The US government bailout of AIG is the latest rupture in the global economy.

That didn’t last long. Having reached this point, it’s hard to see how the US can turn back from a massive extension of financial regulation, starting with the derivative markets where AIG got into so much trouble, notably those for credit default swaps (CDS). — Quiggan

Big government is back. The bankruptcy of Lehman Brothers and the forced sale of Merrill Lynch, two of the greatest names in finance, mark the end of an era. But what will come next? History, of course, never repeats itself exactly. Circuit-breakers are in place nowadays to prevent a 1929-style slide into disaster. But when the financial system, left to its own devices, seizes up, as it now has, we are clearly in for a new round of regulation. Industry will be left free, but finance will be brought under control. — Robert Skidelsky, The Guardian

America’s financial meltdown: lessons and prospects. The fall of Lehman Brothers is final confirmation that the world’s capital does now have somewhere else to go. This event thus marks the beginning of the collapse of today’s international financial architecture, which has rested on very shaky foundations since Richard Nixon’s administration unilaterally dismantled the Bretton Woods system in 1971 and began to shape the new. — OpenDemocracy [via Larvatus Prodeo]

It’s not over yet. It’s important that everyone understands why Wall Street fell so sharply overnight and why our banks will be in the front line of selling this morning. Australian banks obtain about half their funding internationally and will have to raise about $120 billion overseas this year. Their overseas borrowing requirements will be hard if not impossible to satisfy over the next few months. — Business Spectator

Peter Fray

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