Get ready for another volatile week ahead with all eyes on the financial sector (where else?).  Is it the Mother of All Mondays tomorrow? The saga continues with Lehman Brothers struggling for a bailout or a buyer, and Bank of America buying Merril Lynch?  Even AIG may announce a huge restructuring trying to stay afloat as the company stock plunged from close to $70 per share earlier this year to around $12 per share at Friday’s close.  It makes you wonder: Which companies are safe?  If it wasn’t so important for the economy, and costly, it would simply be sad. Kind of like watching the Rams lose to the Giants today.
But we don’t know which companies are safe because financial firms just keep shedding losses and revealing new problems. Perhaps one sign of changing times is that the government has indicated it will not bail out other companies facing bankruptcy.  I don’t know about you, but I think that’s fine. Enough is enough. If these financial institutions know that the government is around the corner waiting to bail them out, they won’t make the hard decisions necessary to either keep the company sound, liquidate required holdings and/or face bankruptcy. The U.S. government has signaled however that the private sector must step forward to solve this crisis and has been coordinating much of the talks.
Alan Greenspan summed up the financial sector carnage in an ABC news interview: “Let’s recognize that this is a once-in- a-half-century, probably once-in-a-century type of event.”
He also indicated that should other U.S. financial institutions fail in the future, the government should not try to save them all.
Speaking about the housing and credit crisis he says, “There’s no question that this is in the process of outstripping anything I’ve seen, and it still is not resolved and it still has a way to go. And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes. That will induce a series of events around the globe which will stabilize the system.”   His best guess forecast for when that happens? Early in 2009.
But the Federal Reserve is working hard to help where possible, and has widened the type and nature of debt/collateral the government will take on with an expansion of lending facilities. This is in addition to that provided earlier in the year and is only meant to fufill a short-term need. But it’s an important need, and if it helps keep a few companies afloat until the markets stabilize, then that’s probably a good thing. What a delicate balance this must be, and realistically the experts are simply making the best decisions they can in the current market climate.
We’ll see more quarterly earnings news this week from companies such as Morgan Stanley, Goldman Sachs, Best Buy, FedEx and even Oracle. Stock index futures are way down before the start of trading this week, but will there be a few signs of strength among the chaos?  Let’s hope so.  It’s going to get tougher before it gets better, yet I still believe we’ll turn the corner within a couple years. And most of us will just continue watching from the sidelines.
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