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Down and out

They say that bad things happen in threes and if that’s the case then we’ve just seen the mother of all hat-tricks occur in the US.

First to fall to the credit crisis were Freddie Mac and Fannie Mae, which last week were rescued, rightly or wrongly, by the US Federal government.

It was the biggest corporate bail-out in history, worth £2.7tn, which is more than half the value of outstanding mortgages in the US.

As if that wasn’t bad enough, the weekend brought news that Merrill Lynch will be sold to Bank of America after writing down more than £22bn of assets in the past year.

It has been reported that Bank of America will pay about £16 for each Merrill share, which represents a 70 per cent premium on the closing share price on Friday.

And to top it all off Lehman Brothers filed for bankruptcy protection yesterday after failing to find a buyer.

Barclays and Bank of America pulled out of negotiations over the weekend when the US Treasury opposed using government money to help clinch a deal.

So with mortgage and investment giants falling like flies as the credit crunch worsens, it has to be asked – what happened to global regulatory supervision prior to the crunch?

Why is there so much focus on the little guys, while the big corporations seem free to do as they please, regardless of the mess that results?

One thing the regulators are quick to do, however, is react and this morning the FSA rushed to assure us it is working to “minimise market disruption” after the news of Lehman Brothers hit.

The regulator said it is working with practitioners including the London Clearing House to ensure the winding down of Lehman’s wholesale business is completed in an “orderly manner”.

I wonder how reassured the 5,000 Lehman Brothers UK staff are feeling today, and can only imagine how investors are faring.

Concerns over Lehman’s unresolved deals and the effects of the collapse on the global markets have already dragged the FTSE lower by over 3 per cent since start of trade this morning.

So what could the regulators have done to prevent such a disaster? Could they have done anything at all? Or is this just another devastating side effect of the credit crunch?

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