This year continues to be a dizzying spiral of institutional failures. As you can see below the fallout continues and it's not looking pretty.
Let's review what's going on:
- Lehman Bros. (the holding company) files for Chapter 11 as no buyer emerged to save the company
- Merrill Lynch, in a surprise announcement, sold itself to BofA for $44M
- AIG(American Insurance Group) is seeking capital through asset sales, cash infusions to avoid going under
- Federal Reserve has expanded it's lending capabilities
- Major Banks have created a $70B lending program for those banks in need
- Industrial Production declined 1.1% in August, far worse than expected and is likely to ease inflationary concerns for the FOMC meeting tomorrow
Banks and top brokers labored through the weekend to strike a deal for Lehman Bros., but alas it was not to be. It turns out that no one wants the bad debt on their books. I don't think many of the institutions left standing are feeling comfortable with their balance sheets, or the overall situation. Early estimates have debtors getting 60 cents on the dollar. It is unclear yet how firms that relied on Lehman for financing will fare.
The most stunning announcement so far came from Merrill Lynch, in being sold off to BofA. This tells us that Merrill could have potentially been a bigger problem than Lehman. BofA said they would be aggressive in cost cutting and analysts are seeing this as a risky move for the short term, but positive over the long term.
Another point to consider is the FOMC meeting tomorrow. Rate cut rumors abound......there will certainly be much to talk about and what direction that will take interest rates will be interesting. How that will trickle down to mortgage rates will be positive, but if lending standards remain tight, the effect will be minimal.
The Dow is currently down about 280 points and the European markets were about 3.5% lower on the U.S. news.
I hope that all these messes stop soon. I was caught up in in 8-10 years ago, but nothing like we've seen in the past 6-8 months.
It was interesting at the gym today. Glad I had my headphones (I ususally read). It was great channel surfing to watch what the different analysts and commentators had to say. The bottom line seems to be that we're not at the bottom yet.
I am actually glad to see this. The economy is going through a massive adjustment and the sooner it all happens, the better. I feel terrible to those who have lost money (myself included) and especially to newly unemployed staff, but it is unfortuantely a necessary evil. Sort of like the house prices and foreclosures--there is a long way to go, but the sooner the bad stuff runs it's course, the sooner we can get back to task.
Maybe when all the dust is settled the markets will be able to stabilize!
But...
When the stock market is bad, it is good for mortgage rates. Everyone looks to park their money in the secure bond market. Rates are already down some today.
Hi Ana. I have been watching with great interest. Such crazy times.
AIG is near death. Was AAA rated by standard and moodys.
Ken
Tony-I think this will playout relatively quickly as far as the failures.....I do think the impact will be longer term
Vickie- I agree, we are not at the bottom yet.
Coldwell Banker Ponderosa-Good point,I agree that we have a long way to go on this before we are back to a functioning system.
Gary, I hope so!
Rob & Jeanie-That's true treasury rates are down today.
Ken-Very true and scary.
Thank you all for stopping by!