The Insanity of it All

23 September 2008

Not much has happened in the financial markets over the past 10 days (he said sarcastically):

- Lehman Brothers, the 158 year old investment banking powerhouse, filed for bankruptcy protection.  It is the largest bankruptcy in US history.

- Bank of America acquired Merrill Lynch, thus removing another major investment bank from the scene.

- AIG, one of the world’s largest insurance companies, announces that it is looking to raise $20 billion (with a B) in capital and sell $20 billion in assets to help its liquidity situation.

- Upon failure to raise capital and sell assets, AIG asks the Federal Reserve for financial assistance to meet its liquidity obligations.

- The Federal Reserve bails out AIG to the tune of $85 billion (with a B) in capital.

- Washington Mutual, one of the largest savings and loan companies in the US, puts itself up for sale.

- The US government announces a $700 billion bailout package to help stabilize the US financial system.  Rumors are that the bailout may eventually go higher than $1 trillion (with a T).

- The Chinese Sovereign Wealth Fund is asked to invest in Morgan Stanley.  The Chinese take a pass on the “opportunity”.

- Mitsubishi Financial Bank, Japan’s largest bank, buys a 20% stake in Morgan Stanley.

- Goldman Sachs and Morgan Stanley announce that they will exit the traditional investment banking business and become bank holding companies.

These are significant and “once in a lifetime” events.  While the actions of the US government may have temporarily stabilized the situation, the tickle down effect on people and companies will likely last for months (and perhaps years).  Fasten your seatbelts!

Over the next couple of weeks I will be writing about the impact of the financial crisis on the investor relations functions for publicly traded companies.

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