Wall Street giant Lehman Brothers has fallen, Merrill Lynch has sunk into the arms of Bank of America and traders smell blood from global insurer AIG. Who’s next?
The New York Times has called this one of the most dramatic days in Wall Street’s history. The whole thing brings ominous tidings, says Fortune magazine. Expect more dramatic articles in the coming days as the media is whipped up into a writing frenzy.
Lehman employs around 3,000 staff in Asia and everyone must be on pins and needles waiting to find out what will happen to them. On the local front, only AIG among the big names mentioned in the news today, has a big consumer base in the Philippines, Philamlife being a member-organization of the insurer. (UPDATE: My local source says Philamlife has its own financial resources and will not be affected much by AIG’s troubles. I am waiting for an official statement from the company.)
But its no wonder gold prices are again on the rise (people tend to flock to gold whenever they are scared). This level of fear has gotten 10 big banks to come together and create a $70-billion fund to protect financial institutions from fallout coming from Lehman’s collapse.
The mechanics for this fund is not yet clear (for example, AIG is asking the Federal Reserve for a $40-billion lifeline to survive. Can it access the fund if the Fed demurs?). As it is, market watchers are concerned that bailing out companies in trouble may give financial markets temporary uppers, but it doesn’t mean the costs will not show up somewhere else. The US taxpayer’s bill, for instance.
All in all, this is a recipe for sleepless nights. Get ready for financial ramifications as this time, Wall Street’s troubles could really end up, in a big way, on our shores.
September 15th, 2008 at 10:33 pm
It’s horrifying to realise how much global damage has been done by several people who do not know how to pay their mortgages and debt properly…
These high-risk debtors defaulted on their debt, which paralysed US banks, which resorted to the Fed lowering the dollar’s interest rate, which in turn weakened the dollar and caused oil prices to soar (as a result of lower dollar purchasing power and investors shifting from stocks and the dollar to oil speculation), and finally causing widespread inflation, stagflation, unemployment and/or a looming global recession.
At the same time, the paralysed banks continue to bleed money (and even shut down or be taken over) due to these toxic losses caused by these irresponsible (and idiotic) debtors.
Simply horrifying… Irresponsible debtors triggered a global economic pandemonium…
September 15th, 2008 at 10:13 pm
Hi Salve,
How will the AIG problem affect my investments in Philam Asset Management? Do you think I should pull this out?
Thanks.
Mike
September 15th, 2008 at 6:39 pm
It’s frightening how fast the credit crisis has spun out of control and how quickly we are seeing financial giants falter and fall one after another.
I wonder how AIG’s restructuring will impact the Philippine operations.