Hong Kong Today
今日香港
Local investors need protection in the wake of Lehman Brothers' collapse
雷曼出事 首要做好本地投資者保障
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Until investment bank Lehman Brothers got into financial difficulty, the American government had tried to arrest the fall of its financial institutions. The Fed and Treasury officers eventually decided to step aside and allow the Lehman Brothers to fall, resulting in a Black Monday for global stock markets. Though Hong Kong was able to avoid the misfortune  because it happened on the day after the Mid-Autumn Festival, which was a public holiday, the financial markets have been stunned and investors will, in the short term, be very worried.
Last week, US Treasury Secretary Henry Paulson gave the market a break by announcing the rescue of mortgage finance giants Freddie Mac and Fannie Mae. Attention then swiftly shifted to investment bank Lehman Brothers, a leading US bond dealer. Although the sub-prime mortgage crisis  had worsened, the situation had not peaked. But as large banks like Bear Sterns continued to be injected with capital, Lehman Brothers was seen as the weakest. Whether the American government would take action to rescue it had become a question of great concern.
Jim Rogers predicts collapse of more financial institutions
As a result, the Fed and Treasury officers who took steps to rescue the troubled financial institutions, took a stand in refusing federal backing for the company's troubled assets . Eventually, the company filed for bankruptcy protection faster than most investors had expected. As soon as the news was released, Asian stock markets nose-dived. The European markets that opened later also suffered the domino effect and plunged. After the Wall Street opened, the Dow fell by nearly 400 points before holding on for a while. But large financial institutions like AIG had already lost a large part of their market value.
Amidst the selling craze on Wall Street, the mainland on Monday announced lowering loan interest rates. The market sees much higher chances of the Fed cutting interest rates during its meeting on Tuesday. Originally, there were expectations that the monetary policy would be tightened. Now, however, it is expected to loosen. Despite the tendency for interest rates to fall, oil prices had not been pushed up as in previous rate cuts. It looks as if major market players have shifted focus from inflation to recession . So, even if the monetary policy has been tightened, they dare not become too aggressive in the commodities market.
As Lehman Brothers collapsed , other private financial institutions will naturally feel sadly unprotected. Well-known commodities investor Jim Rogers, who has always been bearish on the American financial markets, was quick to predict that other financial institutions would face collapse .
The Fed and Treasury officers should have expected such negative sentiment long before Lehman Brothers filed for bankruptcy. But what caused them to step aside coldly without offering a helping hand?
A possible answer may be that the US government is already heavily burdened by the bail out of Freddie Mac and Fannie Mae. The officers see a long line of financial institutions awaiting help and understand that the government cannot sustain its rescue action. It was forced to say "No" to Lehman Brothers, causing Lehman shareholders to bleed on Wall Street.
Another, somewhat ironic reason is that Lehman Brothers may be facing a situation that is not as bad as it seems. The possibility of Lehmen Brothers causing a domino effect in the markets is far lower than that of the two mortgage finance giants, as it still holds a lot of valuable assets . After careful thought, the officers may have come to the conclusion that because the consequences are acceptable, they might as well "save up for a rainy day". The two mortgage finance giants were in great debt and hence received help from the government, while Lehman Brothers still holds assets and hence can be left alone to fall.
Ever since the sub-prime mortgage crisis , US investment experts have been advising against buying financial stocks. The experience of Lehman Brothers share holders who struggled for almost a whole year only to lose their investments is proof of the truth in the saying that "a wise man should never court danger".
The financial operations of large financial institutions should be monitored
In the past year, Wall Street financial institutions that fell into trouble escaped bankruptcy with the help of their government. As the two mortgage finance giants were taken over, the financial sector referred to the crisis as a "financial tsunami". Lehman Brothers is the first large institution to file for bankruptcy protection . The ripples caused will spread to Hong Kong. As Lehman Brothers issues financial derivatives in Hong Kong, its fall can have either direct or psychological effects on the city. The extent of Hong Kong investors' reaction to the incident will be evident in the next few days.
From the point of view of the authorities, Lehman Brothers' bankruptcy is a threat derived from the sub-prime mortgage crisis , which has now entered a new stage. Now there is need to monitor the financial situation and operations of large foreign institutions in Hong Kong to ensure that the interests of local investors are reasonably protected.
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