Black Monday !

Lehman Brothers office in Wall Street

This is a famous term in the Wall Street. Every traders nightmare is this. And that is about to happen. The monday that initiated the "Great Depression" in 1930 is called the Black Monday. Can today, the history repeat itself? What will happen if this monday indeed becomes the beginning of the biggest depression that we have ever seen? Or will the take over of Merrill Lynch by Bank of America, smoothen the crisis? What is in store for the Asian Markets?

There are so many unanswered questions and we shall get the troublesome answers in few more hours, when the NYSE and DowJones start the trading.

Lehman Brothers, one of the worlds most successful Investment Bank is about to file for bankruptcy. Lehman was one of the highly paying, cool investment banks. But today, it is filing for bankruptcy. No one has a clue as to what will happen to all the 25000 employees in Lehman. All their stock options evaporated in days. The stock price of Lehman was once worth 85USD, but on friday it was 3USD. Almost a 95% drop in stock price within a matter of few months. The CEO's stock options were worth almost a billion one year ago. but now, his stock options are worth 36 million. The worse is yet to come. If lehman indeed file for bankruptcy, the stock price will fall way below than this. There are so many companies that have invested in Lehman Brothers stock and bonds and Lehman will drag them all to mud.

Next is Merrill Lynch (ML). One of the oldest and most famous Investment Bank in Wall street. The company was worth almost 150 billion a year ago. But now, they have been acquired by Bank of America for 50Billion. But i would say, this is a good move by ML, as they can prevent themselves from becoming another Lehman.

If you had followed the events that happened in the last weekend, it was like a thriller novel. All the emergency meetings and the billion dollar funds and rescue attempts...Lehman and ML were two of the four pillars of Wall Street and American Banking system in general. They have collapsed and brought to their knees by this Subprime mortgage crisis. “My goodness. I’ve been in the business 35 years, and these are the most extraordinary events I’ve ever seen,” said Peter G.Peterson, co-founder of the private equity firm the Blackstone Group who was head of Lehman in the 1970s and a secretary of commerce in the Nixon administration. (During the Interview with the New york Times)

This leaves Singapore in a very bad state, as Singapore is one of the Financial hubs, where ML and Lehman are pretty strong. What will happen to the employees here? what will happen to students like me, who are just now starting to look for a job? Singapore is pretty much a manufacturing hub. If it is not Finance industry, Singapore will face serious problems.

This problem can continue to European Markets. I recently read an article in nytimes, that said the house prices in UK are suddenly falling in a rapid rate. If you can remember, this is exactly how the US credit crisis started. If the problem continues, it will result in the downfall of the European banks that have been pretty sterile to the credit crisis so far. Lets hope that doesnt happen.

Indian software companies could face various problems. They might loose a lotta money in this crisis. When the foreign companies fear about their future, the first spending they will cut is IT.

What is the fate of US Economy? What is most likely to happen? These are two important questions. Well, the answer lies in todays stock market. If the stock market reacts very very badly to the problems in ML and Lehman, then that is the beginning of the disaster. Because you see, failure in investor confidence will seriously affect the stock prices. If all the investors think their holding is risky, they might try to sell it off. If every single investor is plannin to do that, then we are doomed. The virus will then spread to all the other sectors, with falling stock prices and job cuts. And further increase in inflation and spiralling loss in consumer product manufacturing companies.

All the financial ministers have already started pleading the markets not to panic. There can be no panic in Japan, because the exchange is closed for a public holiday. But no one is sure how the other stock markets will react to this. This might as well change the way we see Banks and Investment banks for the next few years. There is so much at stake here.