Wall Street in Turmoil

15Sep08

There’s lots going on in the financial markets today — the stock market has plummetted on news that our country’s major financial firms are suffering from the ongoing housing and credit crisis.  

Here’s what I’ve pieced together – 

 

Bloomberg says its “the biggest reshaping of the financial industry since the Great Depression.”  One analyst said: “The tectonic plates beneath the world financial system are shifting, and there is going to be a new financial world order that will be born of this.”  Here’s what’s happened so far:

 

• Lehman Brothers, a 158-year-old global financial services firm, “filed for Chapter 11 bankruptcy protection after failing to find a buyer.”  
  
• Merrill Lynch, 94 years old and the world’s largest brokerage firm, “agreed to sell itself to Bank of America for $50 billion in an emergency deal.”
• And the world’s largest insurance company, AIG, asked the government for a $40 million bridge loan 
• “The dollar lost traction against the yen but rallied against other major currencies” (CNBC).
• The price of oil dropped to below $100 per barrel, the first time since February.  It’s trading around $94 currently, showing that the price is “responding to the turmoil in financial markets more than Hurricane Ike” (CNBC).
• In global trade, European markets tumbled in the afternoon and Asian stocks ended lower. Many major Asian markets, including Tokyo and Hong Kong, were closed for holidays.

Here’s why:  ”The engines that powered record growth in the financial industry over the last decade — cheap credit and surging property values — have been thrust into reverse. Companies that once thrived on making real estate loans and holding assets bought with borrowed money are now under siege, giving the upper hand to those less reliant on leverage and holding the fewest assets tied to property” (Bloomberg).

The government, which helped out Bear Stearns and J.P Morgan Chase earlier this year and most recently took over Fannie Mae and Freddie Mac last week, “steered clear of a bailout,” but “the Federal Reserve is expected to take new steps to stabilize the broader financial system. These steps, expected to be temporary, would make it easier for banks and securities firms to borrow from the central bank by using a wider range of collateral. Bankers say these financial institutions might need short-term funds as they unwind their many trading positions with Lehman” (WSJ). 

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