Tremors on Wall Street

When Wall Street employees came to work Monday morning, the world was a lot different than it had been. Overnight, two of the most important giants of the financial market had disappeared from the stage and agencies and reserve banks worldwide prepared for severe convulsions in financial markets. Lehman Brothers investment bank threw in the towel under the weight of $60 billion in debts and declared insolvency. All attempts to rescue the 158-year old company had failed. Even the government wasn’t prepared to throw them a lifeline. At the same time, the Bank of America swallowed up the equally distressed investment firm Merrill Lynch, paying $50 billion in their own stock for it. Since the loss of Bear Stearns, three of the five largest investment banks on the American financial stage have disappeared and people were wondering which one would be next.

That question was fleshed out during the course of the day. Bank United, Florida’s largest bank, along with Washington Mutual were seen as extremely vulnerable to collapse. The tremors on Wall Street also reached international financial institutions and insurance firms. Above all, main subsidiaries of British banking houses started to feel the effects. Shares of the Halifax Bank of Scotland had lost 30 percent of their value by early afternoon.

German banks also suffered market losses. By early afternoon, three major systems were under pressure: Commerzbank was down 15 percent, Deutsche Bank down 10 percent and Allianz 9 percent. In view of the unstable situation, the European Central Bank alone pumped 30 billion Euros (about $43 billion) into the market and The Bank of England put in 6.3 billion Euros (about $9 billion). The U.S. Federal Reserve had already announced on Sunday that it was preparing to increase liquidity in the market.

Politicians and the media have constantly tried to pray the deepening financial crisis back to good health, occasionally with some success. Despite the fact that they have begun to consider the real economic picture, spin-doctors were always successful in jawboning bull markets into existence as well as those that proved to be flash-in-the-pan successes. Symptomatic of the peoples’ increasing loss of confidence in their government’s economic policies is the fact that official government economic data is now looked at askance even in financial circles. This is especially true of inflation which private institutions believe to be twice as high as official estimates. When the Department of Commerce announced last month that second quarter economic growth had risen from 1.9 to 3.3 percent, the complaints came loud and fast. Noted economists John Ryding and Conrad DeQuadros said in the magazine RDQ Economics, “Quite frankly, we do not think the report passes the economic commonsense sniff test.” Still, it proved a major contribution to the rise of the dollar on currency markets.

But it’s getting difficult for the jugglers and liars because a possible catastrophe is looming for the U.S. economy. Just last week, Oppenheimer & Co. market analyst Meredith Whitney predicted, “The worst is yet to come.”