Bank of America Snags Merrill Lynch for a Steal
Author: DanGibson Total views: 6 Word Count: 476
Surely we can expect the housing market to recovery soon, right? The failures of Merrill Lynch and Lehman Brothers suggest we are not close to that occurring. The mortgage market will be even more chaotic, meaning no money for real estate.
Lehman Brothers was founded in 1850. It is a massive investment bank with fingers in financial markets across the world. On the morning of September 15, 2008, it filed for bankruptcy protection with 613 billion dollars in debt.
The collapse of Merrill Lynch is even more troubling. It has a lot of bad mortgage debt, but had huge assets it was planning to sell off to cover the expense. Something changed enough that Bank of America snagged it for a measly price of $29 a share, an outright steal.
Make no mistake, the failures of these two stalwarts is an amazingly bad sign. These are not some small regional banks going down the drain. This is the equivalent of Google failing and selling out to Microsoft as a last gasp gesture.
The current financial market is an interesting one. We have never seen such a massive meltdown and yet so little a reaction to it. We are seeing events in the banking industry that have not occurred since the Great Depression and nobody seems to care.
How can this be? Ben Bernanke deserves a huge amount of credit. The Fed has been taking drastic action, but with a light touch. Many banks have been taken over, but it always happens over a weekend when media attention is low.
Why the silky smooth handling of the Federal Reserve has stopped a panic from happening, it has not been able to change a fundamental fact. The housing market and the security backing it are an absolute disaster.
How bad are things? We have reached a point where it the officers and board of directors of companies might be found liable for investing in mortgage securities because they are such bad investments.
That may sound somewhat interesting, but think it through. The backbone of the American Dream of homeownership is now viewed as a bad investment. Homeownership is the key to our middle class, so now what?
So, are we headed for the second Great Depression? With major banks failing, how can the small guys remain afloat? With no money in mortgages, how will people get cash out of their homes? In short, is this the end of the consumer America?
If we are going down, we will go kicking and screaming. The Federal Reserve is fighting with all its might. The announcement that banks from around the world will pool 70 billion dollars to help stressed institutions is huge.
Unlike the last Great Depression, the financial markets are intertwined. A depression in the US will be a depression worldwide. Nobody wants that to happen, so look for aggressive action to prevent it.
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