by Dan Gibson
In startling news, people wake to a Monday where two of the behemoths of Wall Street and the financial world have gone down hard. The fate of Merrill Lynch and Lehman Brothers is scary and harbors the question of whether the mortgage market is dead?
The failure of Lehmans is scary. Formed in 1850, this was one of the biggest investment banks in the world. It made money in a wide variety of markets, but went bankrupt with an eye popping $613 billion in bad debt.
Merrill Lynch was funded in 1914 and is a stalwart of the financial world. This company provided services in just about every venue and was considered a pillar of the financial world. Facing insolvency, Merrill was purchased by Bank of America on September 15th.
I cannot emphasize enough that these failures should make you and me nervous. These are huge banking efforts that make much of the financial world go. Combined with the Freddie Mac and Fannie Mae takeovers, the warning lights should be flashing.
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.
While Bernanke has deftly kept people from panicking and rushing their banks, he can only do so much. The simple fact is mortgage securities are under massive pressures. Credit crunch does not begin to describe the problem.
The circumstances surrounding the real estate market are so bad that many larger investors will not put money into mortgages for fear of being sued by their investors. This is because mortgage securities are viewed as being so risky.
If mortgage securities are viewed poorly, the housing market is in major trouble. With no new money coming in, loans are going to be hard to get. A lack of liquidity will drive prices down and it could get very ugly indeed.
Many are suggesting another Great Depression scenario. It this a possibility? With banks failing right and left, including huge financial institutions, one can legitimately ask the question.
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.
Everything really comes down to Ben Bernanke and the Federal Reserve. If there is anyway to negotiate this mess, I believe he can get us through it. We may see a lot more bank failures, but it may be a health pruning.
About the Author:
Traditional banks may be failing, but we have hard money loans ready to go at CommercialLoanStop.com.
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