Sep 15 2008
The Financial Crisis
Lehman Bro. filed bankruptcy today. ML was sold to BoA yesterday. A.I.G. needed cash infusion (as Lehman did four month ago).
Looking back, when the whole thing started over a year ago, I never thought “the credit crunch” would explode into a full blown financial crisis. In terms of personal finance, I escaped the early “crunch”, got hot-headed, plunged back in and am now a wounded prey.
One lesson learned is the definition of “liquidity”. Gradually, I come to see it as an index of market participants’ expectation of return on investment. What I read about Lehman’s demise certainly reinforced this conviction:
… even to the bitter end, Lehman didn’t access the Federal Reserve’s emergency loan facility. If it had, everyone would have assumed it was in trouble.
I always wondered why the Fed kept pumping money in but nothing worked. One reason could be that the repos is really short term so it wouldn’t work out timing-wise. The other–just as I suspected.