On Wednesday, Barclays announced it would buy Lehman Brothers for $2 billion. The British bank’s purchase would save about 9,000 jobs, according to reports. Lehman Brothers’ bankruptcy hearing began on Tuesday. CEO Richard Flud is set to testify before the House Oversight and Government Reform committee on September 25. With a tight deadline, AIG received a break from the federal government with an $85 billion emergency loan Tuesday night. The loan is in exchange for a 79.9 percent stake in the company. The emergency loan was provided to the company to avoid further damage to the economy and financial markets. AIG has 24 months to pay back the loan. In a statement Gov. Paterson said, “The deal that we have struck to stabilize AIG is the result of hard work and cooperation among officials from AIG, our own Insurance Department in New York, the Federal Reserve, the U.S. Treasury Department and others. We should all be grateful for the leadership they have all shown in recent days to bring us to this unprecedented development.” In what was being called one of the biggest financial crises since the days following 9/11,global financial services firm Lehman Brothers announced on Monday that it would file Chapter 11 bankruptcy protection. The move comes after failed attempts to sell the company to Barclays or Bank of America or generate help from the federal governent. The situation will soon send ripple affects throughout the economy as a result of the massive job losses. “The board of directors of Lehman Brothers Holdings Inc. (LBHI) authorized the filing of the Chapter 11 petition in order to protect its assets and maximize value,” the company said in statement. “In conjunction with the filing, LBHI intends to file a variety of first-day motions that will allow it to continue to manage operations in the ordinary course. Those motions include requests to make wage and salary payments and continue other benefits to its employees.” As of Tuesday the 158-year-old firm said that none of the broker-dealer subsidiaries or
other subsidiaries of Lehman Brothers Holdings Inc. was included in the Chapter 11 filing and all of the U.S.-registered broker-dealers will continue to operate. The company is exploring the sale of its broker-deal operations. Lehman Brothers’ bankruptcy comes on the heels of two other corporations headed
for turmoil. Also this week, Bank of America announced talks to save Merrill Lynch for almost $40 billion. AIG is also in danger of going bankrupt unless it can find billions of dollars to pay its debts. With a bank debt of $613 billion, $155 billion in bond debt and assets worth $639 billion, Lehman Brothers’ bankruptcy caused the Dow Jones to shed 500 points on Tuesday. The scene at the company’s Times Square headquarters was hectic and crowed with swarms of media and employees on the street. The scene
also made way for protesters who advocated that Lehman Brothers’ failure was the start of a major financial disaster. Mayor Michael Bloomberg held press conference to address the issue, along with
other top city elected officials. Bloomberg outlined the financial impact of the blunder on the city.
He said, “As sobering as the economic news is, the city is as well positioned as it’s ever been to handle turmoil on Wall Street. Like everyone else, I had hoped Lehman Brothers could be saved, along with the jobs that employ more than 12,000 people who live in the New York area. Lehman Brothers had provided countless New Yorkers with an opportunity to pursue the American Dream, and it’s a sad day for our city to see it close its doors. However, everyone is continuing to work to structure takeovers of various divisions of the company that will protect many of the people who have worked so hard to build them.”
Bloomberg also said that the loss of jobs would have an impact on the city’s tax revenue. Because of the number of jobs that one Wall Street company creates, families would be directly affected as well as
local government tax revenues. Comptroller Bill Thompson also gave his comments on the situation, saying that Monday was a “sad and stunning day” and that “thousands of people are losing their jobs and many are unsure about their futures.” During the press conference, Thompson cited the back-office workers and support staff who are suddenly out of work. “The city’s pension funds are healthy, and we are ready for the trying times that are no doubt ahead. New York City has weathered previous Wall Street troubles, such as the financial crisis of the 1970s, the stock market crash in 1987 and the burst of the dot-com bubble
only a few years ago. I have confidence in New Yorkers and our ability as a resilient city to create a stronger future,” Thompson said. In a statement from Gov. David Paterson, he called the bankruptcy deeply troubling news not just for Wall Street, but also potentially for the state budget. His office is assessing the situation within financial markets and wants taxpayers to know that he plans to take any action necessary to protect the state’s finances and economy. Paterson said, “Twenty percent of state revenue is derived from Wall Street.While the full impact of these events may not be known for months or even years, the fact that financial services firms that were able to survive the Great Depression, world wars and the September 11 attacks collapsed under the weight of the current financial crisis is cause for grave concern. While New York State has already made significant reductions to its revenue forecast by $2.3 billion for the current fiscal year,there are risks going forward.” In the political arena, both Sen. Barack Obama and Sen. John McCain have expressed their positions on the situation. Obama has been quoted
as calling Lehman Brothers’ bankruptcy as “the most serious financial crisis since the Great Depression” and has put blame on the Bush administration. He stated that while McCain is not directly to blame, he faults his political policies.
