This is truly unprecendented. In case you haven't heard, Lehman is basically declaring itself bankrupt. AIG is searching hard for captial, and Merrill Lynch is bought by Bank of America. I hope people grasp the gravity of these events. These institutions have controlled corporate America for most of our nation's modern history. Its all changing now. It shows us the problems of too much leverage, too much cheap money, and the constant cycle of bubbles.
I'm now listening to Nouriel Roubini say that investment banks' model is "fundamentally flawed", and he says Morgan Stanley and Goldman Sachs may not even be able to survive. The problem with investment banks is that they require confidence from investors to stay afloat. That confidence has obviously dried up. Where large diversified banks (like Bank of America and JP Morgan) end up being okay is because they have deposits to fall back on. Investment banks have no such safety net.
Futures are down hard. Tomorrow will be a crazy day in the markets. It will reverberate throught the entire world.
Will this cause huge disruptions like a potential crash? Who knows. Most likely not. The Fed, the treasury and our government has done a good job of fooling the public into beleiving there is no reason to panic thus far, and I'm sure they'll figure out something for tomorrow. I'm guessing it was something like the Fed urged Merrill to sell tonight to take the heat off Lehman for folding. I'm sure they will be on tv trumpeting how great this Merrill-B of A deal is for the market.
What is funny to me is how the general public doesn't really care. They don't care about issues in the presidential election either. If we don't make our politicians and government employees accountable, believe me they won't do it on their own.
Its hard to feel bad for these bankers and people in upper management at these firms, as they don't deserve our welfare, but I do feel bad for the system. I feel bad that it was corrupted and allowed to come to this. And I feel bad that this whole thing will become a burden for us all, even though it was caused by the actions of a few.
To these bank heads, and federal leaders, I can only say "Brother, you asked for it!"