Jitters Spread As Us Banking Giant Collapses

The Age

Tuesday September 16, 2008

Vanessa O'Shaughnessy and Eric Johnston, With Tim Colebatch, Peter Martin

THE collapse of one of Wall Street's oldest investment banks, Lehman Brothers, has triggered a fresh wave of selling across global markets, and reinforced fears that the world is heading into recession.

Lehman Brothers' descent into bankruptcy came as the former chairman of the US Federal Reserve, Alan Greenspan, said the US credit crisis was a "once-in-a-century" event.

The 82-year-old banker said the crisis was "in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go".

The failure of Lehman Brothers came on top of a $US50 billion ($A62 billion) merger between broking giant Merrill Lynch and Bank of America, and a plan by 10 of the world's biggest banks to create a $US70 billion emergency fund.

As the turmoil intensified, the US Government appeared unwilling to inject more money into the credit market after its bailout of mortgage financiers Freddie Mac and Fannie Mae.

The drama in the US sent the Australian sharemarket tumbling by 1.8% to its lowest since January 2006. European markets opened sharply lower last night.

The pall of gloom over the markets prompted investors to speculate that the Reserve Bank of Australia would deliver another interest rate cut next month, on top of this month's 0.25 percentage point reduction.

Federal Treasurer Wayne Swan moved to reassure the markets, saying local banks did not face the same problems as US ones. "While our economy is not immune from international financial market turbulence, we are better placed than most countries to weather the storm," he said.

Lehman Brothers has lost money in high-risk investments that were tied to the low-end US mortgage market.

The investment bank's Australian arm has been suspended from the local sharemarket. Doubts remain over Lehman's 130 Australian-based workers, and the 25,000 worldwide. -- With TIM COLEBATCH, PETER MARTIN

FALLS AND RESCUES

? Merrill Lynch in $US50 billion merger with Bank of America.

? Ten banks in $US70 billion rescue package.

? Insurance giant AIG faces potential insolvency.

? Investment bank Lehman Brothers collapses.

BUSINESSDAY

? Hope, fear amid meltdown PAGE 1

? New financial world order PAGE 5

? Malcolm Maiden BACK PAGE

© 2008 The Age

Back to News Index | Back to Home