Published: Tuesday September 16, 2008
The fourth-largest US investment bank, Lehman Brothers, has filed for bankruptcy protection, dealing a blow to the fragile global financial system.
The news led to sharp falls in share prices around the world, and officials took measures to reassure markets.
Lehman had incurred losses of billions of dollars in the US mortgage market.
Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America, the latest twist in a dramatic turn of events on Wall Street.
US Treasury Secretary Henry Paulson said the US was “working through a difficult period in our financial markets right now as we work off some of the past excesses.”
But he added, “The American people can remain confident in the soundness and resilience of our financial system.”
However, he warned that uncertainty remained and it was likely that there would be further “rough spots” ahead before the market was corrected.
Turmoil would continue in financial markets until the housing correction was completed, he added.
Paulson said he was committed to working with regulators in the US and abroad, as well as policymakers in Congress to take the necessary steps “to maintain the stability and orderliness of our financial markets.”
He gave no details of what such steps might mean.
Earlier in the day President George W Bush said, “In the long-term, I am confident that our financial markets are flexible and resilient and can deal with these adjustments.”
Tumbling bank stocks
Lehman’s demise is being felt around the world:
n Stock markets and the US dollar have tumbled in reaction to Lehman’s collapse, with banking shares hardest hit. UK bank HBOS closed 17.6 per cent lower.
n Central banks have moved to reassure markets. The US Federal Reserve has broadened its emergency lending scheme and the UK and European central banks have injected a total of about US$50 billion into the financial system.
n There are fears AIG, once the world’s largest insurer, could also face collapse. It is taking steps to raise money after reportedly seeking a US$40 billion emergency loan from the Fed.
n AIG is the parent company of T&T’s American Life and General Insurance Company Limited (ALGICO).
n Bank of America’s move to buy Merrill in a US$50 billion deal means that three of the top five US investment banks have fallen prey to the subprime crisis within six months.
Source: Trinidad Guardian Newspapers
http://www.guardian.co.tt/business4.html
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