American Bankruptcy and Asian Financial Markets

Lehman Brothers, one of the biggest five investment banks, declared bankruptcy. The bank has 100 subsidiaries and has a total debt of $620 billion against total assets of $640 billion. The stocks of the world’s biggest markets have fallen five percent in the greatest crash since the 2001 terrorist attacks.

The Lehman Brothers bankruptcy has had a strong impact on Asian countries while markets waited to see the extent of its effect on the rest of world. Yesterday the president of the European Business Association expressed his belief that the Lehman Brothers bankruptcy would not become a worldwide crisis.

Currently none of the European Banks are in potential danger due to the bankruptcy. Companies operating businesses have not been affected by this financial market crash, but losses at some American banks have topped half a trillion dollars. More bad news is the rumor that AIG, the biggest insurance company, may have to write off a large amount of bad debt. These developments however do not mean that America’s financial crisis will not lead to a crisis in the world economy.

The crisis has had a negative impact on Asian countries which are strongly tied to American economics. However, the U.S has a dynamic economy and adequate financial resources, in addition to its strong currency guaranteed by the productive capacity of the country. Moreover, the USA has been through many recessions. Economists believe that the American bank crisis will not affect Mongolia heavily since its economy isn’t fully integrated in the world economy, and more particularly that of America. As such the rise and fall of the American economy doesn’t cause as many or great a fluctuation in Mongolia as much as it does in other countries.

Our northern neighbor, Russia has a greater potential to be effected due to its integration in financial markets. Even though many Russians own assets in America, the owners are mostly international investors whose losses won’t greatly affect the Russian economy. Moreover, the country has abundant natural resources to feed its economy and its main trade partners are in Asia and Europe.

Given the depth and range of recessions since WW II, the European Union will look for a way to help to resolve the American financial crisis, a crisis which has also led to a decrease in gas prices in America but a doubling of prices in Mongolia.

However, our southern neighbor, China, has been badly effected by the crisis. China invested heavily in America and there is no guarantee it will not be hit by the financial tsunami. The investment by American businesses in China’s biggest cities represents a considerable risk to the Chinese social and economic situation. The financial crisis may lead to lower investment and fewer jobs.

We hope that the American financial “tsunami” will not greatly damage Mongolia’s economy via China. However, the crisis will affect the flow of aid and loans to Mongolia. Also, it is also bad news to the Mongolians who live in the United States.

U.S. President George W. Bush said, “I’m hoping to get through the crisis by keeping financial markets dynamic”. Yet, 20 years ago Nobel Prize winner Milton Friedman warned, “The government solution to a problem is usually as bad as the problem”.

It’s likely that America will get over the crisis quickly. But according to Barack Obama, a U.S presidential candidate, in order to get over it, there is a need to reopen more efficient and sophisticated free market economy systems so as to avoid a crisis that results from poor individual choices.