Today, Merrill Lynch announced it will be acquired by Bank of America. It was also announced that Lehman Brothers declared bankruptcy. The two moves shook Wall St. and investors – the Dow was down about 4.5% on the day.
This was the worst one day crash since the 9/11/01 turmoil in the marketplace. Bank of America is one of the nation’s largest banks and will now be quite a bit bigger – adding to their group of acquisitions over the last year or two.
Lehman Brothers has lost billions of dollars over bad mortgage loans and they were unable to find a buyer for the entire firm to avoid the bankruptcy. There were rumors over the weekend that they had potential buyers, but that was only for a portion of the firm.
Tomorrow the Fed meets to discuss the economy and potentially adjust the fed funds rate which is currently set at 2% – many expect at least a 1/4% drop to this to set it at 1.75%. This could help many banks.
I’m no expert, but we need the fed to take immediate action and drop the rate by 50 basis points to 1.5% or even lower. This will allow many companies to lower their interest expense to help with their earnings on the next quarter earnings reports. This would also adjust the rates for consumer loans indirectly – home loans aren’t set by this indicator, but they usually follow suit. So more people could get into fixed rate mortgages and refinance auto loans – to lower their monthly expenses which would allow them to pay more toward their mortgage to avoid bankruptcy or foreclosure.
Tuesday will be an interesting day…more to be posted very soon…
