Bankruptcy Articles

We have all heard about the problems in the banking industry, but has it really bothered anyone? Nope. At least until September 15, 2008 when two of the pillars of the financial world faded into oblivion and raised questions about the mortgage market as a whole.

Founded in 1850, Lehman Brothers was not some regional bank. The fact it was unable to weather the mortgage crisis is an incredibly bad sign because it was diversified across many markets. When it filed bankruptcy, it has $613 billion in bad debt.

The essential failure of Merrill Lynch is even more troubling. Saddled with bad debt, it was thought to have a solid plan for surviving. Obviously, that was not the case. With help form the Feds, Bank of America purchased Merrill for a song at $29 a share.

I cannot emphasize enough that these failures should make you and me nervous. These are huge banking efforts that make much of the financial world go. Combined with the Freddie Mac and Fannie Mae takeovers, the warning lights should be flashing.

The current financial market is an interesting one. We have never seen such a massive meltdown and yet so little a reaction to it. We are seeing events in the banking industry that have not occurred since the Great Depression and nobody seems to care.

How can this be? Ben Bernanke deserves a huge amount of credit. The Fed has been taking drastic action, but with a light touch. Many banks have been taken over, but it always happens over a weekend when media attention is low.

Why the silky smooth handling of the Federal Reserve has stopped a panic from happening, it has not been able to change a fundamental fact. The housing market and the security backing it are an absolute disaster.

How bad are things? We have reached a point where it the officers and board of directors of companies might be found liable for investing in mortgage securities because they are such bad investments.

That may sound somewhat interesting, but think it through. The backbone of the American Dream of homeownership is now viewed as a bad investment. Homeownership is the key to our middle class, so now what?

So, are we headed for the second Great Depression? With major banks failing, how can the small guys remain afloat? With no money in mortgages, how will people get cash out of their homes? In short, is this the end of the consumer America?

We are not going down without a fight if it does happen. Ben Bernanke and the Federal Reserve are taking drastic action. The news that a group of banks have create a massive pool for troubled banks to draw against is also good news.

The financial world is a mess. Unlike the Great Depression, the Federal Reserve is working to drag us through the crisis. We may end up bruised and bloodied, but I believe we will make it out the other side.

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