The world’s money markets are facing a financial whirlwind today, after one of America’s biggest banks stared bankruptcy in the face, and ten major institutions agreed a 50-billion euro global safety net. The US Federal Reserve announced plans to support the market, essentially allowing banks a wider choice of assets as collateral for loans.
America’s fourth-largest bank, Lehman Brothers, is set to file for bankruptcy, applying for Chapter Eleven protection to allow it to restructure. Britain’s Barclays Bank had explored a rescue plan, but ultimately walked away. Lehman’s failure to find a white knight saviour makes it the latest victim of America’s sub-prime housing crisis. Years of bad loans and risky mortgages have left many financial institutions on the brink; soaring energy prices have merely added to the turmoil.
Reaction has been swift. Starting in the far East markets this morning, traders were bailing out of the dollar and following their basic instinct: safety first, ask questions later.