The Quadrangle

Issue date: 10/1/08 Section: Op Ed

photo courtesy of forcechange.com

Last Tuesday was like any other morning, as I ventured down what seems like the never-ending stairs of Jasper Hall to retrieve the paper. I was torn between which one to reach for, USA Today, or The New York Times. It made no difference. Both publications had more than the usual amount of articles regarding our economic status. It was then I realized it was not a normal week for the Stock Market.

With all of these businesses merging, I was quite confused as to why things were crashing. My father, the head of Equity Trading at Northeast Securities, explained, "the Merrill merge was necessary. With Bank of America, the two companies combined and are creating a more powerful entity. They will be able to deal with most problems that they may encounter moving forward. Liquidity concerns centered around short term debt instruments, though not completely alleviated, had been dealt with in a much more proactive manner."

Though usually I look past the business section, I could not help but come across the turmoil regarding Lehman Brothers. It seemed appalling that such a serious company would file for bankruptcy. I could not comprehend how the credit crunch allowed so many citizens to acquire homes they could not possibly afford. What does that mean for the future? I know I am just a freshman in college, but what is going to happen to the real estate industry when I am looking for a home? It's not that far off when you think about it.

The next day I went on my daily walk down the Jasper staircase to find AIG the cover story of the USA Today. Oh no, another financial service company in trouble? It is not as if we needed more chaos after Monday. Fortunately, the $85 billion dollar cash infusion provided by the Federal Reserve seemed to have addressed the company's need for capital. Lehman Brothers just went under, yet AIG was being rescued. Why?

According to the staff writers, AIG would have harmed the broader economy had it gone under. In addition, my father explained, "Globally there was exposure to financial risk to millions of people: insurance carriers, policy holders, investors, pension funds, etc. They all would all have been severely impacted. It would have been far more reaching than the collapse of an investment bank."

"Will things be looking up for us today," I wonder as I grab Thursday's paper. Now Washington Mutual has put itself up for sale and its shares fell 13% according to marketwatch.com. What caught my eye, however, was the quote on the cover page of USA Today, "We've entered a period of tight credit- which could mean jobs lost, retirement plans pruned, college deferred and lifestyles diminished." Now we college students are being dragged into this?

How could these past four days become so out of control? My father explained to me in simple terms that leverage had created an unbearable pressure downward on the markets. "We were all witnessing the collapse of the financial services sector. Capital markets globally were reacting and overall confidence by investors in these markets became unstable."

Friday, the Dow was up 410 points, surprisingly. Could this be the end of the problems? I felt more at ease. Perhaps the roller coaster ride has ended? Well, let's not jump to any conclusions.

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