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Update on Recent Events in the Credit Markets

October 01, 2008

We witnessed some extraordinary events in the past several weeks. The US
government assumed stewardship of Fannie-Mae and Freddie-Mac, issuers of about
$5 trillion worth of mortgage backed securities. The large US investment bank, Lehman
Brothers, filed for bankruptcy.

The US government invested $85 billion in and took
control of AIG, the largest insurance company in the world. The overnight London
interbank rates, referred to as LIBOR, spiked to dramatic levels as banks assessed a
much higher risk of lending to each other, while yields on US treasuries briefly traded
below 0%. Stock markets around the world experienced unprecedented volatility
and dramatic declines, which were reversed in part when it was reported that the US
government intends to implement a $700 billion broad - based initiative, similar to the
Resolution Trust used in the S&L bailout of the 1980’s, to assist banks saddled with
illiquid distressed assets.

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