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September 19, 2008
This is perhaps the worst week that Wall Street's experienced since the Great Depression. We have seen
1. Lehman Brothers go bankrupt. The biggest bankruptcy ever!
2. Fannie Mae and Freddie Mac bailed out by US Treasury - Together Fannie, Freddie provide nearly 50% of mortgages in US (4 Trillion dollars of mortgages outstanding)
3. Merill Lynch forcefully merged with Bank of America
4. AIG, the biggest insurance company in the world bailed out by US Treasury.
5. Washington Mutual on verge of bankruptcy
6. Yields on the 3 month US Treasury are a mere 3 basis points practically nothing
7. Morgan Stanley considering merging with Wachovia!
8. Already we have seen Bear Stearns collapse
What does this all mean to us? Reduced liquidity in the markets. Distressed selling and perhaps reduced appetite for risk. A spill over effect is already on its way towards the GCC countries as the markets are showing early signs of loss of stocks most notably property companies that have fallen by 50% in the last few weeks (Emaar, Aldar, Sorouh etc).
What this effectively means is that the US dollar will suffer tremendously. US dollar did recover recently against all other currencies, but for a brief respite as these events will trigger another recessionary period for the US and most likely the World economoy because of its interconnectedness in the global sphere.