The unthinkable is happening and the world economy is buffeted about by three storms! The credit crisis on one hand, the bankruptcy of some of the largest US financial institutions and investment banks, and finally the inflationary storm that rockets energy and food prices, amid a general liquidity shortfall, i.e. where is the cash?
Lehman Brotherâ€™s â€˜bombâ€™ exploded yesterday causing panic to the international markets, as investors now fear that more financial and non- financial institutions are about to join the list of casualties of the worst credit crisis in modern history.
The scale of last weekendâ€™s failures (Lehman Brother and Merrill Lynch) and the fact that both the Fed and the US government avoided to punish the taxpayers for the blue-collar-boys mistakes has hopefully removed the false perception of safety that such big institutions share and will â€“ again hopefully â€“ force them to adopt a new risk perception based on real value/money going forward (too optimistic?).
Now, it is AIGâ€™s (American International Group) turn to fall short of cash. The largest by fixed assets American insurance company is urgently seeking a cash-life-saving injection, valued from $70 to $75 billion in loans arranged by JPMorgan Chase and Goldman Sachs, in order to cover part of their credit crunch losses.
On Monday, AIGâ€™s stock price plummeted by 61%, a reaction towards the credit rating downgrade b Standard & Poorâ€™s and Moodyâ€™s Investors Service. Since the beginning of the year, the stock lost 92% of its value, and has been the company with the biggest losses in the Dow Jones index.
More bad news is definitely on its way, and I will try my best to keep you posted of any events of major importance.