First the 5th largest investment bank, Bear Sterns falls, with a bailout by JP Morgan, supported by Fed $29 billion. Then Fannie and Freddie, bailed out by Fed in full, then Lehman, the world 4th largest investment bank, whose bleak future is looking at bankruptcy, as Fed has decided that they cannot afford to continue the bailout and disrupt the self-correcting market and with its intent to tell the market that "you have to solve your own problem!".
Then came Merill Lynch, the 3rd largest investment bank, who knows that they cannot wait for a public fund, and already in talks with BOA for a buyout before they follow the trail of Lehman. In fact, it has already been confirmed:
Washington Post Staff Writer Sunday, September 14, 2008; 9:59 PM
Bank of America has struck a $44 billion deal to buy Merrill Lynch, according to two people familiar with the negotiations, a merger that will unite the nation's largest consumer bank with one of its most celebrated investment banking firms.
Who knows what will happen to the other banks? However I am pretty confident that JP Morgan and Goldman Sachs will survive, and emerge stronger than before, Thus, it will be 2 great choice for investment if you were to invest in US banks.
With the above episode, no banks in the world will be spared from losses as they deal with one another. European banks will be the next to be greatly affected, followed by Asian banks. For instance, China banks are holding a significant amount of stakes in Fannie and Freddie, and it is only a matter of time when they have to divulge their losses. Also, there has been talks that Singapore DBS bank has strong dealings with Lehman. What will happen if Lehman goes into bankruptcy, which is more or less confirmed.
The banks' stock is going to tumble hard soon, but this also means that we will finally be reaching the bottom of the market. However, do note that this financial crisis will only end when US housing prices stop falling. Once it has stabilized, it is time to start going into the market to make a killing.
I will putting up the US mortgage rate monitor in my blog soon...so Stay Tune!
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