This year 2008 is considered one of the most terrible fiscal years on record and will make the credit of the consumer even tighter, as the three firms in Wall Street filed for bankruptcy that worried the American investors and consumers as well.
The unstable predicament of American International Group (AIG), the fall of Lehman Brothers Holdings and the forced selling of Merrill Lynch all led to the plunge of the economic downtrend, which seems to be unending.
This seems to be the worst fall since the terrorist attack on 11 September 2001 and Wall Street is the most variably affected. Experts say that the result of this financial chaos, if you could call it, will be further credit tightening and even in the lending criteria offered for businesses and ordinary consumers.
There are advantages and disadvantages of the Federal Reserve decision of not helping the Lehman Brothers.
The Federal Reserve decision of not helping Lehman Brothers Holdings this time is imparting that the next financial company on the verge of difficulty will not be able to expect a bailout from the taxpayer. Moreover, it will create additional risks to the credit markets which will eventually make the business, retails and home loans much more expensive and more difficult to obtain.
Meaning to say, the person who is in need of a business loan for new operations of his company will not be able to get his money. The reason is the bank will decide to hold it for a while and reconsider the loan applicant’s position. This is the same case in buying a house. There is a good price of the house and the person is ready to buy, but if unable to obtain credit, a deal will not push through. It will indeed get shoddier.
Others contemplated that more banks will also fall short in relation to the recent problems in the financial markets since Lehman Brothers owns several banks as well. There is also some speculations that the failing financial sector could result to a bank run on deposits by clients, which I hope would not happen.
Despite the financial problems, the deposits in banks increased to 5 percent compared to last year, according to James Chessen, the chief economist of the American Bankers Association. Basically many people discovered that a bank deposit is still one of the safest and best investments nowadays.
In these times of credit crunch and a not so good shape of the economy, a currently bad financial state is just going to be worse.
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The Charleston Gazette
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