How Lehman and the iPhone Reshaped the Financial Markets

How Lehman and the iPhone Reshaped the Financial Markets

We’re celebrating 25 years of MarketWatch by looking at the 25 biggest financial market events and developments we’ve covered. We’ve previously highlighted the first five major events from the early years and noted how technological change helped spawn online brokers, the rise of the day trader, and the boom and bust of an IPO.

The first decade of the new millennium changed Americans’ relationships with Wall Street, Washington, and even their phones. Some of that change was good. But some, especially financial innovation, have spiraled out of control. The crisis period brought us moments that shook financial markets to their core and set the tone for everything that has happened since.

6. The Enron scandal

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On December 2, 2001, Enron filed for bankruptcy protection. At the time, this was the biggest corporate failure in American history and a symbol of the excesses that occurred in the financial markets. Enron, a Houston energy and trading company, started in 2001 as the seventh largest in the country with reported revenues of $100 billion and a large stock before crashing amid accusations of accounting fraud.

Employees were quick to point the finger at Ken Lay, CEO of Enron, and other top executives. “He should have known what was going on,” one employee told MarketWatch days after the bankruptcy. “Something about this is illegal. Something, somewhere is wrong.”

Federal prosecutors agreed. They have brought criminal charges against Lay and other top executives, such as Jeffrey Skilling and Andrew Fastow, accusing them of using accounting tricks to cook books and mislead investors. All three were convicted, but Lay died before being sentenced. He has always maintained his innocence.

The government also accused Arthur Andersen, one of the five largest accountancy firms and Enron’s auditor, of obstructing justice by destroying Enron documents. Andersen shredded “tons” of paper, as MarketWatch put it in 2002. That same year, a federal jury indicted Arthur Andersen, causing the company to dissolve and 30,000 jobs lost.

In response to the Enron scandal, federal lawmakers passed the Sarbanes-Oxley Act, which requires new accounting and record-keeping practices for companies. Three years later, MarketWatch published the headline: “Andersen’s conviction overturned.” As MarketWatch told it, in a unanimous decision written by Chief Justice William Rehnquist, the Supreme Court said that “the jury’s instructions were flawed in important respects.” But legal reversal could not undo the end of Arthur Andersen’s accounting business.

7. Boom and fall of the real estate market

Angelo Mosello, CEO of Countrywide Financial Corporation, raises his right hand during the swearing-in during a House hearing on March 7, 2008.

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Born in the Bronx, Angelo Mosello, the son of a butcher, has always become the colorful face of the mortgage boom. For many years, Countrywide Financial was the leading seller of home loans to people with poor credit scores who did not qualify for a traditional mortgage. Before 2000, this type of lending hardly existed. But many banks and specialty finance companies followed Mozello’s lead, creating toxic mortgages that were then sold to Wall Street and government-sponsored entities, causing an unsustainable increase in US home prices.

The mortgage boom has not only opened up the mortgage market for people who previously could not get mortgages, but it has also included products that allow them to buy homes that they can’t really afford. People all over America bought homes with no down payments, using loans that started at artificially low rates or did not require early principal payments at all. These financing terms will be reset at a later time and significantly increased.

The erosion of lending standards has been based on the perception that home prices are going in only one direction: up. Wall Street and the federal government were happy to fuel this idea. For years, banks and government-sponsored companies have been buying mortgages from lenders, funding their ability to create more mortgages. Banks and GSE packaged the loans into securities that were sold to investors. With the subprime mortgage boom, core mortgages becoming riskier, and Wall Street ramping up its financial engineering with ever riskier products. But the major credit rating agencies, which had been paying Wall Street fees, continued to give the highest ratings to the riskiest products.

By March 2007, many American homeowners were unable to make their mortgage payments. Home prices fell. Ben Bernanke argued that the problems associated with mortgage loans were “contained”. MarketWatch reported that the Fed chair at the time saw limited impact from subprime mortgages. “We don’t expect significant repercussions from the mortgage market to the rest of the economy or to the financial systems,” MarketWatch reported Bernanke as saying.

8. iPhone

Steve Jobs holds the new iPhone presented at Macworld on January 9, 2007 in San Francisco, California.

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On the day Steve Jobs introduced the iPhone to the world in early January 2007, most of the tech press was in… Las Vegas, covering CES, the massive consumer electronics trade show. The last-minute unveiling at San Francisco’s Moscone Center sent several CES reporters into a panic, and they booked the next available flight to the Bay Area. They were not disappointed.

Longtime Silicon Valley analyst Tim Bajarin, who was in the audience on Tuesday morning, was immediately convinced that Apple would create a new category in mobile computing. “We used to have small computers, desktop computers, and now we have iPhones and pocket computers,” he recalls. “I felt it could be Apple’s biggest success ever.”

In an interview with Jobs after the iPhone debuted (it will eventually ship in June), the co-founder of Apple Inc. Initially from the social and financial importance of the iPhone. Then get ready.

“This is a revolutionary product that has the opportunity to really impact people’s lives,” Jobs told John Schwartz, now a MarketWatch Silicon Valley reporter. Jobs compared the iPhone to the original Macintosh and iPod. “This is the ultimate digital device.”

Jobs made a compelling case, showing how iPhone users can make calls while viewing content on the web and exchanging email — all at the same time.

In the 15 years since its inception, the iPhone has redefined the burgeoning smartphone market, launching Apple AAPL,
-1.03%
To years of hyper-growth and made Apple the world’s largest company by market capitalization, a title it recently lost to Saudi Aramco. Almost half of Apple’s $365.8 billion in revenue in 2021 came from iPhone sales. At the same time, developers annually sell about $600 billion in goods and services through the App Store.

In total, Apple has sold more than 1.3 billion iPhones.

9. The collapse of Lehman Brothers

An employee of Lehman Brothers holds a box outside the company’s headquarters on September 15, 2008 in New York City.

Getty Images

On September 15, 2008, Lehman Brothers filed for bankruptcy. MarketWatch witnessed the scene outside the headquarters of the 158-year-old investment bank in Manhattan, describing it as a “media circus, with cameras lined up along the sidewalk of Seventh Avenue, and reporters approaching staff for comment.” MarketWatch was among a crowd of media outlets that approached the influx of employees leaving the building with boxes in their hands.

“Dozens of people went to Lehman offices with suitcases. One of them, who said he worked in the research department of Lehman, was notified at the weekend that he had been laid off. He said he did not know how many people had been fired from his group, but he He returned Monday morning to “save as much as I can” from his desk, MarketWach reported.

Lehman Brothers collapsed under the weight of deteriorating real estate assets, sending shock waves around the world and triggering a financial crisis. Within hours of filing for bankruptcy, one of the largest money market funds had to “break the liability”, as it was unable to pay in full to its investors due to the commercial papers held by Lehman Brothers. MarketWatch reported how the primary reserve fund “placed a seven-day freeze on investor redemptions after the net asset value of its shares fell below $1”.

With global credit markets at a standstill, the Federal Reserve has been forced to guarantee the assets of money market funds and participate in the federal government’s $182 billion rescue plan for AIG, the insurance giant. MarketWatch quotes Andy Burrell, an independent insurance industry consultant based in Rancho Santa Fe, California: “There has to be something that can be done to stop this. There are a lot of financial consequences.”

The federal government’s dramatic intervention in the markets, which featured the $700 billion bailout bill for Congress, prevented the collapse of the financial system. But it is still the financial crisis that caused the Great Recession and political reactions, such as the Tea Party and the “Occupy Wall Street” movement.

10. Satoshi Nakamoto

Lauren Dikica / Getty Images

In October 2008, during the darkest days of the financial crisis, someone using the alias Satoshi Nakamoto sent an email to an encrypted mailing list. “I have been working on a new electronic cash system that is entirely peer-to-peer, without any trusted third party.” Nakamoto has published an online white paper detailing the digital currency. Call it Bitcoin.

The true identity of Satoshi Nakamoto remains a mystery, but the technology he introduced has had a profound impact on the markets. Bitcoin BTCUSD,
+ 0.21%
She promoted the idea of ​​digital currencies backed by distributed software known as the blockchain. There are now over 12,000 digital currencies with a combined market cap of nearly $2 trillion. Bitcoin is still the most traded and highly valued.

It took some time for MarketWatch to realize the importance of bitcoin. Columnist Chuck Jaffe first described bitcoin to MarketWatch readers in 2011 as “a new form of currency that is not tied to any country or government, and that is virtually nonexistent in the physical world.” Jaffe noted that “the bitcoin system is run by the people who use it,” and added that “there are no government officials interfering and messing things up.” He also compared it to tulips and Beanie Babies and suggested that investors “still prefer stocks, bonds, and other investments.” At that time, bitcoin was exchanged for $10.

Since then, the Bitcoin bid has been raised by over $40,000 and mentioned in 5,300 MarkeWatch articles. Cryptocurrency indices are among the most popular on MarketWatch. We also have a dedicated reporter covering bitcoin and other digital currencies.

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