Lehman Shock

Wall Street Journal News Review (Sept. 16, 2008)

My brother, 'WHY?' Did I do some thing wrong? I just could not understand why you let me fall down, disappear to a place in the middle of nowhere. For 150 years, I have always been working hard, trying to be a good guy to make mom and dad happy and grant people around me hopes.

It is okay for me, but it is just not right, unfair, for my people. They are under my wings, not yet strong enough to be on their own. I just want you to know, I will never forgive myself, and YOU for what happened and is going to happen to them.

My message, for my people, my friends, even it is a heart wrenching, I have to say the only last word from me, "GOOD BYE, Live with Undying Optimism."

The author would like to dedicate his quotation to all men/women who are facing similar critical situation. Life will go on!!

AIG, Lehman Shock Hits World Markets
The convulsions in the U.S. financial system sent a surprising influences to the economy across the globe. Two Wall Street`s biggest firms looked set to exit the main stage and AIG (American International Group Inc.) turned to the Federal Reserve and New York for mercy.

Lehman Brothers Holdings Inc., in filing for Chapter 11 protection for its holding company, as opposed to filing for Chapter 7 liquidation (putting the entire company into bankruptcy proceedings -- gives itself more time and control of what happens to its various assets).

The inevitable fact of Lehman, with approximately 25,000 employees (10,000 to 12,000 of whom work in New York), lead to the feelings, ranged from sadness to anger. At 7:30 am, as many employees were already at their desks, Jerry Donin, head of global equities, "I am sorry it came down to this,...but please don`t let this define you." told the hundreds of people packed onto the trading floor. Meanwhile, feelings of sorrow was not difficult to find, for instance, "It`s just a shame it came down to this," said Lehman Stock analyst Roger Freeman.

After the 9\11 terrorist attack, the U.S. stock market suffered a worst daily point plunge in history. Financial markets were rattle by the immediate sales of Merrill Lynch & Co., Sunday, and the bankruptcy-court filing of investment bank Lehman Brothers Holdings Inc., which on Monday afforded to sell its most-prized businesses.

In stock markets, from Sydney to London and New York, the news caused many drastic, unpredictable selling of stocks. As a result, the major U.S. market indexes were down by 2%, the Dow Jones Industrial Average plunged 504.48 points, off 4.4% to its daily low of 10917.51, down 18% on the year. Besides, London`s FTSE 100 index dropped 3.9%, by Tuesday, Tokyo shares were down 5.1% and Hong Kong`s Hang Seng Index further fell 6.1%.

Banks are increasingly hoarding cash, they also starting to dump assets to raise capital. A mass sales of assets by the likes AIG and Lehman Bros. could flood the market, reduce their value, and leading to additional losses of financial institutions. Meantime, worried investors (with animal spirit) are abandoning huge amount of stocks, from regional banks to big conglomerates. Instead, they flooded back into the safety of Treasury bonds, sending yields on government debt to their lowest levels since April.

By the way, many economists, analysts, even the public have criticized the policy makers (Bush Administration as well as the Congress) on the problem of Lehman Bros. bankruptcy. They argued that Washington stepped in to help Bear Sterns Cos., Fannie Mae and Freddie Mac, but why it opted not to let Lehman survive.

Instead of saving Lehman, Fed officials designed a plan to try to save the broader market, after their study of new liquidity facilities carefully for month. One purpose was to improve these facilities more like the repurchase repos (investment banks get much of their short-term financing) markets themselves. In repo markets, broadening the kinds of collateral they would take from Wall Street firms coming to them for cash is required, anyway.

The Bush Administration has so far taken a largely ad-hoc approach to deal with credit crunch -- addressing problems instead of trying to get ahead of them. However, many market watchers say that is not going to be enough to cool down the current troubles, especially when asset prices drop and financial institution run into capital shortage.

Lehman shock has drawn global attention to the subprime-mortgage crisis. It is just the beginning of critical situation that mankind have to face as a reward to, what everybody eager for, that is profit, and the way they look at each other with fear, grief and suspicion when trouble comes. Why they do not trust each other, take action together, to just build up mutual understanding and trust among living being of the same kind, their only one kind, the kind of human.

(Source: WSJ, Sept. 16, AIG, Lehman Shock Hits World Markets, by Susanne Craig, Jeffrey McCracken, John Hilsenrath and Deborah Solomon)