Smart Borrower Blog

Lehman Brothers Takes A Tumble

Sep 12th, 2008 @ 5:19 PM by Alden Smith

It had to happen sooner or later – even on Wall Street, where it seems that the big banks are invincible, trouble rears its ugly head.  I have been hearing rumors about Lehman Bros, but it wasn’t until this week that things begin to come to light about the state of affairs at that firm.  Since Monday, the firm’s market capitalization has lost 78 percent, to about $2.5 billion from $11.2 billion.

Uncertain about what form a possible deal to rescue the firm would take, Wall Street sent its message, and shares of LB plunged to a 14 year low.  Jim Fehrenbach, head of Nasdaq trading at Piper Jaffray in Minneapolis, said “Lehman is a proxy for the U.S. markets to some extent.  Where Lehman goes so will the market in the short term.”

The Fed seems unwilling to do anything about their tumble.  Contenders for buyout appear to be Bank of America and Barclays, the British bank.  An influential investor said today that the U.S. banking system as a whole does not have the capital needed to get through the current credit crunch. (Reuters)
Other financial firms took a tumble today. Leading brokerage Merrill Lynch & Co Inc and American International Group Inc took a hit today, with ML dropping 11% and AIG losing almost a third of its value.

We are not approaching the end of this shakeout by any means.  In an election year, the new President will face a lot of hard choices to make the economy hum again.  It is not an easy task, for either the Democratic or Republican parties.  I am interested to see what happens in the upcoming debates, and where this economy is going to go this year.

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