Lehman is in bankruptcy. Merrill Lynch is sold to Bank of America for $44 billion. Bear Stearns sold to JPMorgan Chase for $2.2 billion, after originally agreeing to be bought for approximately $500 million.
There is a fire sale on Wall Street firms, and it is all because of one nasty little word: greed. Bear Stearns had gotten so greedy that it had leveraged its own assets to the moon. Estimates have been put at $11 billion in equity supporting almost $400 billion in assets. This gave Bear Stearns an unbelievable leverage ratio of 36 to one.
So what should you do with financial stocks? If you own them, sell them. If you don’t own any, don’t buy any.
The financial debacle isn’t over. The SEC and the Fed keep brokering deals to keep the financial system from crashing, but they are doing it by applying band-aids to deep, gaping wounds. They are having one troubled company buy another troubled company. As comedian Dennis Miller said about Kmart’s blue-light specials, “Two of [crap] is more [crap].”
The financial landscape has been changed forever, and there are more changes to come.[Ed. Note: Keep your money safe during these shaky times by making smart investment choices. Companies with strong fundamentals are best equipped to withstand major market changes. But don’t be afraid of fluctuations in the market. These movements can offer you the perfect opportunity to profit.]