Financial institutions face massive headaches

The recent economic failure in the western market, particularly the US has seen much of the American dream turned into nightmare. These are the few financial institutions that are facing the big crisis.

Let’s face it – The Fannie Mae and Freddie Mac mortgage bailout isn’t going to help maintain the standards of the American living we see all over the place today. A stunning US$5.4 trillion in potential home loan liability bourned by the US Government is almost equivalent to the total debts of the US. The fall of property market has seen numerous ‘financial adjustments’ in this short-term, painful moment for many financial institutions as more and more of these Once a big giant, has shrunk to half its size, temporarily.

Lehman Brothers, which serves the financial needs of corporates, governments and municipalities, institutions and individuals has a deep worry for itself as they’re one of the biggest victim in this ‘financial shift‘.

Lehman is suffering from an estimated potential liability of 340 billion pounds, which is almost to a quarter of the British economy, and their 25,000 staff which earns approximately 332,000 pounds/annum is now packing their bags. In a very unfortunate event for them, Lehman is to tell them the reserves do not have enough in their coffers to hand them their weekly wages.

Merrill Lynch on the other hand, taken by Bank of America with a US$50 billion all-stock transaction betters no less from the others.

“The root of the problem lies in the housing correction,” said Hank Paulson, the secretary of US treasury.

What happened in the housing meltdown at the moment as we understand from its mortgage bailout is that oil prices are dropping, houses are empty, liabilities of financial institutions are stockpiling and worse still, if the public do not free up this credit that they owe the bank, they can forget about new bank loans and credits. Financial institutions are facing a huge risk slapping in a few more borrowers. As credit markets are international, even Australia has been affected. But first, was US’s side-by-side cousin, the United Kingdom.

“The problem with the US government before is that they’ve been guaranteeing debts. If they have not be guaranteeing debts, nobody will be able to have borrowed such huge amount of money,” said Peter Schiff, Analyst and Broker, Euro Pacific Capital.

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