Wall Street Firms Crumble, Consumer Credit Crunch Continues

Wall Street was rocked by news Monday that two of the country’s largest investment banks had failed, with the New York Times reporting that Lehman Brothers will file for bankruptcy and Merrill Lynch will be sold to The Bank of America for $44 billion.

September 15, 2008

• Financial giants collapse

• Credit crunch to continue

BIRMINGHAM, Ala. - Wall Street was rocked by news Monday that two of the country's largest investment banks had failed, with the New York Times reporting that Lehman Brothers will file for bankruptcy and Merrill Lynch will be sold to The Bank of America for $44 billion.

"We woke up this morning and only two of the country's investment banks are still standing," Andreas Rauterkus, Ph.D., assistant professor of business at UAB said.

Rauterkus said the collapse Monday of Lehman Brothers and Merrill Lynch followed the sale of Bear Sterns to JP Morgan earlier this summer, and now just two of the country's five largest investment banks, Morgan Stanley and Goldman Sachs, are still operating unaided.

Victims of the credit crisis and billions in unpaid loans, the failure of the Lehman and Merrill could further the country's credit crunch Rauterkus said, as banks that remain solvent look to avoid the kind of risky loans that could result in the financial uncertainty of their enterprises.

"The credit crunch could get worse as banks are less likely to hand out loans, because it was the investment in securities that were backed by bad loans, in particular mortgages, that got them in trouble," Rauterkus said.