The Free Fall @ the Wall Street .....................

Not many know the reasons behind the free fall of the finance biggies at the Wall Street..

The top 5 financial arms of the Capitalist US were under siege..  

Lehmann Brothers applied for bankruptcy after takeover duly rejected by Barclays Bank..

AIG survives with some support .... Continuing inconsistent clouds hover over the Worldz biggest loan taking economy....

The Wall Street Boasts of the gr8tst financial arms in the worldz.. with the likes of ...

Lehmann Brothers

AIG

Fannie Mae

Freddie Mac

Merril Lynch

Morgan Stanley

JP Morgan

Sept 15 2008 turned out  to be the Sept 11 2001 of the Wall Street .. with all the investors losing trust in one of the most successful economies ... 

Not much is the difference between the 2 events in the chronicle of the US .... One thing should be noted tthat the fall of LB was all enough to clear the sentiments of the investors , who apparently believed tht it neared the end .. 

 As the news spread panic, anger , frustration , all crippled upon the nerves and as a result even strong hold high end profit gaining compz started to feel the heat of the collapse....

 As a result the word stability vanished shortly....

Least to focus on the fact that many of the top tier BFSI houses do lean upon the well being of the US economy ....   Hence a similar heat was witnessed @ the Indian version of the Wall Street  aka Dalal Street but with low intensity ... 

The Hidded Reasons for the inconsistency ...................

           "   The  sub prime crisis   "

The subprime mortgage crisis is an ongoing economic problem characterized by contracted liquidity in the global credit markets and banking system. An undervaluation of real risk in the subprime marketis cascading, rippling and ultimately severely adversely affecting the world economy.

The crisis began with the bursting of the United States housing bubble and high default rates on "subprime" and adjustable rate mortgages (ARM). Loan incentives, such as easy initial terms, in conjunction with an acceleration in rising housing prices encouraged borrowers to assume difficult mortgages on the belief they would be able to quickly refinance at more favorable terms. However, once housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically, as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher. Foreclosuresaccelerated in the United States in late 2006 and triggered a global financial crisis through 2007 and 2008. During 2007, nearly 1.3 million U.S. housing properties were subject to foreclosure activity, up 79% from 2006.

The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions around the world have reported losses of approximately US$435 billion as of 17 July 2008. Owing to a form of financial engineering called securitization, many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined. Stock markets in many countries declined significantly.

The widespread dispersion of credit risk and the unclear effect on financial institutions caused reduced lending activity and increased spreads on higher interest rates. Similarly, the ability of corporations to obtain funds through the issuance of commercial paper was affected. This aspect of the crisis is consistent with a credit crunch. The liquidity concerns drove central banks around the world to take action to provide funds to member banks to encourage lending to worthy borrowers and to restore faith in the commercial paper markets. The U.S. government also bailed-out key financial institutions, assuming significant additional financial commitments.

The subprime crisis has adversely affected several inputs in the economy, resulting in downward pressure on economic growth. Fewer and more expensive loans tend to result in decreased business investment and consumer spending. The initial leveling off in the housing market has become a downturn in many areas due to a surplus inventory of homes. The reduction and shift in demand versus supply has resulted in a significant decline in new home construction.

With interest rates on a large number of subprime and other ARM due to adjust upward during the 2008 period, U.S. legislators, the U.S. Treasury Department, and financial institutions are taking action. A systematic program to limit or defer interest rate adjustments was implemented to reduce the effect. In addition, lenders and borrowers facing defaults have been encouraged to cooperate to enable borrowers to stay in their homes. Banks have sought and received over $250 billion in additional funds from investors to offset losses.The risks to the broader economy created by the financial market crisis and housing market downturn were primary factors in several decisions by the U.S. Federal Reserve to cut interest rates and the economic stimulus package passed by Congress and signed by President George W. Bush on 13 February 2008. Both actions are designed to stimulate economic growth and inspire confidence in the financial markets..............