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Stock Market Receives Shocks, Lehman Brothers Collapses, Merrill Lynch Sold

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By : Cassiano Travareli    99 or more times read
The turmoil that the financial market in the United States is going through hit a new low on Monday. This has been the most terrible day Wall Street has faced in the last 7 years. With the collapse of one of America’s most respected banks, investors are now left to wonder which giant will fall next.

The industrial average on the Dow Jones fell in excess of 500 points (in excess of 4). This has been the highest decline since the reopening of the market post the attacks on 09/11/01. Retirement plans, pension funds of the government and various investment portfolios have seen around 700 billion disappear.

This butchery saw turbulent twenty four hours that has altogether rewritten American finance. Lehman Brothers, a bank that deals in investments and is as old as the Civil War, a bank that saw the Depression through, has filed for the biggest Fannie Mae in the history of the United States of America.

Merrill Lynch, another reputed bank, was sold to the Bank of America. It was easily one of the most tumultuous days since the beginning of the fiscal crisis which was a result of many billion dollars stuck in disintegrating home loans crippling many a banks balance sheets, and even landing giants in the mortgage industry, Freddie Mac and Fannie Mae, under government control.

Barry Ritholtz, who works as the chief executive of a research firm called FusionIQ, and also authors a well known finance related blog called ‘The Big Picture’ said that we are currently during a dark and deep recession, and he doesn’t see it ending any time soon.

The end does not seem in sight.

The largest insurance provider in the world, the American International Group, is also struggling to stay afloat. David Peterson, New York’s Mayor, has allowed the organization to get an urgent loan through a subsidiary in order to stay floating.

Despite AIG’s stock going down around 60, Mayor Patterson said that the organization continues to be economically sound. Monday saw around 20 billion being wiped off the balance sheets of AIG.

Henry Paulson, the Treasury Secretary in Washington, who declined from offering Lehman Brothers an economical lifeline, remained impenitent; as the country’s administration sent strong signals that no more rescues should be expected through Washington, by the Wall Street.

Paulson said on Monday that he’d never considered it suitable that the taxpayer’s money be put at risk in order to provide remedies to Lehman Brothers, which had around 60 billion stuck in disagreeable real-estate mortgages.

This has resulted in Dow industrials dropping 504.48 points to end up closing at 10,917.51. This was the first occasion since July that they ended below the 11,000 mark.

This has been the sixth largest drop in points and the largest since trading started post the 09/11 attacks, when there was an average fall of 684.81 points. In terms of percentage, Monday’s fall of the Dow has been the worst ever since 2002’s summer. After October’s record high, the value of the index has reduced by close to a quarter.

During the time when chapter 11 was being filed by Lehman brothers, and AIG was making last ditch efforts to stay afloat, Merrill Lynch made plans to avoid going down the same line, and sold itself to the Bank of America Corporation.

When it comes to asset sizes, this deal will end up creating a financial Goliath, in competition with Citigroup Incorporated.

While the largest numbers of deposits in any American bank are with the Bank of America, Merrill Lynch holds the distinction of being the biggest and the most renowned brokerage firm in the world.

Ken Lewis, the CEO and chairperson of the Bank of America termed this deal as a once in a lifetime opportunity. Lehman Brothers filing for bankruptcy raises the concern that credit shall now get tighter still, resulting in big organizations, small companies and homebuyers within America finding borrowing money even harder.

A pool of 70 billion has been created by a collection of ten banks which include Citigroup, Goldman Sachs and J.P. Morgan. This pool can be tapped into by brokerage houses and banks in order to take care of short term needs for funding.

Another worry is that Lehman’s filing for bankruptcy would have an adverse effect on other fiscal companies and could spread to other stock markets around the globe, which in turn would further harm global and American economies.

A decision on the policy of interest rates was to be reached at a Federal meeting. Rates are expected to stay at 2, but certain economists are of the opinion that they could be lowered to offer some respite to Wall Street.
Cassiano Travareli has been educated in the finer points of the foreclosures market over 5 years.

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