On June 12, 2007 the news announced that two Bear Stearns hedge funds related to mortgage-backed securities were melting down. A company, whose shares were worth $172 on January 2007 and $93 on February 2008, was sold to JPMorgan for $10 on May 29th of 2008.
This led to a worldwide recession and the beginning of the fall of institutions as Lehman Brothers that filled for Chapter 11 on 15th September 2008, which in spite of General Motors, is still the largest bankruptcy filing in the US history with around of $600 billion in assets. The Creditors committee counsel created for the break-up process said:
«The reason we’re not objecting is really based on the lack of a viable alternative.»
Since 2007 there hasn’t been another Lehman but what started as financial products related to junk mortgages has spread far beyond this.
Problem areas now include construction loans, shopping centres, office buildings, any kind of mortgage and now even credit cards and a great amount of suspicion to financial institutions and brokerage accounts that led Goldman Sachs and Morgan Stanley to become bank companies.
All these consequences of the Lehman’s collapse help explain why regulators have been so solicitous to the stress test
The big stock market run-up of the past three months means that this is working or will we turn into another Japan were banks and the economy were stagnant for a decade?