Another US Bank Hit By Credit Crunch!
September 15, 2008
In the news today, American investment bank Lehman Brothers has filed for bankruptcy protection. The fourth largest investment bank has made the announcement amid their growing financial crisis.
The bank has incurred billions of dollars in losses in the American mortgage market. This news will deliver a further blow to the global financial system as many other banks are involved with Lehman business.
It is unlikely that Lehman will receive help from the US Federal Reserve like Bear Stearns had been seen. This is because Lehman is an investment bank rather than a consumer institution with people owning checking accounts.
European and Asian stock markets have seen a sharp drop and the euro has grown in strength against the dollar. The fall of yet another financial institution has increased fears over the strength of the global financial system.
Both Barclays and the Bank of America were in talks to rescue the Lehman bank. Though, since both institutions pulled out over the weekend, Lehman Bros is looking even more likely to collapse.
Lehman Brothers employ around 25,000 staff around the world, including 5,000 in Britain. The file for bankruptcy protection will give the company time to reorganise and devise how they will pay off creditors.
This is now three of the top five American investment banks that have been struck hard by the credit crunch. It is not only financial institutions that are feeling the strain, AIG; the largest global insurer also has problems mounting. With exposure to the property market crisis, AIG have asked for 40 billion dollars from the US Federal Reserve to stay afloat.
So, it is not only the UK that is struggling financially. America was first hit by the credit crunch and it appears that the UK is following their trend. Our government keep trying to instil an opinion within voters that the UK economy will be OK. Looking at the market, I think that any simpleton can see that this is not the case. It looks more and more likely that the UK will sink far deeper into the financial crisis that we are currently seeing globally.
It is likely that the situation will get far worse before it gets better. I just hope that Britain is prepared for the financial turmoil on the horizon, rather than hiding in denial!
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