The current financial turmoil has started to meltdown after the falling of Lehman Bros and Bear Stearn follow by the capital assistance to Freddie and Fannie as well as AIG. How many more financial institutions are facing bankruptcy? How long will this crisis end?
US government has injected tax payers money (US$85B) into AIG to increase their solvency or liquidity on the expense of Americans. In addition, US is planning for another US500B to US$700B to rescue troubled investment banks. IS this viable and feasible? What impacts could US face in long-term?
First of all, US government bailout make more sense than private banking bailout. The reason is the undercovered risks and no one knows how big is the blackhole on the troubled bank. If the acquirer does not have strong financial and capital to withstand the hit for 1 to 2 years, it may trigger another huge bankruptcy that will hurt the market more seriously. As such, Bank of America must be prepared to absorb all the risks generated by AIG and we do not want to witness the second Lehman's destiny. Market consolidation is naturally better than government rescue where the risks are not spread to the nations. The troubled banking should shoulder whatever risks and crisis they have caused.
Secondly, how much can US government raise to rescue the credit crisis? We understand that US has already issued US$300B to US$500B since last year. Are they still viable and competent after approving another US$700B package to market? US reserve is far more less than US$800B and this will increase the burden of Americans in the world. Americans are carrying more debts than any other nations.
Thirdly, US will run into recession albeit they could rescue the current financial crisis. Government has spent all the future monies to rescue the US market and public development and infrastructure development will begin to slow down. This will aggravate the commercial market, properties and high tech sectors. US government will cut spending as well as other private sectors and their economy will revolve in shrinking direction. As a result, this will impact the rest of the world particularly in EU and Asia. Despite it, China is experiencing another setback after the dairy scandal and the world economy will move into depression.
Perhaps, US should only bailout those banks and finance institutes that have great impact to the world other than US only. As for domestic and smaller ones, US should encourage and allow merger and acquition or file for bankruptcy since they are incompetent and inviable. Thus far, I believe that the financial crisis is just in the midway and we shall see more in the next 6 months. Then, it will start to hit high tech sectors especially in IT sector. The recovery is anticipated to begin in early 2010 if not, 2nd half of 2010.
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