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.