Canada Reacts To U.S. Market TurmoilMonday September 15, 2008
CityNews.ca Staff
Photo credit: Chris Hondros/Getty ImagesThe stock markets in the U.S. are having a down day with the sudden failure of brokerage firm Lehman Bros., the latest giant to go down in a heap down south. Unlike Fannie Mae and Freddie Mac last week, the federal government has no intention of stepping in, leading to the disturbing sight of employees at the 158-year-old firm packing up their belongings and leaving the company they've called home for so many decades.
That was followed by the equally astounding news that giant Merrill Lynch was being taken over by the Bank of America.
The impact at home has been immediate, too, with the TSX plunging nearly 300 points by noon. The reaction on Bay St. ranges from worry to certainty that this latest problem is just a temporary blip on the financial map in a country that's having hard times.
"I was surprised by this," admits Mohit Arora. "Actually it's going to impact the Canadian economy pretty badly as well because I think Merrill Lynch and Lehman Brothers, they have operations in Canada."
But Chris Volarinha thinks the market will shake itself off and make a comeback. "I believe that is going to be great turnaround and better days to come as well. But with the way that things have been going down with the write-downs as well, it's just another black eye to the financial world right now."
It's all the result of the collapse of the subprime mortgage down south. What's that?
"The subprime ... is a riskier type of mortgage. The banks in the U.S. and investment companies were looking to expand the real estate market, so they started selling mortgages to people who, under normal circumstances, wouldn't get credit," explains 680 News business specialist Mike Eppel.
"There was limited paperwork, limited oversight, in some cases fraud and things were fine as long as real estate prices continued to go up.
"Then the market started to slow down. Mortgages started to collapse, started to feed on itself. The credit market dried up and Lehman Brothers, Bear Stearns earlier this year, Fannie Mae, Freddie Mac, they were all caught up in it ... It froze up the credit markets and has slowed down the global economy."
Some - like the Bank of American - are moving in and making a killing. But others are getting hit hard.
"There's so much wealth destruction," agrees Eppel. "You look at some of these banks on Wall Street which were worth hundreds of billions of dollars just a year ago. They're seeing their market values cut in half. So in the short term, a lot of pain. Longer term, there will of course be wise investors and winners."
But for those losing money and their jobs, getting to that 'longer term' won't be half the fun.
