The Unfolding of the Foreclosure Drama Reads like a Horror Film
The unfolding of the foreclosure drama starting with the taking over of mortgage giants Fannie Mae and Freddie Mac reads like a horror film. It stopped the financial system from totally collapsing. Dave Rovelli of Canaccord Adams of New York commenting on the move said, “It saves Armageddon from happening.”
But within the passage of 24 hours things began to look different. On 8th September 2008 the Federal Government seized the mortgage duo. On 9th September Wall Street became agog with talks about Lehman Brothers. The latter ranked fourth among the investment banks. It was crushed by the weight of its securities that were backed by mortgages and other property assets. The investors began to worry if Lehman had sufficient cash to survive the turmoil. Its talk with Korean bank owned by the state did not bear fruit. The USA government remained conspicuous by its absence. Before the day ended the stocks had fallen by half. Lehman had made its debut even before the Civil War and had come out from the Great Depression. It was now left with its market value being $5.4 billion – it being less than an online broker dealing in discounts like TD Ameritrade. As the week wore on the confidence of investors in Lehman steadily fell.
There was a meeting at the end of the week between officials from the Treasury Department, Federal Reserve and important Wall Street banks. They all gathered at the downtown Manhattan luxurious federal headquarters of New York. Henry Paulson of the Treasury was dead against the government stepping in to save Lehman. No bank was willing to do so either.
But egged on by the Federal Government and the Treasury, the Bank of America took over Merrill Lynch – another troubled house of Wall Street. Meanwhile vultures began to fly around the Manhattan head offices of Lehman – television cameras and people with phones and note pads. Lehman made hot gory news. Lehman had been created to serve the interests of the cotton farmers. It had weather the Civil War, World War II and even the destruction of its headquarters near the World Trade Center. Left with no alternative Lehman filed for bankruptcy.
There were five jumbo investment houses. Of these – Lehman, Merrill and Bear Stearns had been drastically cut down to size. Earlier Bear Stearns had sold itself to JP Morgan Chase.
The financial crisis seemed to have shifted to a high gear.
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