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A worker rests his head on his accountant bag on a bench in the financial district in New York. When one of Wall Street’s largest investment banks, Lehman Brothers Holdings Inc., went under, the biggest global financial crisis since the Great Depression was on.Sami Siva/The Globe and Mail

A multimedia version of this story with audio clips, video and interactive graphics can be found here.


The visible scars of the financial crisis are fading.

Across North America, economic growth is grinding ahead. Companies are hiring. New office towers are rising in Toronto and Calgary, just as they are in New York. Housing markets are roaring on both sides of the border.

On Bay Street and Wall Street, stock prices have rebounded – the Standard & Poor's 500 set a new record last month, topping 1,700 for the first time – and credit markets just welcomed the biggest corporate bond deal of all time from Verizon Communications Inc.

Such strength would have been hard to imagine five years ago. On Sept. 14, 2008, an intense series of weekend meetings between senior U.S. government officials and top financial executives failed to save one of Wall Street's largest investment banks, Lehman Brothers Holdings Inc., from collapse. Lehman went under, and the biggest global financial crisis since the Great Depression was on.

The crisis brought with it a serious recession, rising unemployment – and a sense of panic. In 2008, the corporate titans, bank CEOs and policy makers closest to the action did not want to say out loud exactly how bad things looked. Perhaps they were afraid to show any signs of weakness, because confidence was so fragile and so crucial. Perhaps it was because the crisis was so all-encompassing that moments to reflect were almost impossible to come by.

They're talking now. The economic rebound, coupled with five years of distance from the worst of the crisis, allows them to be open about just how grim things were – how utterly lost some of the country's most powerful people felt. As Royal Bank of Canada chief executive officer Gordon Nixon now says of some days in that bleak September, "there was no light at the end of the tunnel."

Now, there is time for reflection. For this feature, 18 key actors tell The Globe and Mail, in their own words, how the crisis washed over Canada and the U.S., how this country avoided the worst, and how they felt throughout it all.

They detail the extraordinary actions and emotions of that period, from the first indications in the summer of 2007 through the signal events of 2008 – Bear Stearns, Lehman, AIG, Fannie, Freddie, TARP. That was a year when financial firms built over decades collapsed and disappeared one after another and markets took historic plunges with numbing regularity.

Canada in many ways was spared the worst of the crisis. No banks failed. Our governments never had to buy shares of key financial institutions to keep them alive. The Bank of Canada never had to resort to the full-on money printing that harder-hit countries undertook. Our recession was sharp, but growth resumed quickly.

Some of that was good fortune, and some of it was a result of the solid regulation for which Canada has been amply lauded. But much of it stems from quick thinking and a willingness by the government and businesses to work together and react decisively and creatively.

Canada was lucky that the homegrown parts of the crisis hit early, enabling Canadian institutions to get to work on solving their problems before the world's situation became too unstable.

Canadian Imperial Bank of Commerce, the one bank that found itself holding large amounts of derivative securities tied to U.S. subprime mortgages, started taking what amounted to billions of dollars of losses tied to that portfolio in 2007. It sold $2.75-billion of stock in early 2008 to shore up its balance sheet, at a time when the bank's share price had not yet taken the beating it would later that year.

The asset-backed commercial paper freeze-up happened in 2007, a full 13 months before Lehman crumbled. By the time the tempest was cresting, a fix for the investors stuck holding $33-billion of frozen short-term paper was well under way.

Such events forced Canada to get ready long before the worst arrived. National Bank of Canada CEO Louis Vachon says: "By the time Lehman went under in the fall of '08, we'd been in crisis mode for a year."

Yet even that was not enough to fully prepare the executives for what they were about to endure.

"Did we foresee 2008, the way it happened? Absolutely not," Mr. Vachon says today.



Spring, 2007: The capital markets are scorching hot, and the financial news is dominated by a series of massive takeover deals. The wave of private equity buyouts reaches its apex when various bidders, including U.S. giant Kohlberg Kravis Roberts & Co., approach BCE Inc. about a blockbuster takeover. A group led by Ontario Teachers' Pension Plan ultimately wins the auction in July, bidding $35-billion, marking the largest private equity deal in history.

Jim Leech, Ontario Teachers' Pension Plan:

We made the BCE deal on the first of July weekend. At that time, the markets were still hot. …The banks were showing their most lenient lending that had ever been seen. … Nobody imagined it would ever be the bubble it turned out to be.

By summer, fissures begin to appear in the financial system. Credit begins to dry up, and banks start exhibiting signs of stress. After a long boom, the U.S. housing market is cooling – fast. Home prices are dropping and foreclosures are climbing.

David Denison, Canada Pension Plan Investment Board:

In July, we started to see the mortgage market disruption in the U.S., and then the access to the debt markets, leveraged loan markets, turned overnight. We, like many organizations, were looking at potential takeovers and had been talking to the banks about financing those. … Then the next day those deals weren't doable basically any longer.

Julie Dickson, Office of the Superintendent of Financial Institutions (OSFI):

The long weekend in August, 2007, a number of us met at the Bank of Canada and it was apparent that there could be major issues in the offing. … BNP [Paribas'] decision on Aug. 9 to halt redemptions in some investment funds was a bit of a turning point for me as it really indicated that the problem could be global.

In the summer, Canadians hear for the first time about trouble with a particular kind of short-term investment – ABCP, or asset-backed commercial paper. In the years leading up to 2007, investors had piled into ABCP, which consisted of 30-day and 60-day notes that paid interest earned from bundling assets like mortgages and auto loans together.

As fears spread that U.S. subprime mortgages would result in massive defaults, new buyers of ABCP disappear. That means existing holders of the notes – companies, banks and private investors – are unable to cash them in, putting $33-billion of securities in limbo. Almost overnight, trading in ABCP freezes.

Bill Downe, Bank of Montreal:

There was only a week of preparation. I remember having a conversation with the Governor of the central bank, Governor [David] Dodge, right at the beginning of August, and the question that was under discussion [was], 'What's the likelihood that the market could freeze up? And then, 'What would the strategies be?' But it rapidly went from an academic discussion to the reality it could happen. … Somewhere along the line somebody was going to make a big mistake. It just wasn't clear who it was.

David Dodge, Bank of Canada:

There was a big flurry of activity in August, and after that was when, if you will – the shit hit the fan.

Downe: None of us appreciated the size of it, or the level of risk that existed in [the ABCP] market. And when it crashed, it crashed very fast.

As Canada comes to grips with its ABCP crisis, the U.S. gets a shock of its own.

H. Rodgin Cohen, U.S. law firm Sullivan & Cromwell LLP:

There start to be serious cracks in the mortgage market… Bank of America, within in a few days, steps up and makes a very large investment in [mortgage lender] Countrywide. At that point, a lot of the handwriting is on the wall. It's just not visible to very many people… Some people saw it as graffiti, as opposed to prophecy.

Behind closed doors at a gathering of the Asia-Pacific Economic Co-operation in Australia in September, leaders begin voicing concerns about the problems surfacing in the mortgage market, particularly in the U.S.

Jim Flaherty, Canada's Finance Minister:

We were all worried at that time because, as people were saying around the table, 'There's too much cash sloshing around the world.' And [we wondered] 'Where is the problem going to come from?' We all left, went home. It was on a Sunday afternoon [that U.S. Treasury Secretary] Hank Paulson called me at home and said 'Well, good news and bad news. The bad news is there's a huge credit crisis. The good news is we know what the problem is.'

Leech: That fall, I remember sitting on an airplane with Claude [Lamoureux, then the head of Ontario Teachers]. We were flying to Montreal to … explain the BCE transaction to the government of Quebec, and the Quebec institutions. And I can remember Claude having somebody's newsletter … who was going through the math on [subprime collateralization, a complex way of packaging loans to make them look more attractive to investors], and how you could turn a low credit into high credit through these tranches and how it didn't make any sense. It was sort of the very first time that I had seen anyone actually write something … that said this doesn't look right, this doesn't smell right. How you can turn subprime mortgages into triple-A credits?

Don Lindsay, Teck Resources Ltd., former investment banker at CIBC World Markets:

There's much debate as to when people should have known that a collapse was coming. Everyone from Alan Greenspan on down didn't see it, right? But there were clues, for sure, that if read correctly would have given an indication that the financial system was at risk.

As problems emerge, many of Canada's top financial executives are consumed with putting out the ABCP fire. The institutions most affected by the crisis include National Bank of Canada, the Caisse de dépôt et placement du Québec and Canaccord Financial.

Louis Vachon, National Bank of Canada:

It was almost 24 hours a day for a period of time … the challenge I had, particularly with ABCP, is you have to manage a crisis, but it cannot become an obsession. My job was to run the bank.

Dodge: The Ontario Securities Commission, quite frankly, I don't have very good words for them through this. Because they kept saying, 'No, no, the problem is that some of this [ABCP] was sold to unqualified investors'… rather than [being concerned] about the structure of the instruments and what was actually there and the financial stability side of it.

Lindsay: I do recall quite clearly that I was glad not to be in the banking business.

By December, it becomes clear that ABCP won't be the only crisis Canada endures. After already writing off $753-million from its exposure to U.S. subprime mortgages, Canadian Imperial Bank of Commerce admits that another $2-billion could vanish – a number that will grow. In January, 2008, the bank sells nearly $3-billion in new shares to a group of investors that includes Hong Kong billionaire Li Ka-shing.

Although other banks get caught in the same mess – Citigroup writes off $18.1-billion (U.S.), Bank of Montreal writes off $490-million (Canadian) – the problems appear contained. That is, until March, 2008, when Bear Stearns, the venerable Wall Street investment bank, flirts with bankruptcy after suffering heavy losses on mortgage securities.

Cohen: I'm walking through Reagan National Airport in Washington. I remember this: The Delta [flight] had been cancelled, so I'm walking over to USAir and I get a call from two of the directors at Bear asking if we can represent them. … That leads into the frantic search for a buyer for Bear because it's becoming clear that the market won't fund them.

Dean Connor, Sun Life Financial Inc.

It happened so quickly … One day it was a firm doing fine and they were saying everything was fine, and not too long after …

To save the ailing bank, JPMorgan Chase buys Bear for just $2 a share on March 17, 2008, down from $170 a year earlier. To facilitate the deal, the U.S. Federal Reserve promises to provide up to $30-billion to backstop Bear Stearns' riskiest assets.

Dodge: Bear got saved, and that kind of sent a signal to the rest of the world that the U.S. government was willing to step in on these things. The rest of the world kind of relaxed for a period of time, I would say, really taking that as a signal that banks really were too big to fail.

Downe: The market knew that underwriting and trading mortgage-backed securities was a big business for Bear Stearns. But it was a much bigger business for Lehman Brothers. So in terms of market participation … at the time one of the questions was, 'Where's Lehman?'

Gordon Nixon, Royal Bank of Canada:

We spent a tremendous amount of time looking at all of our different businesses, all of our different trading books … to see whether there would be exposure.

The initial shock from the Bear Stearns deal subsides and nerves calm. The Dow Jones industrial average climbs back to more than 13,000. In Canada, the S&P/TSX composite index hits a record high above 15,000 in June, 2008, on the back of a boom in commodities, particularly oil, which is headed toward $150 (U.S.) a barrel. Many people think the problems of the previous few months are in the past.

Rick George, Suncor Energy Inc.:

Oil prices were quite strong. ... You were kind of racing against time. We were short of manpower and inflation was quite high. ... You definitely felt that we were headed into the peak of the cycle.

Leo de Bever, Alberta Investment Management Corp.:

[Calgarians], you could barely peel them off the ceiling, they were so bullish on the future.

Leech: In July of '08, I attended what's called the international pensions conference, [attended by] CEOs of the 40 largest pension plans, corporate and public. … They were pretty oblivious to what was going on.

During the summer, however, new fears emerge behind the scenes. Bank of Nova Scotia CEO Rick Waugh is the vice-chair of the Institute of International Finance, and in July, 2008, he travels to the Federal Reserve Bank of New York to deliver a report on risk management. He barely gets the chance to present.

Waugh: I remember meeting with [N.Y. Fed president Tim] Geithner at seven in the morning, with Joe Ackermann [the former head of Deutsche Bank] and myself. The halls of the Fed were full. … Tim saw us, very politely, and said there's some good stuff here – but it's not the time.

Mark Carney, Bank of Canada:

The summer of 2008 was awful because the system was coming apart and people didn't appreciate what was happening.

Investors start to catch on. The TSX composite sheds 9 per cent from the peak it set in June, and the S&P 500 falls 10 per cent from its peak in May. In the U.S., speculation grows that the U.S. government will need to bail out mortgage finance giants Freddie Mac and Fannie Mae.

That finally happens on the first weekend of September, when the U.S. government seizes control of both companies.

Nixon: What you were trying to do was run fire drills to make sure that you were prepared for whatever the consequences were.



As Freddie and Fannie become wards of the U.S. government, all eyes turn to Lehman Brothers Holdings, one of Wall Street's most aggressive investment banks. Lehman once made billions of dollars by trading mortgage-backed securities, but once the U.S. housing market started to teeter, these investments became toxic.

After taking billions of dollars in losses, Lehman boss Richard Fuld makes a desperate move on Sept. 10, 2008, to save the bank, announcing the sale and spinoff of a large number of assets. But it's too late. One by one, institutions that trade with and lend money to Lehman start to pull their funds. During the weekend of September 13-14, 2008, major Wall Street players converge to find a way to save Lehman. The last hope is a deal that would see U.K. bank Barclays PLC buy the ailing firm. It fails to come together.

Cohen: There's a big meeting and then [Henry] Paulson and [Securities and Exchange chairman Christopher] Cox and [Tim] Geithner come out. The president of Lehman and I had been banished – we weren't permitted in the room where the banks were discussing [the Lehman problem] – and they just tell us that it's not going to happen because the British government won't let Barclays go forward. The only option is a declaration of bankruptcy. We protest, we make a few calls. But the handwriting, it's not on the wall now – it's set in stone. ... They said at the highest level, the British government did not want the disease of Lehman to spread across the Atlantic to the U.K. And I said, 'The fastest way to get it to the U.K. is to let Lehman fail.'

Vachon: Our good friend and former economist Clément Gignac was sitting with us at the credit committee. And Clément said the U.S. will let Lehman go. I said, 'You're out of your mind.' He said, 'No, I think they are going to let them go; they are in the mood of making an example.' And guess what? Clément was right.

Carney: I spoke with Ben Bernanke [Fed chairman] several times during the weekend and as specific situations worsened. He was incredibly open and communicative.

Dickson: I learned about the Lehman development on Sunday [Sept. 14], the day before Lehman filed, as information was being shared among global regulators and central bankers so that we could be ready. I had just landed at the Ottawa airport when I got the message, having taken a quick trip to Halifax for my in-laws' 50th wedding anniversary.

Leech: I think they worked through the entire night – our whole finance department and fixed-income department and legal department – … just trying to figure out what our various exposures were to the various Lehmans. … I remember them actually overnight creating the demand notices, and we actually put people physically on airplanes to Switzerland and various jurisdictions to file our claim on the bankruptcy at various different Lehman entities.

Vachon: I remember sitting in front of the computer at home, with my kids, showing them The Wall Street Journal on the Internet saying 'Lehman files for bankruptcy.' And I said 'Watch this kids, that's going to be in your history books.'

Denison: I get up early in the morning, I'm a 4:30 in the morning riser, so that first day I go down as I do, turn on CNBC and I do my stretching before I go out running and turned it on to hear that Lehman was in bankruptcy.

Donald Guloien, Manulife Financial Corp.:

I was speaking to some employees in Boston … about some of the fundamental principles that have kept us out of trouble: Don't rely too much on modelling; do your due diligence; don't be ashamed to ask the dumbest questions because those are often the best; be curious. … Right as that was happening, I was getting signals at the back of the room … that something is transpiring with Lehman and I need to get off the stage. … It's very ironic: You're talking about these principles, and then you quickly learn that some of the biggest, best institutions in the world violated, in some cases, virtually all of the principles.

Leech: In the middle of that Lehman filing, the next day we have an emergency evacuation drill at Teachers. How symbolic.

Lehman's bankruptcy filing on the morning of Sept. 15 sets off a new stage in the crisis. Fears of financial contagion start to spread. Investors fear that if Lehman can go bankrupt, no financial institution is safe. American International Group Inc., a major insurer of mortgage-backed securities, emerges the biggest worry.

Large investment funds also start to wobble. The Reserve Primary Fund is a massive short-term investment fund whose historical value is $1 a share. But the fund owned large amounts of Lehman's debt, and in mid-September it 'breaks the buck,' or drops in value, for the first time in more than a decade. That adds to the panic.

Cohen: I'm sitting there knowing Lehman is gone, with unforeseeable consequences. AIG is teetering and will need government assistance or else it will go. The situation at Wachovia is deteriorating. The situation at Morgan Stanley, while not as desperate, will need to be resolved. And if those institutions go, who knows what else will happen.

Nixon: I remember saying at the time, publicly and privately, the problem with the financial services industry is there's no such thing as the last man standing. Just because you're stronger than everybody else doesn't mean you can survive. So after Lehman went, the issue was, what's going to happen with Merrill, with Goldman, what's going to happen with Citi, what's going to happen with AIG. Everybody was trying to figure out the long-term consequences.

Carney: What made things more challenging was the Reserve Fund breaking the buck and the number of banks and hedge funds that discovered their collateral at Lehman in Europe was frozen. … What induces panic is thinking you are protected and finding out you are not. That causes institutions to pull in their horns across the board and the system to begin to collapse. … When I was most concerned was as September progressed and there started to be evidence in Europe, Ireland, of bank runs.

The reality begins to sink in that the crisis is far bigger than just the failure of Lehman Bros. While the damage to the Canadian financial sector is still limited, in government and corporate circles, Lehman creates a new urgency. Senior executives and their boards begin preparing for the worst.

de Bever: There was an article on Citigroup in the paper one day … and I said 'Well, what exposure do we have to Citigroup anyway?' [My team] said, 'Give [us] eight hours and we'll figure it out.' That shows you – I was sort of flying blind in the sense that we didn't have the information readily at hand to calculate answers to specific immediate questions.

Leech: The biggest thing you've got to concern yourself about in an institution like ours is liquidity. If you get caught where you have to raise cash by selling assets when the world is coming down on you, you are toast. … So although we had, by all of our formulas, lots of liquidity, I remember the fatal discussions of why don't we just double the liquidity requirement for the sake of it.

By late September – in the heat of a presidential election campaign between Democratic candidate Barack Obama and Republican John McCain – the U.S. government realizes it needs to do something to contain what is quickly becoming a global crisis of confidence. Treasury Secretary Henry Paulson drafts what becomes known as the Troubled Asset Relief Program (TARP), asking Congress for $700-billion to buy toxic assets from financial institutions, giving them badly needed capital. Despite a push from the White House and House Majority Leader Nancy Pelosi, the House of Representatives votes down the plan on Sept. 29. The market's reaction is violent: The Dow falls 7 per cent that day.

Lindsay: I watched it on TV and I thought, 'Oh my god, what have they done.' Because in financial markets the world generally had a perception that if things got really bad, the U.S. could step in and put a floor under it. And what we saw with Nancy Pelosi's speech [which blamed the problems on "failed Bush economic policies"] was that not only was the U.S. not going to put a floor under it, they didn't even get it.

Just four days later, Congress votes again, and this time TARP is passed. But investors are already badly shaken. During one extraordinary week, Oct. 6 to 10, the Dow Jones industrial average plummets 18 per cent.

Lindsay: Shit hit the fan – that's an understatement! You can quote me on that. …The reality is that the month of October, during which we were supposed to refinance, was the single worst month in all of capital markets history.

Nixon: This was totally untested. Nobody knew if any of these things were going to work – if TARP was going to work, if the markets were going to recover, if people were going to start buying bonds again and provide liquidity.

Greg Mills, RBC Dominion Securities:

Getting up and going to work every day was like going into the ring with Mike Tyson. You knew you were going to get the crap kicked out of you.

At the same time, a Canadian election is under way. The financial crisis emerges as a key issue. After much delay – and much criticism from the opposition parties – the Conservative government decides to shore up Canadian banks to ensure they can continue to lend. Unlike U.S. banks, which sell off most of the mortgages they underwrite, Canadian banks keep them on their balance sheets. Mr. Flaherty instructed Canada Mortgage and Housing Corp., the federal mortgage insurer, to buy up to $25-billion in mortgages from the banks, allowing the financial institutions to swap the loans for cash that could then be lent to Canadian businesses and households.

Leech: I sat at the head table of the Canadian Club on the 7th [of October]. Stephen Harper was talking. And there was virtually no real reference to the financial crisis at that time. It was a week later that they came out and totally changed their perspective.

Flaherty: We were in the middle of an election campaign and things were getting much worse. And so I was talking to the Prime Minister almost every night, and he was campaigning of course. … We were hoping we wouldn't have to do anything during the course of the election campaign, but we did. … Because things were getting worse and worse and credit was constricting very badly.

Leech: [The mortgage program] was a really smart move, because it really didn't increase the government's risk, it just slammed liquidity into the system, which was badly needed.

After announcing the deal with the banks on the morning of Oct. 10, Jim Flaherty and Mark Carney fly to Washington for a major G7 meeting where lengthy proposals to save the global financial system are drafted.

Carney: It was a very serious meeting. … There was a lot of frustration around the table. 'Why were we in this situation?'

Flaherty: I'd suggested to my colleagues that we needed a very simple five-point plan, which we came up with. That was approved by the G7 finance ministers, and then that night we ran it by the finance ministers of the Americas. We were having a scheduled meeting, and they approved of it. And then the next morning we met with President Bush, the G7 ministers did, and then he went out in the Rose Garden and endorsed the plan at 8 a.m.

Other industries start to feel the pain. The automotive sector is one of the hardest hit as nervous consumers stop buying cars. Oil prices plummet, sending Canadian energy producers scrambling to rework ambitious projects. It is clear that a major recession is unfolding, and unemployment quickly rises as one company after another announces layoffs.

Reid Bigland, Chrysler Canada Inc.:

We were burning well in excess of $1-million a day. … So I called Dwight [Duncan], then Ontario finance minister. His riding [was] from Windsor [where Chrysler has its Canadian headquarters]. We had a meeting in my offices on a Saturday morning. … I explained the situation to Dwight that we were burning cash; couldn't [get rid of] fixed costs fast enough; there was very little market for our products or any other products in the automotive space for that matter; financing had completely dried up … [I] basically said if we don't receive an injection of cash in the form of a loan by Christmas, our ability to continue to keep our doors open would be in severe jeopardy. Dwight understood the gravity of it.

George: The turning point for the industry was when oil prices collapsed. You had plenty of liquidity and plenty of profitability up until that exact moment. … The discussion that was hardest among the members of the executive team was about which projects we would slow down and cancel, and how deep did you have to cut capital?

Recognizing that the crisis was becoming unmanageable, the Bank of Canada gets involved. All of the major policy makers in Ottawa are in regular contact with bank CEOs, pension fund executives and others to deal with problems and ensure co-operation.

Vachon: I do remember getting a call from Mark Carney who was pretty worried and said, 'Somebody just cut off some American banks. Was it you?' I said, 'No, it's not us.' So clearly Mark was very sensitive to the issue of keeping reciprocity between the different institutions. Don't cut off the Americans, therefore they won't cut you off.

De Bever: The bank came to us, Carney called me and said, 'Look, we understand your difficulty, but you should know that as a last resort, if you need cash, we will treat you just like a bank in terms of being able to repo assets so that you can have the cash to continue.'

Dickson: The ability to get together at the most senior levels with staff also at the table, on short notice and face-to-face, was a real advantage that Canada had over other countries. Ottawa is a small town and this has benefits.

Waugh: I was very concerned, but my conclusion always was that we're going to be fine – we being Canada, and the Canadian banks.

But the central bank could only do so much to lift confidence as the economy deteriorates. The TSX ends the year below 9,000, down 30 per cent since the collapse of Lehman.

Leech: There are not many people around here who have ever been through something like this. … I can remember looks from people sort of like, 'Is the world going to be okay?' Because these are young people who grew up only in a bull market. ... They'd never seen it go down.

Nixon: Chuck [Winograd, the head of RBC's investment bank] and Mark [Standish, now co-CEO of the investment bank] … would come up to my office with regular updates, and I remember thinking it was painful every time Chuck came up because you knew the news was never going to get better. It was only going to get worse. So every update, it was: 'Things are continuing to spiral out of control.' There was no light at the end of the tunnel.

Denison: We lost 18.6 per cent [in that fiscal year] … That's billions and billions and billions of dollars. It's well over a $100-billion fund, so you do the math… We were heavily criticized for our performance during the period, including on the floor of Parliament by leaders of the opposition parties and other commentators. So this wasn't unnoticed; it's the largest fund in Canada, 18 million peoples' money.

Nixon: It was the scariest period in my history by a huge margin. I lived through the crash of '87. Credit cycles. The technology crash. … They all paled in comparison.

Amid the loss of confidence, companies start racing to find new money to protect themselves against a severe downturn. TransCanada Corp. is the first to test the Canadian equity market in late November, raising just over $1-billion. Manulife Financial Corp. soon follows, as do five major banks. However, they do this at a steep cost: All are selling new shares at rock-bottom prices that hadn't been seen in years.

Downe: Everyone was looking with suspicion at every other participant in the market. I think that also influenced our view at the end of 2008 that we ought to issue equity as a precaution.

Guloien: There's nothing worse than being part of a management team that raised equity at $19 in 2008, and having the stock not at that level [today]. Shareholders trust that they're helping you out with a problem, but expect to get a return on that.

Flaherty: [Referring to calls he had with bank CEOs] A couple of them were really scared.

Waugh: I didn't tell my wife until after the fact, but I doubled my own personal holdings in Bank of Nova Scotia at $33 [a share].

Leech: It was a tumultuous year as my first year as CEO. … I remember saying to Mark Carney on one of the phone calls, the two of us commiserating that David Dodge and Claude Lamoureux were much smarter than we were [for retiring early in the crisis.]



Early in 2009, stock markets and economic activity continue to drop. After surviving a political crisis in which three opposition parties try to take it down, Stephen Harper's minority government in Ottawa assembles a plan to boost the economy as unemployment soars.

Flaherty: When we decided to run the big deficit in January, 2009, I had to talk to the opposition, because we could have been defeated. I give the opposition at the time credit for recognizing what a serious situation the country was in. … They easily could have defeated the government. They could have said, 'You guys are responsible, you're running a huge deficit, you said you'd maintain a balanced budget, [but] you're not. We'll have an election in six or seven weeks and see what happens.' I mean, they could have done that. But they saw the better good.

Vachon: I recall Mark Carney – it was either January or February of '09 – calling me. … I'm not sure to what extent they were seriously considering doing quantitative easing in Canada, but they were musing about it. Mark wanted to know what I thought about it. I said, 'Mark, I'll give you a gut answer. I don't have a scientific answer but I'll give you a gut answer. I don't think it's necessary.'… We have a bit of a recession, but we don't have a collapse. We don't have a collapse in liquidity. We don't have an explosion in loan losses. Quantitative easing is the nuclear weapon of monetary policy.

Flaherty: There were lots of discussions. I'm opposed to quantitative easing, printing money. Bernanke and I have had some lively discussions on the subject, and I disagree with him.

Ultimately, the Bank of Canada keeps interest rates at ultralow levels but holds off on more extreme measures. Starting in March, 2009, the markets hand the policy makers a much-needed gift: a massive rebound. From its low on March 9 to June 30, the TSX composite index skyrockets 37 per cent.Some major companies still must prove they can survive. In early 2009, governments in the U.S. and Canada engineer a taxpayer-funded rescue of General Motors and Chrysler.

Meanwhile, Vancouver-based mining company Teck Resources, which inked its $14.1-billion (U.S.) acquisition of Fording Canadian Coal on the eve of the financial crisis, fights to refinance its debts and stay out of creditor protection.

Lindsay: I'll never forget at Christmas [2008], I was in my cabin in Whistler and I'd put my two daughters to bed because I was a single dad. And I was sitting there staring at the bar and I was thinking, 'God, what have I done and how am I going to get out of this mess?' No one believed that we were going to make it.

In April, 2009, Teck strikes a deal with its lenders to defer $4.4-billion of loan payments, and later sells $4.2-billion of new debt. China Investment Corp. takes a $1.74-billion stake in July, and the company's survival is assured. But as its problems subside, Manulife Financial, another struggling company, is forced to make tough choices. In August, the life insurer slashes its dividend in half.

Guloien: It was a very difficult decision because it's not something you do lightly. … I knew the earning capacity of the company wasn't going to be as great as the numbers reported [in the] past. When you know the numbers in the future aren't going to be, in the short term, anything close to what they were before, you have an obligation to talk about that and reset expectations.

Manulife's bearish outlook proves warranted. It is a long, slow climb back to stability. The economy enters a prolonged period of sluggish growth and the central bank holds down interest rates, hoping to spur consumer spending and stimulate the economy.

Signs of life are seen in the auto sector, as sales begin to rebound, and in the housing market, where mortgage lending grows.But though the world looks upon Canada as having weathered the storm, there is still unease among government and business leaders about resting on those laurels.

Flaherty: I remember one of the finance ministers referring to Canada as 'virtuous Canada.' But we have to maintain our position; it's not a given. If we let things slide, if we are irresponsible in a fiscal way, then we could get into some of the trouble other countries have gotten into. And I've had some fairly strident debates with some of my colleagues about the inadequacy of their medium-term fiscal plans, and one has to be a little bit careful, because you're not supposed to show hubris. But I'm not that humble.

Downe: I'm a believer that the extraordinary measures by the U.S. Federal Reserve, which basically flooded the world with money, probably was the single most important factor [in the recovery].

Nixon: Everybody wants to take credit for why Canada managed through – the government, the regulators, the central bank, the banks, bank management – and frankly everyone deserves some credit. And frankly Canadians and Canadian culture deserve a lot of credit as well, because I think that was part of the strength of the system. … But, in my judgment, the single most relevant and most important differentiator for Canada was the structure of our residential mortgage market.

Vachon: It's definitely not the end of financial crises. I think there will be more. Will we see something as bad, and as socially impacting as we saw in '08? I think the odds of that occurring again are very, very low in the next few decades. From my lips to God's ears on that one.



Reid Bigland

Then: President of Chrysler Canada Inc.

Now: President of Chrysler Canada, head of U.S. sales

with Chrysler Group LLC, chief executive officer

of the Ram truck brand.

Mark Carney

Then: Governor of the Bank of Canada, appointed in

February, 2008. Previously, adviser to then Bank of Canada Governor David Dodge, and senior associate deputy

minister in the Department of Finance.

Now: Governor of the Bank of England.

H. Rodgin Cohen

Then and now: Partner at Sullivan & Cromwell LLP. He represented Bear Stearns, Lehman Brothers and others.

Dean Connor

Then: President of Canadian operations for Sun Life Financial.

Now: CEO, Sun Life Financial.

Leo de Bever

Then and now: CEO, Alberta Investment Management Corp.

David Denison

Then: CEO, Canada Pension Plan Investment Board.

Now: Member of the board of directors at BCE Inc. and Royal Bank of Canada.

Julie Dickson

Then and now: Superintendent of the Office of the Superintendent of Financial Institutions (OSFI).

David Dodge

Then: Governor of the Bank of Canada, until early 2008, when he retired.

Now: Chancellor of Queen's University, co-chair of the

Institute of International Finance's Global Market Monitoring Group.

Bill Downe

Then and now: CEO, Bank of Montreal.

Jim Flaherty

Then and now: Finance Minister, Government of Canada.

Rick George

Then: CEO, Suncor Energy.

Now: Chairman of Penn West Petroleum Ltd.

and Osum Oil Sands Corp.

Donald Guloien

Then: Chief investment officer, Manulife Financial Corp.

Now: CEO, Manulife Financial Corp.

Jim Leech

Then: Senior vice-president, Teachers' Private Capital. Named CEO of Ontario Teachers' Pension Plan in December, 2007.

Now: President and CEO, Ontario Teachers' Pension Plan.

Don Lindsay

Then and now: CEO, Teck Resources Ltd.

Greg Mills

Then and now: Co-head of the global equities division of RBC Dominion Securities.

Gordon Nixon

Then and now: CEO, Royal Bank of Canada.

Louis Vachon

Then and now: CEO, National Bank of Canada.

Rick Waugh

Then and now: CEO, Bank of Nova Scotia, vice-chairman of the Institute of International Finance.

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