Investment firm carnage should make charities cautious - Financial indicator
Summary of the collapse of two US housing agencies and Lehman Brothers
In an unprecedented period of turmoil in financial markets, the US Government nationalised Fannie Mae and Freddie Mac, the two agencies at the core of housing finance in the USA which have been driven into difficulty by the credit crunch and weakness in the housing sector. Between them they have outstanding commitments of $5.4 trillion dollars, much of which is owned by international investors. Were they to fail it would have very substantial implications for the world economy and so this is an event of major international importance, one which shows how deep and all pervading the impact of the credit crunch has been. The action was not enough to calm financial markets and, as the pressure grows rather than declines, two giant investment banks became victims, Lehman Brothers was forced to close and Merrill Lynch to accept a takeover from Bank of America. These events reveal the true scale of the crisis that began to manifest itself a year ago. The implications are profound and will certainly mean that credit difficulties will persist and indeed could deepen from current levels. Charities must remain cautious in their investment policies while expecting further increases in the numbers of consumers facing financial difficulties.
Author: John Kelly
John Kelly is head of client investment at CCLA.
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