In just the past week the US experienced the largest bankruptcy filing in history, the stock market fell over 500 points, the largest drop since the markets reopened after September 11, 2001, and recovered almost as much with the government’s announcement for a federal bailout.
Lehman Brothers, a company that has been around for over 100 years and survived the Great Depression, is one of the latest in a series of unprecedented implosions in the financial sector. The magnitude of the Lehman Brothers collapse dwarfs the combined failure of WorldCom and Enron by several times.
Other casualties include IndyMac, Bear Stearns, the Freddie Mac & Fannie Mae bail out by the federal government, CountryWide’s likely buyout by Bank of America, and now Merrill Lynch which may layoff up to half of its 60,000 employees.
Insurance giant AIG, one of the largest companies in the world, lost 50% of its stock value in one day. Now crippled by more than $18 billion in losses tied to the worst U.S. housing slump since the Great Depression, AIG agreed to turn over control in exchange for a credit line of as much as $85 billion. AIG borrowed $28 billion as of September 17, according to the Federal Reserve.
Will we survive?
Yes! Although several banks have failed this year and others may follow behind, remember that a few decades ago there were over 1,000 failures – about one bank failure per day.
Oil prices have come down in most parts of the country as demand eased, and could likely fall even further. If that trend continued we could possibly even see gas prices follow suit and that may hopefully lead to lower food and other consumer prices.
America survived through the Great Depression, several recessions, turbulent real estate cycles, high interest rates and inflationary periods. With the government’s recent announcement of a $700 billion bailout, the largest in US history, where we go from here will depend largely on consumer psychology.