How quick was that? The rally in stocks following the bailout of Fannie Mae and Freddie Mac didn't last that long after after the Korean Development Bank confirmed it had ended talks to rescue U.S. investment bank Lehman Brothers. Lehman has announced it has lost $3.9 billion in the quarter, and the trouble is this is not the end of it. The problems with US banks will continue long after the bailout, and Lehmann Brothers is just the canary in the mine.
Lehman won't got the way of Bear Stearns, says the Financial Times' Lex column but the worries will continue. "Standard & Poor's on Tuesday heaped on more pressure, noting that the precipitous falls in the bank's share price would heighten doubts over its ability to raise further capital. Lehman now will have to make uncomfortable sacrifices. Regulators, meanwhile, have no time to pause for breath. Lehman looks in danger of ruining Fannie and Freddie's going-out parade."
Clearly, anyone who thought the nationalisation of Freddie and Fannie would stabilise the plummeting property market and help alleviate the credit crunch was wrong. The problems with the US economy go far deeper than that.