My husband called me at work today and asked if I had heard the news? I wanted to sound intelligent, but no, I hadn't heard any news all day. I had been sitting at my computer trying to optimize my listings and assist buyers.
He told me that Lehman Brothers had filed bankruptcy and that I should read about it on the internet.
After we hung up, I thought why should I read this stuff? It makes me really anxious about my own financial situation and who needs to be more anxious? However, I figured it would affect my clients in one way or another, so I read up.
Why did Lehman Brothers have to file bankruptcy?[Here's my disclaimer. I am not an expert on financial markets. I gathered my information from several different internet sources that seem reliable and I am putting what I consider the meat of it all in this blog post. For a deeper look into the U.S. economy and banking woes, I suggest you do your own search and read up on what is happening.]
Banks, financial institutions and Wall Street firms have made trillions of dollars in loans to consumers who did not have the ability to repay the debt, hence, the subprime crisis. These institutions are now 
writing off these losses and many of them do not have the capital to keep functioning, hence bank failures. I am aware that this is simplistic. There are other considerations, but most experts agree the spark for our current state of affairs, including the Lehman Brothers bankrupcty, was/is the subprime fiasco.
The federal reservce opted not to assist Lehman Brothers as they did Bears Stearn. The fed gave several reasons for this such as the economy is better prepared at this time to deal with the Lehman collapse than at the time of the Bears Stearn debacle as well as the fed doesn't want to become the first response in similar disasters. Liken it to a parent with several children. You assist one child, then the others are all standing there with their hand out thinking they deserve the help too.
AIG, the leading US-based international insurance and financial services organization, is in trouble too. Their troubles began with big losses in their mortgage investment portfolio. They were managing these losses until AIG's very large position in the derivative market put them in a compromised position. If AIG's credit rating falls, and it is expected it will, they will be forced to cough up so much cash that the companies survival is in doubt.
A consortium of 10 of the worlds leading financial institutions, including AIG, are pumping money into a fund that is aimed at assisting at risk financial institutions, but this is seen by many as putting a finger in the bursting dike. The experts I read today all agree that the dike will not get fixed until a way is found to stabilize the ailing U.S. housing market and stop loan defaults. Until then, money will continue to tighten up keeping buyers out of the market, people who rely on the housing market for their income will be hurting, consumers who are in tough financial positions will continue to default, housing sales and prices will continue to decline, and banks who need consumers to repay their mortgage and credit card debt to stay in business will continue to fail.
Times are tough and it's going to continue for another year, maybe more. That seems to be the only thing you can take to the bank.
Thank you for stopping by. Your comments on this post are welcomed and appreciated.
No one sold more homes in Del Norte County in 2009, 2010 and 2011--*in units sold and volume--than Fran Gatti. Put Fran to work for you!
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