Monday, September 15, 2008

Meltdown Monday as financial markets fall

News that the banking giant Lehman Bros had filed for bankruptcy has rocked financial markets across the world. Listing debts of more than $600 billion, resulting partly from huge losses in the US mortgage market, the company has gone to the wall after more than 158 years on Wall Street. Last year the company was valued at over $41 billion but its share price has plunged over the last 12 months losing 93% of its value. News of its demise broke in the early hours of Monday and as London’s stock exchange opened shares soon began to slide. Already the FTSE has lost 4.5% in the first half of trading in the UK with the banking sector feeling the worst. At least 5000 staff in London and 25,000 staff worldwide risk are likely to lose their jobs [BBC / Sky News / CNN / Bloomberg].

In another major financial upheaval it was announced that the Bank of America had bought up Merrill Lynch. Earlier the BoA and Barclays dropped their bids for Lehman Bros. Although there remains much uncertainty in financial markets across the world, some investors and experts have expressed a certain amount of relief that the US government did not step in the prop up the companies as has been seen with Bear Stearns financial institution and more recently with Fannie mae and Freddie mac.

American economist and former US Federal Reserver boss, Alan Greenspan has expressed his view that more companies may go under. He may be right as there are also worries about America’s big insurance company AIG which may also be suffering financial difficulties. Washington Mutual is another company being mentioned. But Greenspan said that while the worst may not be over, one should not panic. “We will see other major financial firms fail, but this does not need to be a problem” he said today. “It depends on how it is handled and how the liquidations take place. And indeed we shouldn't try to protect every single institution. The ordinary course of financial change has winners and losers." But he conceded the situate was extremely bad adding, “It’s the worst I’ve ever seen”.

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