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Global financial meltdown in realtime 2008.

Posted by Adrian on September 17, 2008

It has to be acknowledged that the last two days have been incredible, starting with the bankruptcy’s of Lehman brothers on the 15th September 2008, Merrill Lynch (separate investment bank Morgan Stanley could also be looking for a buyer) being bought by the Bank of America and the American Insurance Group is in a major default problem; in other words the US government (if they decide on conservativeship) is going to end up being the biggest insurance company in the world.

This is of course the beginning of ‘the’ biggest global financial meltdown since the Great Depression, Bear Stearn’s bailout and rescue was a precursor. Now the banking sector is in dire trouble, a liquidity squeeze will replace the credit crisis; and we will now see a liquidity ‘crisis’ envelope the finance world. The liquidity ‘crisis’ showed it’s self briefly in late 2007, then the Federal Reserve pumped so much money into the system, cuts rates to the current 2%; and took on huge amounts of debt – we saw some reprieve. Although a ‘reprieve’ as most commentators, economists, investors/traders, analysts jeez anyone with a gut instinct knew would only delay a major meltdown. Now we are facing that major financial meltdown globally.

Wall street is essentially going into a deep recession, whether the Federal Reserve is willing to cut rates (they didn’t last meeting 16th September 2008  ) they may eventually. Will this help? No, what is now unfolding in the markets, nothing on this planet can stop it. Fear, uncertainty and a slew of psychological factors will take place. No one likes to lose money, and the big players have asset pools that are shrinking rapidly. Unable to capitalize, or borrow to prop up capital bases, their ratio’s and spreads from equity to liability look predictably dire. If the banks go, so do the over leveraged businesses, medium and small. There is, I suspect a frantic restructure of business models, which in includes selling business units (or trying to), sacking staff, shrinking business down and reigning in debt.

Same with Europe especially the German banking sector which has connected closely to wall Street, refer to German Bank troubles, Credit crunch still on. Profit losses and writedowns in coming quarters. China could be a lurking problem, depending on Chinese desire to sell treasuries and US dollars; which I suspect is one of the main reasons the Federal Reserve decided to keep rates unchanged refer to (on speculation of a rate cut) Market meltdown on the cards when US markets open 15/09/2008. Asia on holiday, major indicies sell off feared . If Treasuries tank and the USD starts to melt refer to (with real time graph – Treasury Notes) Freddie Mac and Fannie Mae – US government takeover, there will be a capital flight out of America unprecedented in history. I think if the Fed does bail out AIG, we are going to see massive pressure on the Fed books; this could ultimately cause a major sell off of US treasuries and continue to weigh on the US dollar.

American economy is in such a precarious and risky state, we are witnessing history unfold.


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