Reserve to help it stay afloat.

8.44PM:



Bank of America agrees to buy Merrill Lynch for $29 per share (about $50 billion in total) - two thirds of its value one year ago, and half its all-time peak.

MONDAY 2AM:

The 158-year old Lehman Brothers announces its intention to file for bankruptcy in order to 'protect its assets and maximise value'. Its shares are already down 94 per cent.

4AM:

Major European indices fall more than 2.6 per cent when the markets open. Financial shares are hit hardest - the Royal Bank of Scotland loses 4.7 per cent.

9AM:

Lehman employees in New York leave their offices clutching boxes containing their possessions, most refusing to discuss their fate with the waiting reporters. They are entering a terrible job market.

8AM:

Insurance giant AIG plunges 40 per cent.





Meanwhile, in London, the fallout from events in the U.S. starts to hit home. Here is how the day unfolded:

7AM LONDON TIME:

The first of Lehman Brothers 4,000 London staff turn up for work only to be told they are out of a job.

8AM:

The Bank of England moves to calm the situation by saying it is prepared to do anything to stabilise London's financial markets. It also injects £5billion into the banking system.

Scenes at the Lehman Brothers Headquarters in Docklands

8:30AM:

FTSE 100 opens down with loss of over 200 points.

12:06PM:

FTSE hits low-point for the day with a loss of nearly 300 points as fears of contagion reach fever pitch.



4.30PM:



FTSE closes down 4 per cent, with Halifax owner HBOS losing as much as a third of its value.