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Economic Turbulence sparked by Lehman's collapse
The collapse of Lehman Brothers, one of the largest US investment bank has gravely upset the already fragile global financial system. All European Indexes sustained heavy losses, while the General Share Price Index of the Athens Stock.
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The investment bank had incurred losses of almost 3.9 billion dollars and the petition for bankruptcy protection resulted from its failure to find a buyer or a strategic investor, following Barclay's pullout on Sunday. At the same time, the Bank of America announced that it will take over Merrill Lynch paying 50 billion dollars. Both developments were triggered by the crisis in the mortgage lending market that dealt a blow to the US financial system.
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Established by three Jewish immigrants from Germany in 1850, Lehman Brothers had been at the forefront for 158, surviving the 1929 crash and the recession that followed. However, it failed to survive the financial crisis that has been plaguing the USA for about a year.
Barclay's withdrawal from a takeover bid and the US government's unwillingness to spend public money for its salvation led the bank to file for bankruptcy protection.
European stock markets started tumbling early on Monday morning, while analysts spoke of a black Monday.
Oil prices were also affected, as there was a widespread fear that the increasing financial problems would bring about a further fall in energy demand, pushing investors to other sectors.
The European Central Bank channeled 30 billion euros into the eurozone inter-bank market to ease the effects of the Lehman Brothers' bankruptsy, while the Bank of England is monitoring "carefully" the situation, so as to take measures if it is necessary.
In the meantime, ten large world banks, six of which are American, announced the setting up of a 70-billion-dollar Fund that will provide capital in case of lack of cash. Each of the participating banks will offer seven billions and each on of them will be entitled to up to one third of the Fund's reserves.
US President George W. Bush said Monday that his government was striving to ease the impact brought about by the crisis in the US economy. He noted that the readjustments in the financial markets could be "painful" for the personnel of those companies and those worrying about their investments. He stressed, though, that he had faith in the markets' ability to deal with the readjustments.
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