Click to play videoNew York: The collapse of Lehman Brothers and Merrill Lynch's acquisition by Bank of America has come as a big jolt to global economy.
Even as America was bracing for hurricanes in the south, it took a direct hit up north on Wall Street, with the collapse of Lehman Brothers and Merrill Lynch's buyout.
With the credit crunch still very much on, capital flows to emerging markets like India are likely to be affected.
"They can always flow into specific targetted investments, be it infrastructure. But in terms of broader capital flows until the situation becomes clearer with regard to global credit that banks have started making loans and life has started coming back to normal, until such time you'll see lot more volatility in markets because the capital flows will be in fits and starts. They are not going to be the steady, secular flows that we've seen over the last few years," Shiva Ganapathy, Managing Director, Marco Polo Securities Inc, says.
The US Federal Reserve did not think it was necessary to bail out Lehman Brothers to avert a potential market meltdown. So could an interest rate cut be part of the solution?
Managing Director and Chief Economist of Nomura Securities International David Resler explains, "Since the end, no beginning of August, we have seen a deterioration in the economy, industrial production was down very sharply today, unemployment rate is up x per cent, employment is falling. The economy is basically in recession. So the Fed needs to address the question of whether the policy stance it now has is adequate to deal with that question. I don't think today's financial market events change that calculus. If the Fed needs to lower rates, it will be because the economy is tracking such a weak path."
Despite still more financial sector giants like American International Group, Inc. (AIG) struggling for survival, analysts believe capital will continue to find its way to the US financial markets.
"There's a fair amount of capital waiting in the sidelines. For example, today if you saw the way US treasuries rallied, there's a flight to quality that's happening. In terms of quality of assets, quality of governance, the US is still on top. So that's going to bring in a fair bit of capital despite the fact that in the near term we're going through question of excess capacity in the housing market that has to work its way through. Once that happens you’ll see the mortgage market coming back again," says Ganapathy.
The bull has a new master, but it's as popular as ever with tourists visiting New York. And the hope now is that it will continue to represent the spirit of Wall Street.
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