There is a theory in finance and economics called the “Big Bank Theory” which asserts that governments — through the Central Bank or the Federal Reserve (in the case of the US) — will not allow a “big bank” to collapse because the economic impact of such occurrence will surely be great.
That was exactly the rationale behind last week’s bailout of the American International Group (AIG) by the US Federal Reserve (Fed).
It’s a sad — and scary — day for financial markets today.
Lehman Brothers, a global financial services firm operating for more than 158 years, filed for Chapter 11 bankruptcy after attempts to rescue it failed. The company went down with total debt amounting to $613 billion and losses amounting to $60 billion brought by subprime mortgage investments. More than 26,000 employees are expected to go unemployed.
And yet months ago, we thought the financial meltdown has already reached its peak when tens and thousands of employees in Citigroup, UBS, Morgan Stanley, and Siemens, among others, were laid off.
Also read: 126,000 more workers worldwide to lose jobs and Job losses in the Philippines
If you’re still wondering about the impact of the US subprime mortgage problem, just read the business news and you’ll see who the casualties are: the employed — or more appropriately, the ex-employed.
According to the latest news, the financial sector has announced — from January to May 2008 alone — that more than 66,000 people will be fired in the US and in other countries.
