Lehman Brothers, the fourth-largest investment bank in America, has filed for Chapter 11 bankruptcy protection. Another major American investment bank, Merrill Lynch, has been sold to Bank of America. AIG, American Investment Group, also announced a reorganization of the company today. This followed a series of financial giants that crashed. First was the Bear Stearns buyout in March. The US Federal Reserve helped J.P. Morgan Chase bailout Bear Stearns, but not before its stocks fell well over 80%. Next was the buy-out of mortgage giants Freddie and Fannie Mac, whose stocks dropped over 90% before the Federal Reserve stepped in. The Federal Reserve acknowledged that without these giants, the economy would probably collapse. Therefore, they would be ran by the government until they became stronger, and more likely to hold off the loss of capital on their own. Now, Lehman Brothers and Merrill Lynch, with the former established for 168 years and the latter established for 94 years, will be gone along with the other giants. All of these companies have been in business for at least 30 years. Lehman Brothers' stock fell by more than 95% to 19 cents a share before it announced bankruptcy, because it couldn't find a buyer. Merrill Lynch stock soared by eight dollars, while Bank of America's, the buyer, fell 15% to $28.29. AIG's stock fell by 55% in After these new changes have been announced, the Dow fell by 2.5%. However, these changes don't only affect the US. Many Asian markets were closed, but India's Sensex fell 5.4%, Taiwan's fell by 4.1%, Singapore's down by 2.9%, and Australia's by 2%. The European economy was also hit hard by the news of the falling of the financial giants. The FTSE in London fell immediately by 2.8% while the Paris CAC fell by 3.5%. Asian markets are also expected to decline. These strength of the wake was also felt in Canada. The TSX, Toronto Stock Exchange, fell by nearly 5%. No one knows what to expect after this, because, in the words of Art Hogan, chief strategist for Jefferies and Co., "We've never witnessed this before."
Personally, I think the US government should also bail out Lehman Brothers. It looked to Bank of America and the British Bank Barclays for a buyer, but Bank of America instead acquired Merrill Lynch while the British bank pulled out of talks. However, one must also remember that Lehman Brothers caused this troubles on this themselves. They are going bankrupt because they let people who couldn't afford mortgages have them, which is completely irresponsible. They have no one but themselves to blame. If it wasn't for their irresponsible practices, then there is no doubt that America would be much better off than it is today.
Buying Merrill Lynch was a good move for Bank of America. By buying Merrill Lynch, they were able to become the largest brokerage in the world, with more than 20,000 advisors and more than $2.5 trillion US in assets. This will put them into a good position when the US economy becomes strong again. Again, however, we must realize that Merrill Lynch got themselves into this mess. Lehman Brothers was not the only bank that lent money to people that couldn't afford to pay it back - most banks did. Because of their dishonest practices, they went bankrupt, like any other company would. However, in this case, I think Bank of America benefited from this buyout, because, as previously stated, they were in a position to become a leader the financial industry once the economy recovers. We will have to wait and see what happens after these deals, and if Lehman Brothers will actually gets bailed out.
http://www.networkworld.com/news/2008/091508-wall-street-shakeup.html?fsrc=netflash-rss
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