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What is behind U.S. financial turmoil?

September 15, 2008 12:00:00 AM PDT
The United States financial markets took a serious nosedive on Monday after being hit by a double blow from Wall Street. Fears about the financial system's stability have rattled investors.The Dow dropped 504 points to close at 10,917. That is the biggest lost for the Dow since the September 11th attacks.

The NASDAQ fell 81 points to 2,179.

The financial scoreboard now shows that three of the top five U.S. investment banks have effectively gone out of business in the last six months. This past weekend, Merrill Lynch was sold at bargain basement prices. In addition, Lehman brothers filed Chapter Eleven.

The day after biting the bankruptcy bullet, the revolving door at Lehman Brothers was still bustling, ushering out the latest casualties of the 14-month-old credit crunch.

"I've got nothing but friends in there. And like I said, it's business, it's only business," said Managing Director Carmine Visone, Lehman Brothers.

While the exterior of the Lehman Brothers building continued to boast scrolling advertisements about what they can deliver, Lehman's $60 billion in bad real-estate holdings caused panic to light up the big board on Monday.

Digesting the news that two more investment banks fell victim to the worst housing crisis since the Great Depression wasn't easy, as evidenced by the Dow's drop of more than 500 points.

"In the long run I am confident to deal with these adjustments," said President Bush, trying to calm investors.

Meanwhile, the Treasury Secretary signaled the era of federal bailouts is over.

"I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers," said Treasury Secretary Henry Paulson.

However, the new financial landscape will still impact taxpayers.

"One thing you don't want to do is to be caught up in those emotional times to panic with those other folks," said Hugh Johnson, Johnson-Illington Advisors.

Bank of America called its $50 billion decision to buy Merrill Lynch the strategic opportunity of a lifetime.

"The combined company is a much stronger entity and will survive most anything as a result of the combination," said Bank of America Chief Executive Officer Ken Lewis.

As far as your investments are concerned, you will survive too. Experts say not to make any immediate moves. They say diversify when the markets settle down by putting your some of money into safer investments, which include money market and CD accounts. In addition, make sure your money is in insured accounts that cover all of your deposits.

 

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