The anniversary markets dread - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

The anniversary markets dread

Sep 9, 2009

It was around this time last year when two dozen of the world's most powerful bankers huddled up during a weekend. Brought together by the US Treasury Secretary Henry Paulson and Federal Reserve Bank of New York President Timothy Geithner, they were to devise a method to save an entity that had a balance sheet size of US$ 691 bn. Everyone assembled at the New York Fed was aware that the subprime-mortgage lending and the packaging of such inferior loans into investment papers had pushed the financial system to the breaking point. However, what followed created history in global financial catastrophe.Of all the quakes of 2008 this was the worst. Even worse than the fall of Bear Stearns in March and the takeover of government-owned mortgage lenders Fannie Mae and Freddie Mac and the salvaging of American International Group (AIG) in September. The bankruptcy filing of Lehman Brothers on 15th September 2008 brings back the most vivid memories of the crisis. This is because its aftershocks came closest to wrecking the world economy. The crisis that ensued from the frozen credit markets after the Lehman bankruptcy engulfed several other large entities. It even dwarfed the failure of Washington Mutual (WaMu), the sixth biggest bank in the US with assets of US$ 328 bn that the regulators sold off to JP Morgan Chase for US$ 1.9 bn. The move wiped out WaMu's 56,000 shareholders of record and left bondholders nursing billions of dollars in losses.

The fallen giants
 BankruptcyPre - bankruptcy
 dateassets (US$ bn)
Lehman Brothers15-Sep-08691
Washington Mutual26-Sep-08328
Chrysler30-Apr-0939
Thornburg Mortgage1-May-0937
General Motors1-Jun-0991
Source: CNN Money

Experts believe that what followed in the aftermath of this crisis only served to heal the wound rather than cure the ailment. Rather than strictly regulate institutions such as Bank of America and Citigroup or limit their expansion, the tax incentives and loan guarantees given to them by the US government gave an indication that these were entities that were just 'Too Big To Fail' .

Almost years after this crisis, the US and most large economies in Europe have managed to recover from recession. Global and particularly emerging markets have again limped back to optimism. Our domestic benchmark index - the BSE-Sensex - has crossed 16,000 levels. Does this mean that we have left behind the risks that surfaced a year ago? While the massive correction in real estate prices has certainly tempered greed, there is a collective opinion amongst bankers that bailing out large entities at the cost of taxpayer money is not in the best interest of the nation. The G-20 finance misters have a clear resolve to ensure that entities that put the interest of the economy at risk for their vested interests will be brought to task.

Is it time to change the idiom from 'Too Big To Fail' to 'Too Big May Fail'?


Equitymaster requests your view! Post a comment on "The anniversary markets dread". Click here!

  

More Views on News

Wait! Don't Chase Smallcaps Now (Profit Hunter)

Sep 18, 2020

Let the markets take a breather before you jump in.

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

A Contrarian View on Whether You Should Load Up on Small Caps podcast (Views On News)

Sep 17, 2020

Rahul Shah discusses whether the SEBI circular is the perfect time to start investing in good quality small caps

Is It Worthwhile Investing in Debt Mutual Funds As the Indian Economy Sags? (Outside View)

Sep 17, 2020

Two years since the IL&FS crisis that exposed the credit market, the COVID-19 pandemic exacerbated the credit risk, making debt mutual fund investment discomforting.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

I Recommended this Stock over Page Industries because it's Relevant to Doubling Your Income (Profit Hunter)

Sep 7, 2020

Things are not often what they seem in the market and how you can take advantage of this.

The NASDAQ Whale Could Harm Your Portfolio (Fast Profits Daily)

Sep 7, 2020

The discovery of Softbank pushing up prices on the NASDAQ will cause volatility in the market. Stay alert!

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Sep 18, 2020 03:15 PM

MARKET STATS