The bankruptcy of a major U.S. investment bank and other structural
problems in the U.S. financial sector have shaken stock markets around
the world today (Monday).
Some major European stock indexes dropped five percent at one point,
while some U.S. share indexes were off by as much as three percent.
President George Bush says officials are working to "reduce
disruptions" to the economy. He says U.S. financial markets are strong
and flexible enough to weather the problems in the long run. Treasury
Secretary Henry Paulson says the nation will move through the worst of
these problems in months, but warns of some market "turmoil."
Mr. Bush spoke today after the Lehman Brothers investment bank filed
the largest bankruptcy in U.S. history. The move followed crisis talks
over the last few days that failed to produce government backing for
the company, which prompted potential buyers to walk away from the
firm.
Meanwhile, the Bank of America agreed to acquire troubled U.S.
investment bank and brokerage Merrill Lynch for about 50 billion
dollars.
Investment banks arrange the sale of stocks and bonds for companies and often make major investments of their own.
In the case of Lehman, Merrill and insurance giant AIG, investments in
risky mortgage-backed securities lost billions of dollars.
Late Sunday, the U.S. central bank announced several initiatives to
make it easier for financial institutions to get emergency loans to
lessen potential disruptions to the financial market.
And a group of 10 global banks and securities firms pooled money to
form a 70-billion-dollar loan program that the companies could use to
help ease a potential credit shortage. Contributing banks can borrow
from the fund.