Finance in the News: Financial Failures of September, 2008

September 29, 2008 · Posted in Finance 

The month of September 2008 has seen dramatic and sometimes shocking upheavals in the United States economy that have had profound effects on the economies of other countries across the world. These upheavals include the failure of the United States’ largest savings bank and the federal bailout of a major American insurance corporation. What follows is a short summary outlining 3 of the most major of these:

  1. Lehman Brothers Holdings Inc. – A global financial services firm that deals in investment banking, fixed income and equity sales, trading and research, private banking and equity, and investment management, and one of the primary dealers in the United States Treasury securities market, Lehman Brothers filed for Chapter 11 bankruptcy on September 15th, 2008, marking the largest bankruptcy filing in United States history with a record $613 billion dollars of debt.
  2. American International Group, Inc. – AIG, a major American insurance corporation based in New York City, with headquarters located across the globe, suffered a massive liquidity crisis on September 16th, 2008 due to the downgrade of its credit rating. This prompted AIG to request a loan from the United States Federal Reserve (the Fed) to prevent the company’s complete collapse, which the Fed granted, marking the largest bailout the government has made of a private company in history (though smaller than the takeovers of Fannie Mae and Freddie Mac a week previous, it was not the same kind of deal).
  3. Washington Mutual – The largest savings and loan in the United States, Washington Mutual, was seized by federal regulators on September 25th, 2008, and an emergency sale was brokered to JP Morgan Chase for virtually all of WaMu. The remainder will be operated by the United States government. This is by far the largest bank failure in United States history, and while some shareholders and bondholders will be wiped out, the average customer is protected up to $100,000 by the FDIC.

These are just three of the large failures experienced during the month of September in this economic crisis, and it is important to note that AIG was bailed out by the government because it was so intricately entangled with the rest of the financial system of the US, whereas WaMu and Lehman Brothers were allowed to collapse because the ramifications of that collapse more affected those involved with these private companies than it would the fate of the financial system as a whole.


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