America’s Bank Crash: A Great Leap in the Dark – Financial Times Deutschland

Anyone on this planet with a TV or radio knows, Wall Street and the world are experiencing a kind of banking cataclysm, with some of the most venerated and successful investment banks disappearing almost overnight. So what does it all mean?

According to this editorial from the Financial Times Deutschland - and many other English-language articles we have already posted on WORLDMEETS.US, this crisis signals the end of what people in the finance sector call ‘moral hazard’ – a term that refers to the state-rescue of struggling financial institutions.

The editorial says in part:

“The real shock was delivered on Sunday, when U.S. Treasury Secretary Henry Paulson rejected calls for a state bailout with a resounding “No.” Because no matter how gloomy the markets and balance sheets appear – until Sunday, the financial circles had lived by the motto that in case of an emergency, the government would open its coffers … at least for the moment, both the government and Federal Reserve have removed the safety net. … The era of proud investment banks reigning supreme over Wall Street and bonus payouts reaching billions of dollars a year are definitely over.”

EDITORIAL

Translated By Ulf Behncke

September 15, 2008

Germany – Financial Times Deutschland – Original Article (German)
It’s a historic turning point for the giants of Wall Street and a great leap in the dark for the financial markets. Since Sunday, it has become clear that there will be no government intervention to guarantee the survival of even the largest U.S. banks.

Lehman Brothers, steeped in tradition and one of the largest investment banks in the world, will have to file for bankruptcy after finding that no private investor wanted to take over the crippled institution, and after the government refused to come to its rescue. Merrill Lynch, another Wall Street giant, had to seek refuge in the arms of the Bank of America, since it obviously no longer possessed any independent means of survival.

The collapse of Lehman and the fire sale of Merrill show once again just how incredibly tense the situation is in the financial sector – despite the repeated positive rhetoric over the past few months about how the end of the crisis had been reached.

READ ON AT WORLDMEETS.US, along with continuing translated and English-language foreign-language press coverage of the unfolding banking crisis in the United States.