The Great Black Week

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The week is almost over and it is still dark, black that is, for Wall Street and probably for the rest of the financial world. The recent financial crisis in the US was triggered by Lehman Brothers when it filed for bankruptcy earlier this week. Being the largest US investment bank, Lehman is widely viewed as the largest casualty of the global credit crisis that stemmed from the US home loan market crunch that started in 2006. The US stock market was consequently in turmoil and plummeted to a three-year low on Wednesday and continues to be spiraling down virtually affecting the rest of the world’s share markets.

The financial scourge continued when Merrill Lynch & Co. struck a deal with the Bank of America for a sell out. AIG was also reported to be in trouble but was bailed out by the US Federal Reserve by pumping in $85 billion on Tuesday but still failed to reassure the panicking market. Morgan Stanley becomes the latest investment bank, Wall Street’s second largest, to be up for sale according to BusinessWorld. What’s next? Until then, fear and uncertainty loom.

In a world of free market capitalism, the government became the unlikely hero. The world’s top central banks (European Central Bank, US Federal reserve, and the central banks of Canada, Switzerland, Japan and UK) joined forces to bolster the seriously scarred global financial market by pumping more than $180 billion in extra funds. But the concerted effort is just a calming measure to ease the fears that are widespread in the moment. Does the situation need more fiscal intervention? I think yes, since I don’t see any reason why a government’s help would be set aside. At this point, every sector should be gearing towards one goal – saving the world from economic depression. A capitalist market has its own way of healing from this depression but it would take compromises and it is on this part that the government can dive in to avoid chaos.

So where is the Philippines in the depressing show? Actually, the Philippines is not spared of the whirlpool effect of the US financial crisis. Philippine share prices are crashing by three-digit points several times this week. The value of the Peso has once again weakened and went back to the P47 level against the US dollar. The banking industry became a focus of high financial risks as seven local banks disclosed their exposure to Lehman. But the BSP downplayed the scenario by declaring that the exposure is just 0.3% of the total banking assets; hence, there’s nothing to worry about. I believe Filipinos were quite receptive of that declaration and continued to be calm as they maintain a positive outlook about the banking industry.

Despite the gloomy weather in the global financial arena, I would like to believe that the Filipinos’ attention is actually diverted to the rally of oil price decreases from the aforesaid financial crisis. I bet a majority of the Filipinos do not even care about the stocks plummeting down. And this is sad. We always tend to be reactionary rather being proactive.

I think we, including our government (please, please, stop the bickering in the Senate!), just have to brace ourselves with what’s going on in the US and the rest of the financial world. Whether directly or otherwise, it will come to our shores and we will be experiencing what other countries might be experiencing right now. The week has been touted as ‘very historic’ by most of the economic analysts and could decidedly be a tipping point for a greater economic crisis.

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