Another bank bites the dust. Last week shares in US mortgage giants, Fannie Mae and Freddie Mac, lost almost all their value after they were effectively nationalised by the US government.
Three down (including Bears Stearns) leaves Lehman Brothers as the next most vulnerable and their shares have come under massive pressure, losing more than 75 per cent of their value in the last four trading days. As I have said on a number of occasions, Lehman Brothers, like Fannie Mae and Freddie Mac, has a desperately weak balance sheet leaving it vulnerable to disaster if its trading partners and customers lose confidence.
Investors briefly gave a huge sigh of relief when the US authorities stepped in to rescue Fannie Mae and Freddie Mac and stock markets rallied strongly but really what was there to celebrate. Two banks responsible for a huge chunk of the whole US mortgage market had to be rescued; how bad is that?
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