How they see us: U.S. financial turmoil spreads

Because financial institutions are so closely linked, the continuing meltdown on Wall Street is chilling and increases concern over a global recession.

Just when you think the financial news from the U.S. couldn’t get any worse, it does, said Robert von Heusinger in Germany’s Frankfurter Rundschau. In a shocking turn of events, Lehman Brothers, one of Wall Street’s biggest investment houses, announced this week that it is going bust—which means that every European bank or fund that did business with Lehman is now at risk. Add to that the cut-rate sale of Merrill Lynch and the threatened collapse of AIG, one of the world’s biggest insurers, and it’s starting to look like Wall Street is completely melting down. “If things go really bad, taxpayers in Europe, including Germany, will have to pay billions of euros to rescue their own banks, which will reduce returns on pensions and life insurance and worsen our unemployment crisis. Thanks, America!”

It’s as if the “innermost sanctum of the global capitalist system” has “suddenly collapsed,” said Anatole Kaletsky in Britain’s The Times. Indeed, when the U.S. nationalized Fannie Mae and Freddie Mac two weeks ago, it essentially conceded “the complete failure of the biggest, most dynamic, most innovative and competitive markets that have existed in the history of capitalism—the Wall Street stock market and the market for U.S. bonds.” Nationalizing the two companies punished the stockholders severely, and the consequences for the world will be profound. Governments in Asia and the Middle East will now be extremely unlikely to invest in any U.S. bank for fear of losses, and because Western financial institutions are so closely linked, they will be similarly leery of European banks. Given that Saudi Arabia and China are huge players in global markets, this is a chilling development.

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