Published: Tuesday September 16, 2008
US stocks headed for a sharply lower open and Treasury bond prices soared Monday as investors reacted to a stunning reshaping of the landscape of Wall Street.
A series of events took out two storied names Sunday: Lehman Brothers Holdings Inc and Merrill Lynch & Co.
Stocks posted sharp losses in markets across much of the globe as investors absorbed a bankruptcy filing by Lehman and Merrill Lynch’s forced sale to Bank of America for US$50 billion in stock.
And perhaps most ominously, American International Group Inc (AIC) is asking the Federal Reserve for emergency funding. The world’s largest insurance company planned to announce a major restructuring yesterday.
The swift developments are the biggest yet in the 14-month-old credit crisis that stems from now-toxic subprime mortgage debt.
Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by US$60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions.
Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.
But many market observers have said for months that a cathartic sell-off is necessary for Wall Street to purge its worries over bad debt and the tight credit conditions that have hobbled the economy.
A scare and subsequent sell-off in the markets could establish conditions for a market bottom to form.
Dow Jones industrial average futures fell 372, or 3.3 per cent, to 11,086. Standard & Poor’s 500 index futures fell 48.00, or 3.81 per cent, to 1,210.50. Nasdaq 100 index futures fell 49.25, or 2.8 per cent, to 1,730.25.
Bond prices surged as investors fled to the security of government debt.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.50 per cent from 3.72 per cent late Friday. The dollar was lower against other major currencies, while gold prices rose.
The reduced headcount of Wall Street firms yesterday left Goldman Sachs Group Inc and Morgan Stanley as the remaining big, independent firms. The two are slated to report quarterly results today and tomorrow, respectively.
The shake up comes only a week after the government bailed out mortgage lenders Fannie Mae and Freddie Mac and ahead of big economic developments this week. The Federal Reserve is expected to make a decision on interest rates today.
Source: Trinidad Guardian Newspapers
http://www.guardian.co.tt/business1.html
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