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    Lehman Brothers collapse anniversary coming up

    The month of September is the anniversary of the collapse of Lehman Brothers. The bank was put into liquidation on the 15th September 2008, which then sparked a massive decline in asset prices around the globe. Now while the world is almost one year on from this calamity, it is still a long way from out of the woods.

    Immediately and since that major default a year ago, there have been a number of bank defaults on the one hand and government / central bank initiates on the other, to try and prop up weak and failing financial situations.

    After the Lehman Collapse, Bank of America took over Merrill Lynch, warren Buffett’s Berkshire injected 5 billion dollars into Goldman Sachs and in the UK HBOS had to be rescued with further government capital injections into RBS (Royal Bank of Scotland) and Lloyds.

    By the end of 2008 most global economies were into recession, if not officially, then definitely unofficially.

    Central banks have continued to do the one thing that they know best – keep interest rates as low as possible and boost the supply of liquidity.

    Over the weekend finance leaders from the G20 countries met in London ahead of the actual summit of leaders which will meet on 24th and 25th September in Pittsburgh USA.

    On the agenda are new requirements for a revision to banks capital adequacy requirements. i.e. just how much should banks hold as part of their capital – higher capital means lower risk, but lower profitability.

    The graph of bank shares to FTSE350 reflects an increase in caution in recent weeks. This with talks of greater regulation, the anniversary of Lehman’s collapse, talk of exit strategy from providing liquidity and also the pullback in shares in China are all factors that are negatively influencing the market.

    Source : Ecowin

    The fact is however that central banks have pumped around $ 2 trillion in liquidity into the global economy with a further $250 billion available via the IMF. They will be very wary of withdrawing liquidity too quickly and so while asset prices will be volatile, there is some underpin from central bankers.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2009-09-07, 18:02:57, by ian Email , Leave a comment
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