Seven Days That Shook Wall Street

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Monday, Sept. 15: Lehman Brothers Holdings, the bank's holding company, files for Chapter 11 bankruptcy protection and says it will try to sell key business units. Investor concern now turns to the fate of AIG, fearing a liquidity crisis. Rating agencies cut AIG's credit rating. Despite reassurances about the economy from Paulson and President George W. Bush, the stock market plummets. The Dow Jones industrial average drops more than 504 points, or 4.4%, the biggest loss since right after the September 11, 2001, terror attacks. The failure also roils overseas stocks, sending them plunging. Meanwhile, concerns about a slowing economy take oil below the psychological benchmark of $100 a barrel, its lowest level since February.

Tuesday, Sept. 16: The Federal Reserve meets and keeps the federal funds rate unchanged at 2%. Asian markets, some of which had been closed for a holiday on Monday, plummet. The Russian stock market goes into a tailspin, with the largest exchange down more than 17% before the Russian government halts trading. Managers of the Primary Fund, a supposedly supersafe money market fund, say that shares have fallen below the sacrosanct $1 valuation. Meanwhile, Goldman Sachs (GS) and Morgan Stanley (MS), the two remaining independent investment banks, report stronger-than-expected results. However, investors continue to beat down the companies' shares. Amid all the turbulence, U.S. officials decide that AIG is indeed "too big to fail." In a move that would have been unthinkable before the credit crisis began, the Fed arranges to lend $85 billion to AIG in exchange for a 79.9% equity stake. The deal is announced Tuesday evening. Even before the deal is finalized, the Dow reverses an earlier loss and gains 141 points.

Wednesday, Sept. 17: The government bailout of AIG fails to stem investor fears as they flee to safety. Credit markets tighten. The New York Times reports that Washington Mutual (WM), the nation's largest thrift, has put itself up for sale. The Dow plunges 449 points.

Thursday, Sept. 18: The New York Times reports that Morgan Stanley has "stepped up" merger talks with Wachovia (WB). The Fed moves to pump money into the financial system through lending programs operated by several overseas central banks and the Fed's own moves. At the same time, the government begins action on the hugest bailout of all, committing hundreds of billions of taxpayer dollars to buy troubled mortgage assets from beleaguered financial institutions. As word of the evolving plan spreads, stocks rally. The Dow closes up 410 points. In the evening, Paulson and Bernanke and Securities & Exchange Commission Chairman Christopher Cox go to the U.S. Capitol to brief lawmakers on the plan, which requires congressional authorization.

Friday, Sept. 19: The buyout plan—with few firm details—is announced and stocks soar worldwide. President Bush says the move puts "a significant amount of taxpayer dollars on the line," but he says the risk of not acting "would be far higher." In additional actions, the Treasury and Fed act to guarantee the assets of money-market funds, which had been threatened by the meltdown of the financial markets, and the SEC places a temporary ban on the short-selling of nearly 799 financial stocks. The Dow closes up 368.75 points, 45 points below where it was a week earlier but still 911 points over its bottom on Thursday morning.

A momentous week indeed, but there is no sign the economic drama will limit itself to a mere seven days. Lawmakers and regulators are to work through this weekend in an effort to devise bailout plan legislation that can come to a vote next week. The bipartisan consensus surrounding the deal can come undone as the details are ironed out. But for drama, it will be hard to match events that have reshaped the U.S. financial landscape for years, if not decades to come.

Mintz is BusinessWeek.com's B-schools channel editor in New York.