Proud financial institutions facing collapse
Wednesday, 17 September 2008
Fazle Rashid from New York
The US economy, arguably the most robust in the world, continues to be dogged by a deepening financial crisis. The worst of all there is no immediate end on sight. The financial giants are tumbling one after another.
Sundays are becoming the days of sensational disclosures. The government take over of two giant mortgage banks, Fannie Mae and Freddie Mac was announced on Sunday to avoid speculations.
There was another startling disclosure last Sunday. Bank of America has agreed to buy the troubled Merrill Lynch for roughly $50 billion, the New York Times reported last Monday. Lehman Brothers, another reputed securities firm will seek protection under bankruptcy law after it failed to find a buyer. The government declined to take it over and experts said it was ' hurtling toward liquidation'. These will reshape the landscape of American finance ' in a tumultuous year in which once proud financial institutions have been brought to their knees as a result of hundreds of billions in losses due to bad mortgage finance.'
An American insurance giant, Americas International Group (AIG) badly hit by credit crisis has sought a credit line of $40 billion from the government without which it cannot survive. The government will be reluctant to accede to the AIG request. Merrill Lynch which is worth $100 billion will be sold for $50 billion. Merrill Lynch is 94 years old. Also in trouble is another prestigious US bank is Washington Mutual. The global reactions to these developments in the US are already known. Merrill has lost more than $45 billion. The AIG was focal of attention at the emergency meeting of the Wall Street executives. AIG is planning to dispose off its aircraft leasing business. The investors have been afraid that AIG would have to absorb further write-downs in its already damaged mortgage securities and collaterized debt obligations and the company's shares are already down in the market.
A year into financial crisis few dreamed that the situation would spiral down so far. Before anyone could leave a sigh of relief, Lehman is on the brink of crisis. What will happen to Merrill's 60,000 employees and Lehman's 25,000 is still unclear. Bankers have been told that government would not bail out any financial institutions in trouble.
A group of ten major US banks have agreed to contribute $7.0 billion each to an emergency borrowing facility, signalling fear both at the Wall Street and Washington that grave dangers persist about future losses in other banks. Federal Reserve and Treasury Department will take a harder look on providing government support to troubled institutions. But they may relax regulatory requirements temporarily. Both fear that more bank failures are inevitable. In this process, The Federal Deposit Insurance Corporation may see its reserve dwindling.
Alan Greenspan, the longest serving federal reserve chairman who has long been a staunch opponent of government intervening in economy has reneged from his earlier stand and is now advocating for government's active support to shore up the capital base of the financial institutions in trouble. Henry Paulson, treasury secretary and Bernanke, chairman federal reserve said they had gone much further than they had ever wanted The next institution to fall could be AIG that was asked to raise $40 billion by Tuesday, the failure of which is most likely to lead to plummeting of its share in the market.
The US economy, arguably the most robust in the world, continues to be dogged by a deepening financial crisis. The worst of all there is no immediate end on sight. The financial giants are tumbling one after another.
Sundays are becoming the days of sensational disclosures. The government take over of two giant mortgage banks, Fannie Mae and Freddie Mac was announced on Sunday to avoid speculations.
There was another startling disclosure last Sunday. Bank of America has agreed to buy the troubled Merrill Lynch for roughly $50 billion, the New York Times reported last Monday. Lehman Brothers, another reputed securities firm will seek protection under bankruptcy law after it failed to find a buyer. The government declined to take it over and experts said it was ' hurtling toward liquidation'. These will reshape the landscape of American finance ' in a tumultuous year in which once proud financial institutions have been brought to their knees as a result of hundreds of billions in losses due to bad mortgage finance.'
An American insurance giant, Americas International Group (AIG) badly hit by credit crisis has sought a credit line of $40 billion from the government without which it cannot survive. The government will be reluctant to accede to the AIG request. Merrill Lynch which is worth $100 billion will be sold for $50 billion. Merrill Lynch is 94 years old. Also in trouble is another prestigious US bank is Washington Mutual. The global reactions to these developments in the US are already known. Merrill has lost more than $45 billion. The AIG was focal of attention at the emergency meeting of the Wall Street executives. AIG is planning to dispose off its aircraft leasing business. The investors have been afraid that AIG would have to absorb further write-downs in its already damaged mortgage securities and collaterized debt obligations and the company's shares are already down in the market.
A year into financial crisis few dreamed that the situation would spiral down so far. Before anyone could leave a sigh of relief, Lehman is on the brink of crisis. What will happen to Merrill's 60,000 employees and Lehman's 25,000 is still unclear. Bankers have been told that government would not bail out any financial institutions in trouble.
A group of ten major US banks have agreed to contribute $7.0 billion each to an emergency borrowing facility, signalling fear both at the Wall Street and Washington that grave dangers persist about future losses in other banks. Federal Reserve and Treasury Department will take a harder look on providing government support to troubled institutions. But they may relax regulatory requirements temporarily. Both fear that more bank failures are inevitable. In this process, The Federal Deposit Insurance Corporation may see its reserve dwindling.
Alan Greenspan, the longest serving federal reserve chairman who has long been a staunch opponent of government intervening in economy has reneged from his earlier stand and is now advocating for government's active support to shore up the capital base of the financial institutions in trouble. Henry Paulson, treasury secretary and Bernanke, chairman federal reserve said they had gone much further than they had ever wanted The next institution to fall could be AIG that was asked to raise $40 billion by Tuesday, the failure of which is most likely to lead to plummeting of its share in the market.