Global Markets Tumble as Major US Bank Fails and Brokerage is Sold

World equity markets tumbled Monday as Lehman Brothers, a major U.S. investment bank, sought protection from its creditors and Merrill Lynch, America's biggest brokerage, was acquired by Bank of America. VOA's Barry Wood reports that the Dow Industrials lost more than 500 points, or 4.5 percent of their value.

It was a tumultuous day on Wall Street as Lehman Brothers failed to find a merger partner and sought protection under the U.S. bankruptcy laws. The New York firm employs 25,000 people worldwide. Analysts say its shareholders will likely be wiped out and its bondholders could receive only 60 percent on their investment.

The end for Lehman came after three days of meetings chaired by the U.S. Treasury and the Federal Reserve, the U.S. central bank, failed to find a merger partner for the firm. In recent months, Lehman Brothers had been hammered by losses triggered by the weak U.S. housing market.

Treasury Secretary Henry Paulson said the government was unwilling to commit taxpayer money to rescue Lehman as it had with its rival Bear Stearns six months earlier.

Analyst Peter Wallison of the American Enterprise Institute here in Washington applauds the government's refusal to bail out Lehman.

"If Bear had been allowed to fail [in March 2008], the psychological effect on the market would have been enormous and there might have been runs on those institutions," said Peter Wallison. "The difference with Lehman today, in my view, is that there is a lot more confidence in those institutions now."

Meredith Whitney, a securities analyst at Oppenheimer in New York, says the 13-month-long credit crisis is not yet over. She warns that Lehman's collapse could pull huge amounts of money out of the world economy.

"This is traumatic across the globe," said Meredith Whitney. "Most importantly, it pulls liquidity out of the global economy. So, to date, $3 trillion less liquidity is flowing through the market than it did last year."

Whitney says the trauma on Wall Street will slow economic activity worldwide.

The shares of U.S. major financial institutions were down sharply on Monday. The decline on Wall Street was more than four percent, with the Dow Jones Industrials registering their biggest daily decline since the September 11, 2001 terrorist attacks.

European markets were down about 3.5 percent. Oil prices also tumbled on the expectation of economic slowdown and reduced demand for petroleum. Oil traded at less than $100 a barrel for the first time since March. The price of oil has retreated 30 percent from its July high.