Click to play videoNew York: The crisis of confidence that first hit home prices, then mortgage investments that financed the housing boom, has now claimed two of Wall Street's most venerable names - Lehman Brothers who declared bankruptcy and Merrill Lynch which sold itself to Bank Of America - both occurring under Washington's watchful eye.
Big stock brokers and the deicision makers in Washington said that they were working to reduce disruptions and minimise the impact of these financial market developments on the broader economy.
Lehman employees who had already taken heavy losses on company stock, were stunned.
"On Friday coming out of the office everyone thought that it would be okay, something will work out in the end," said a Lehman employee.
But in the end, the Treasury Secretary Henry Paulson refused to use taxpayer money to support Lehman, as he had for the buyout of Bear Stearns and for Fannie Mae and Freddie Mac just last week. The line was drawn at Lehman's door.
"I never once considered using taxpayer money for Lehman Brothers," Paulson sated.
Merrill Lynch - the nation's biggest brokerage firm - fearing it could be next, agreed to be bought for $50 billion by Bank of America.
But on Wall Street the crisis of confidence sent stocks sinking and threatened yet another financial giant, the US' largest insurance company AIG. To help, New York Governor David Paterson said he would allow AIG to borrow from its own assets.
"No taxpayer dollars are involved. This is not a Government buy out," he clarified.
US MARKETS |
The Lehman bankruptcy and acquisition of Merril-Lynch meant Wall Street had its worst day since September 11 2001. Stocks of financial services companies' plummeted, leading to the some of the biggest single day drops in seven years. The Dow Jones industrial average took the biggest hit, falling more than 500 points and Nasdaq dropped over 80 points while Standard & Poor's 500 index fell by 59 points. In Europe too the impact was evident. The London Stock Exchange's FTSE dropped by over 210 points. Shares of Wall Street firms such as Goldman Sachs and Morgan Stanley also slid amid concerns that their business models are similar to those of Lehman Brothers and Bear Stearns. A sharp slide in oil prices to below $100 a barrel helped cap the stock market's losses a bit by boosting airlines and retailers, which are particularly sensitive to higher fuel costs, analysts said. US crude fell $5.47 to settle at $95.71 a barrel on the New York Mercantile Exchange. |
It's the biggest Wall Street collapse in nine years after two of America's iconic banks fell. Lehman Brothers went bust and Merrill Lynch sold out. The question that everyone is asking now is whether the credit crisis will take the global markets into a further tailspin and what does this mean to the investor?
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