Lehman Brothers Fails and Merrill Lynch Is Taken Over
Lehman Brothers has filed for bankruptcy in the US, and Merrill Lynch is being taken over by Bank of America after a weekend of upheaval in the US. Stock Markets suffered on Monday as a result.
Wall Street banking giant Lehman Brothers is another victim of the credit crunch in the United States. The bank has filed for bankruptcy. Attempts by other banks to rescue it appear over the weekend floundered, and the US Government refused to intervene to save it.
In addition Merrill Lynch is about to be taken over by Bank of America in a $50bn deal. Thus, the US will lose two huge names in its banking sector.
The effects on world stock markets will inevitably be another plunge, and London’s FTSE 100 index opened 2.5% down on Monday morning, after Asian markets fell overnight.
The fall-out from the demise of the banks will be job losses at their locations around the world, with probable knock-on effects for the rest of the finance industry. Confidence will again be shaken as it is evident that the credit crunch is far from over. Pensions will be hit and, once again, mortgages will feel the pinch as banks tighten their lending belts once again.
One Wall Street banker said he had never seen anything like it, as years of silliness on the financial markets were being vaporised. Former US Federal Reserve chief Alan Greenspan believes that other major firms will fail, and they should not all be protected as the normal course is for winners and losers in financial arenas.
The fear in the UK is what the effects will be on the stock market and mortgages as inter-bank confidence will be hit. The Confederation of British Industry claims that the economy is already in recession and will take at least a year to recover. They say that maybe 500,000 jobs could be lost by the end of 2009. The failure of banks in the US will do little to boost the economy in the UK.
