WALL STREET’S BLACK MONDAY:
FINANCIAL SYSTEM CRISIS DEEPENS
September 15, 2008
(NEW YORK CITY, NY) -- One broadcast television news report summed up today’s developments on Wall Street this way: “Call it ‘Nightmare On Wall Street’, the meltdown in the financial markets. This is a real crisis in the American economy and nobody knows right now how bad it’s going to get.”
Lehman Brothers headquarters in New York. The 150 year old Wall Street firm is no more.
The statement was perhaps an apt description of the latest history making aftershocks in America’s battered and still shaking financial markets; aftershocks that have rattled even the most experienced money managers and left ordinary Americans wondering what is safe and solid anymore.
The stock markets today suffered their worst losses since the days after the terrorist attack of September 11, 2001. One financial commentator on ABC’s “Nightline” news magazine program dubbed today’s brutal slide on Wall Street “a bloodbath…financial Armageddon.”
In what not long ago was the unthinkable, Lehman Brothers – an investment banking giant and star on Wall Street long considered a rock of Gibraltar in the financial world – is gone, a victim of it’s own excesses in the financial derivatives market where home mortgages comprised the core of the investment bundles that made many a Wall Street executive rich in recent years.
And Merrill Lynch, it’s famous bull logo a shining symbol of America’s financial markets for decades, was forced into a quick buy out by Bank of America in order to evidently avoid going the same route as Lehman Brothers.
Both Lehman Brothers and Merrill Lynch – over 150 years old and almost a century old respectively - were legendary symbols of America’s financial acumen and power. Both firms did business around the world.
Outside Lehman Brothers today many employees were seen packing up and heading home. Thousands of Lehman employees are losing their jobs. As one employee told a reporter, “you got to sleep on Friday and you wake up on Monday and things have just turned completely around.”
Lehman Brothers officials had wanted the federal government to step in and save the company as it had done previously with investment bank Bear Sterns and the mortgage giants Fannie Mae and Freddie Mac. But in what has been called an extraordinary meeting on Friday night called by Federal Reserve Chairman Ben Bernanke, Bernanke told Leman Brothers executives the public money well had run dry and that the government would not be stepping in to save Lehman Brothers as it had with Bear Sterns and Fannie Mae and Freddie Mac.
So through out the weekend a “who’s who” of Wall Street broke into groups to find a solution to the crisis with Lehman Brothers. Ultimately there was no agreement on a solution and Lehman Brothers was left to fail.
Meanwhile workers at Merrill Lynch, stunned by the company’s demise as an independent brokerage company, came to work this morning after learning about the sale on Sunday of the company to Bank of America.
While the buy out may have saved Merrill from a fate similar to Lehman’s, it will come at a cost to Merrill Lynch workers. Bank of America said it planned to cut about $7 Billion dollars in costs from Merrill over four years, a plan that could result in the loss of thousands of jobs at Merrill Lynch.
Economists and Wall Street executives also remain concerned over the fate of other big financial firms, most notably the American International Group (AIG) one of the world’s largest insurers.
After the Federal Reserve Bank turned down a request by AIG for a $40 billion temporary loan, federal and state officials worked on Monday to stabilize A.I.G., with the State of New York relaxing rules to allow the company to borrow as much as $20 billion in much-needed cash, while the Fed was engaged in talks with JPMorgan Chase and Goldman Sachs on a $75 billion loan for AIG.
Many market veterans and government officials fear that without a cash infusion for A.I.G., losses on its financial insurance contracts could cause a ripple effect that would damage other companies both in The U.S. and around the world. Shares of A.I.G., already hammered in recent weeks, dropped another 60 percent on Monday, closing at $4.76. Last year AIG traded as high as $72 a share.
In response to turmoil in the financial markets the Federal Reserve was considering lowering interest rates at the regularly scheduled meeting on Tuesday of the Open Market Committee, which sets monetary policy.