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Quarter-End Insights

Our Take on the Third Quarter

Stocks suffer through as historic market events unfold.

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Economics may be the dismal science, but the third-quarter of 2008 has been one of high economic drama. The ongoing financial crisis that claimed investment bank Bear Stearns in the first quarter of 2008, and that has roiled markets all year, accelerated to force Lehman Brothers into bankruptcy, put mortgage lenders  Fannie Mae (FNM) and  Freddie Mac (FRE) into U.S. government conservatorship (), and force distressed insurance behemoth  AIG (AIG) to take an $85 billion cash infusion () from the government. Additionally,  Bank of America (BAC) purchased  Merrill Lynch (MER), including its army of 16,000 retail brokers--click here for more on the deal (), while the last two remaining large, independent investment banks,  Morgan Stanley (MS) and  Goldman Sachs (GS), elected effectively to become regulated commercial banks () with the result being that they won't be able to operate with as much leverage as they did previously.

Despite a respite on the announcement that the U.S. government would likely implement a $700 billion bailout package () for nonperforming loans, the financial markets have responded poorly to these momentous events: The Morningstar U.S. Market Index shed 8% for the trailing 13 weeks through Sept. 22, and is off 15% for the year.

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John Coumarianos has a position in the following securities mentioned above: NVS, BRK.B. Find out about Morningstar’s editorial policies.