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Financial crisis takes a turn for the worse

The United States (and by consequence, the inter-connected world) economy took a steep loss in confidence over the past few days. After the last crisis where Bear Stearns almost went down precipitating a severe loss in financial confidence, the Reserve Bank in the United States had to step in and take the unprecedented action of guaranteeing it even when it was taken over in a deal that was guided by the Reserve Bank. This was some time ago, and there was a general impression that the majority of the losses had been disclosed, and that overall the economy was out of the worst. There would still be pain, but there were no major shocks.
Well, all that is now out of the window. Even at the time of the collapse and the fire-sale of Bear Stearns, there was a wide-spread impression that if there was a company that was the next in line, it was Lehman Brothers. And almost suddenly, within a space of a week, and more suddenly over the weekend, there was a major collapse. Such major iconic companies in the financial space such as Lehman Brothers, Merrill Lynch, and AIG. The concept that such major companies are in serious financial situation was a major shock to everybody.


And then the dominos started toppling: Lehman Brothers was not able to find a suitor since the Government was unwilling to give any guarantees and declared bankruptcy, Merrill Lynch sold itself to Bank of America, and AIG was looking for massive help:

Lehman’s bankruptcy filing, the biggest in U.S. history, followed Merrill Lynch & Co.’s decision over the weekend to sell itself to Bank of America Corp. Last week, the U.S. government took over Fannie Mae and Freddie Mac, the mortgage finance companies. Six months before that was the forced sale, backed by the government, of Bear Stearns Cos. to JPMorgan Chase & Co.
Yesterday, the Standard & Poor’s 500 Index fell the most since the September 2001 terrorist attacks. Shares in American International Group Inc., the largest U.S. insurer by assets, sank 61 percent, and representatives of other financial firms held talks on how to prop up AIG with $70 billion to $75 billion in loans.

Right now, almost no financial analyst is able to predict what the future holds; just that a lot of people the world over are in pain or will be in pain because of either the crash in the markets and reduction of portfolios, or because the overall slowdown is going to affect everybody. This will take time to overcome, and nobody is able to figure a possible solution.

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