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From the August Review
By Patrick Wood, Editor
September 15, 2008
The immediate aftermath of the
Lehman Brothers bankruptcy will be a massive and manic flight to
liquidity and withdrawal of funds and credit from banks, S&L's,
insurance companies and brokerages, leading to more failures.
Nothing can stop it at this
point.
The stunning magnitude of debt
owed by Lehman Brothers - $613 billion -- comes to light because
of their public bankruptcy filing. No wonder that Barclays, Bank
of America and other potential buyers took a few sniffs at
Lehman's books and walked away.
The Lehman Brothers bankruptcy
is the largest in the history of the world.
Banks around the world who lent
money to Lehman must absorb immediate and huge losses of capital
and liquidity. Even if they eventually recover some of their
money, they won't have access to it until the bankruptcy is
completed.
Insurance companies (like AIG)
who issue insurance contracts against financial failure and
non-performance are next on the chopping block. Policyholder
claims could quickly overrun their ability to make good.
Investors have figured this out
already.
They paid almost $70 per share
for American International Group (AIG) last October. Today, some
of those could have sold their shares for under $6.00 per share,
a drop of over 90% in one year.
And who will rescue Washington
Mutual (WaMu)? WaMu is the largest savings-and-loan in the
United States, and is currently unable to raise additional
capital. Lenders and insurance companies are backing away.
Investors loved WaMu last
October when they paid over $37 per share. They could have sold
the same shares recently for $2.01 per share, for a loss of 94%.
There are a host of other
financial institutions that are on the ropes as well.
American investors and
politicians laughed at Fortis Bank when it released this report
on June 28, 2008:
BRUSSELS/AMSTERDAM - Fortis
expects a complete collapse of the US financial markets within a
few days to weeks. That explains, according to Fortis, the
series of interventions of last Thursday to retrieve € 8
billion. "We have been saved just in time. The situation in the
US is much worse than we thought", says Fortis chairman Maurice
Lippens. Fortis expects bankruptcies amongst 6000 American banks
which have a small coverage currently. But also Citigroup,
General Motors, there is starting a complete meltdown in the US"
American sentiment is rapidly
changing: Six thousand banks is a long way to go!
When chickens discover a
blemish on an otherwise healthy chicken, they will immediately
attack it and peck it to death.
The global financial market
players are just as merciless. |
