A Return to Black Monday

Wall Street stumbled mightily over the weekend with the simultaneous sale of Merrill Lynch to Bank of America and the bankruptcy filing of Lehman Brothers Holdings, according to The New York Times.

Another crisis looms on the horizon with American International Group (AIG) days away from bankruptcy. The last time Wall Street firms were in such dire straights was Oct. 19, 1987, Black Monday, when the Dow Jones fell 22 percent and several prominent firms collapsed under the weight of losses. Last month Harvard University professor Kenneth Rogoff predicted that the worst was yet to come in the U.S. financial sector. Many investors had hoped that the crisis was nearing its end, but the events of the last few days have proven otherwise.

The sale of Merrill Lynch, one of America’s largest brokerage firms, to Bank of America turns the once small Charlotte-based operation into a financial giant. Merrill Lynch’s nearly 17,000 brokers will be reorganized under Bank of America tutelage into Merrill Lynch Wealth Management.

Lehman Brothers had been searching desperately for a potential buyer until the moment it filed for bankruptcy. Lehman Brothers’ CEO Richard Fuld desperately sought government backing or outside intervention to save his firm, but was unable to secure either. Korea Development Bank seemed poised to purchase major shares of the firm last month, but the deal fell through amid fears that Lehman was on the edge of insolvency. Other foreign options included Great Britain’s Barclays, which also backed down from the potential deal.

The collapse of Lehman Brothers Holdings is a bad sign for the U.S. economy. Lehman was one of the nation’s largest financial institutions and one of Wall Street’s largest employers. The future of its employees and shareholders has been completely undermined during the last year as the firm watched its market value drop nearly 95 percent while suffering billions in losses.

The economic cancer which has completely shocked the U.S. during the credit and housing crisis has shown signs of a global spread in recent months. China has even experienced a severe slowdown despite being one of the world’s most tightly managed and regulated economies.

Source The New York Times:

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