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September 15, 2008
Fear, Faltering and Failure On Wall Street
Sunday was no Sunday at the beach for Wall Street self-proclaimed masters of the universe. We'll have to see what that ultimately means for small investors. Venerable investment bank Lehman Brothers announced it will file bankruptcy; Merrill Lynch likely dodged that bullet by finally agreeing to be acquired by Bank of America; and meanwhile, insurance colossus AIG and S&L giant Washington Mutual teetered. Following round the clock meetings all weekend, surviving bankers agreed to backstop themselves with a multi-billion dollar emergency borrowing facility while regulators who refused any more full Bear Stearns style bailouts for non-depository institutions that also thought they too were too-big-to-fail did agree to flexibility (New York Times story) in capital requirements and emergency loan standards. The operative words were the F-words fear, faltering, failure: Headline of story by Eric Dash in the New York Times 5 Days of Pressure, Fear and Ultimately, Failure Story by Ben White and Jenny Anderson in the NYT Nation’s Financial Industry Gripped by Fear
In his New York Times column Financial Russian Roulette, Paul Krugman points out several key questions:
Even leaving aside the obvious need to regulate the shadow banking system — if institutions need to be rescued like banks, they should be regulated like banks — why were we so unprepared for this latest shock? When Bear went under, many people talked about the need for a mechanism for “orderly liquidation” of failing investment banks. Well, that was six months ago. Where’s the mechanism? Over at the Washington Post, Nancy Trejos sorts it out for small investors: The Effects at Home After Wall Street's Shake-Up.
Posted by Ed Mierzwinski at September 15, 2008 06:09 AM
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