Tuesday, September 16, 2008

Major meltdown of US and global financial systems

NEW YORK: The upheaval in the American financial system sent shock waves through the stock market Monday, producing the worst day on Wall Street in seven years as investors digested the failure of one of its most venerable banks and wondered which domino would be next to fall.

The Dow Jones industrial average lost more than 500 points, more than 4 percent, its steepest point drop since the day the stock market reopened after the Sept. 11, 2001, attacks.

World stock markets also turned sharply lower Monday after a double-fisted blow from Wall Street news that Lehman Brothers had filed for bankruptcy and Merrill Lynch would be sold to Bank of America.

In Europe, the FTSE-100 share index closed down 3.9 percent in London, the Paris CAC-40 was off 3.7 percent and Germany's DAX 30 index of blue chips sagged 2.7 percent.

In Russia, where stocks were already suffering from falling oil prices and worries about political interference in business, the MICEX index was down 6.2 percent and RTS index was 4.8 percent lower.

The falls were led by insurance and financial stocks, with shares in French insurer AXA SA down 8.5 percent, Germany's Commerzbank AG falling 9 percent, and Britain's HBOS 17.55 percent lower.

"In the short term, we are looking at a fresh wave of weakness hitting financial markets,'' said Chloe Magnier, chief economist at Saxo Bank in Paris.

"I'm not optimistic about the coming months.''

Europe's major central banks moved quickly to calm markets Monday, pumping billions of euros and pounds into the financial system.

The European Central Bank loaned euro30 billion but said it received 51 bids for euro90.3 billion (US$127 billion) on its one-day tender with a bid rate of 4.25 percent - a clear sign that demand for cash is over the top.

Similarly, the Bank of England offered up 5 billion pounds (nearly US$9 billion, euro6.4 billion) in a three-day auction - but bids were nearly five times higher, at 24.1 billion pounds. (euro30.4 billion; US$43 billion)

Light, sweet crude for October delivery fell US$3.57, or 3.53 percent, to US$97.61 a barrel on the New York Mercantile Exchange, after earlier dropping to US$94.13, the lowest level since Feb. 14.

India's Sensex tumbled 3.4 percent, Taiwan's benchmark plummeted 4.1 percent and Singapore dropped 3.2 percent.

In Latin American markets also tumbled, with Brazil and Argentina falling the hardest, with 7.6 percent and 5.2 percent drops. In Mexico, the market slipped 3.8 percent, while in Chile stocks were down 0.7 percent.

In the United States about US$700 billion evaporated from retirement plans, government pension funds and other investment portfolios.

The carnage capped a tumultuous 24 hours that redrew U.S. finance.

Lehman Brothers, an investment bank that predates the Civil War and weathered the Great Depression, filed the largest bankruptcy in American history.

A second storied bank, Merrill Lynch, fled into the arms of Bank of America.

It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government.

"We are in the middle of a deep, dark recession, and it won't end soon. Here it is, and it is pretty nasty,'' said Barry Ritholtz, who writes the popular financial blog The Big Picture and is CEO of research firm FusionIQ.

And the fallout was far from over.

American Insurance Group, the world's largest insurer, was fighting for its very survival: New York Gov. David Paterson moved to allow the company to tap one of its subsidiaries for an emergency loan to stay above water.

"AIG still remains financially sound,'' Paterson said, even as the company's stock tumbled almost 60 percent.

Almost $20 billion was was wiped off AIG's balance sheet on Monday.

In Washington, Treasury Secretary Henry Paulson, who refused to toss a financial lifeline to Lehman, was unapologetic as the Bush administration signaled strongly that Wall Street shouldn't expect more rescues from Washington.

The American people should remain confident in the "soundness and resilience in the American financial system,'' Paulson told reporters at the White House.

Six months ago, Paulson moved to prevent the collapse of Bear Stearns, brokering a deal for JP Morgan Chase & Co. to buy the firm at a fire-sale price with Federal Reserve backing.

Earlier this month, he stepped in to help the government seize Fannie and Freddie in hopes of reversing the housing and credit crises.

But Monday, Paulson said he "never once'' considered it appropriate to put taxpayer money at risk to resolve the problems at Lehman Brothers, which was saddled with $60 billion worth of soured real estate holdings.

The result was one of the most momentous days in Wall Street history since legendary banker J. Pierpont Morgan helped broker the rescue of financial markets during the Panic of 1907.

The Dow industrials dropped 504.48 points to close at 10,917.51, the first time since July they have finished under 11,000.

It was the sixth-largest point drop ever and the worst since Sept. 17, 2001, when the average fell 684.81 points on the first day of trading after the terror attacks.

In percentage terms, the fall for the Dow on Monday was its worst since the summer of 2002.

The index has shed nearly a quarter of its value since its record high last October.

Broader stock indicators also fell.

The Standard & Poor's 500 index lost more than 4{ percent.

The Nasdaq composite index lost more than 3 percent.

Financial stocks fell as investors worried about the strength of banks' balance sheets. Washington Mutual Inc. 27 percent to $2 a share, while Wachovia Corp. fell 25 percent to $10.71.

While Lehman Brothers was filing for bankruptcy and AIG was scurrying to find financing to stay afloat, Merrill Lynch was avoiding a similar fate with a $50 billion transaction to become part of Bank of America Corp.

The deal would create a financial giant rivaling Citigroup Inc., the biggest U.S. bank in terms of assets.

Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest and most widely recognized brokerage.

"It was an opportunity of a lifetime,'' said Ken Lewis, Bank of America's chairman and CEO.

Lewis made the announcement at a news conference where he was flanked by a smiling John Thain, Merrill's chief executive.

The two put the deal together in 48 hours, while they were taking part in marathon discussions at the New York Federal Reserve over the weekend to save Lehman Brothers. Merrill stock rose a penny Monday.

One huge concern is that the Lehman bankruptcy will probably trigger even tighter credit - making it more difficult for everyone from large companies to small businesses to American homebuyers to borrow money.

It was a dark day for Lehman workers, too.

Many of them brought gym bags, shopping totes and Lehman travel bags to cart home personal files and pictures from their desks at the company's midtown Manhattan headquarters. Gawkers lined up behind metal barricades, and bystanders took pictures with their cell phones.

The failure of Lehman and probable job losses at Merrill are also a blow to the New York City economy, which is still trying to absorb a blow from shrunken tax revenues after the collapse of Bear Stearns in March.

The city and its outlying suburbs rely heavily on taxes paid by workers in the financial services industry.

In marathon sessions Friday night, Saturday and Sunday, government officials and the chief executives of major U.S. and foreign banks huddled at the New York Fed's fortress-like building in downtown Manhattan, trying to work out a way to save Lehman.

They failed at that.

But a group of 10 banks that includes JPMorgan, Goldman Sachs and Citigroup formed a $70 billion pool that banks or brokerages can tap to cover short-term funding needs.

There were also worries that Lehman's problems would infect other financial companies and spread to global stock markets, further harming the U.S. and global economies.

The Fed meets Tuesday to decide interest rate policy. It's widely expected to keep rates at 2 percent, but some economists believe it could lower them to soothe Wall Street's frazzled nerves.

The financial turbulence could also further derail consumer confidence in the economy just as stores prepare for the critical holiday shopping season.

The upheaval in the financial system also means that those consumers with marginal credit history will have an even harder time getting loans, cutting into consumer spending.

"The backdrop even without this was tough. This certainly adds to the worry level,'' said Michael P. Niemira, chief economist at

The International Council of Shopping Centers.

Republican presidential nominee Sen. John McCain assailed "greed and corruption'' on Wall Street and promised to clean it up, while his Democratic opponent, Sen. Barack Obama, blamed White House policies and said his opponent would only deliver more of the same.

Obama called it "the most serious financial crisis since the Great Depression.''

McCain declared in a new TV ad that "our economy is in crisis'' and that only he and his running mate, Alaska Gov. Sarah Palin, could fix it.

McCain also told voters in Jacksonville, Florida, "The fundamentals of our economy are strong.''

Thursday, September 4, 2008

New Craze

Been back in Malacca for a week already. I've been doing no reading for the coming finals at all. I'm currently watching a lot of television and that is all i am doing right now. THere's a new drama series from China called The New Shanghai Bund/ 新上海滩. Handsome actor, pretty actresses and great plot. What more can i ask for? I really enjoyed watching the old version of Shanghai Bund but this new 1 really entrances me. I'm already smitten by the actress that plays Xiao Yun's part. The gal who acts as Cheng Cheng also not bad. Hehe.

Besides that drama, i've been doing some catching up with my favourite drama 意难忘. Didn't watch it for months d and i really miss it lots. Li Zhu is back and she's as lovely as ever. However Ting Ting is sick. Sadz. Shan Ni don't hate Tian Zhu anymore and Jia Jia is trying her best not to be the third party. Sadly she's gonna die soon according to some sources. Haihz. Have to go back to PJ soon and can't watch my fav drama anymore..Grrr.

Friends planning to come to melaka during sem break. Having a real headache thinking of place for them to stay. I just realized that it's hard to find a cheap, clean and nice place to stay in Melaka actually. They plan to come on Sunday and stay for 3 days 2 nights. I'm worried now because it will definitely disrupt my drama schedule. Hmm don't care lah. My drama more important. I will finish my drama b4 layan them. Wahaha. Ppls dont marah arr if u read this. Lolz.