Take a deep one ...

The news from Wall Street keeps getting worse. The latest is that Merrill Lynch has agreed to sell itself to Bank of America to avert its deepening financial crisis, while Lehman Brothers has announced that it will file for Chapter 11 bankruptcy.

The sight of these once proud ‘Masters of the Universe’ brought to their knees, is a humbling moment for the financial sector. However, I can’t help but feel a fair amount of déjà vu. Haven’t we seen this before? (Black Monday – 1987, Long Term Capital Management 1998, Dot Com 2000) The sceptic in me says this is not a wake-up call, as some describe it, rather, we are experiencing a periodic market correction, which is required to address a systemic problem in the global economic system.

Such histrionics are interesting, but on a more immediate note, how much more pain are we yet to go through? Back on Wall Street, even as Lehman and Merrill’s futures were being decided, another crisis looms as the insurance giant American International Group (AIG) begins to teeter. New Times reported that AIG has sought a $40 billion lifeline from the Federal Reserve, without which the company may have only days to survive.

Bankers around the world are bracing themselves how the markets will react to the weekend’s events. Here in Asia, trading this morning has seen U.S. futures and the dollar tumble. Traders have been using terms like “mayhem” and “cathartic sell-off” to describe what is happening.

It’s a truism to say that how things play out over the next couple of days will have serious implications for the global economy and the extent to which it can be said to be in a recession. Once the dust settles, however, it will be interesting to examine the ravaged economic landscape. Hopefully, people (in both the private and public sector) see the opportunities for enhancement and take the time to redesign, rather than blindly rebuild, the financial sector. In the meantime, brace yourself and take a deep one …

(NYTimes - Lehman & Merril, AIG)