Global equities markets went into a free fall on Monday as the American financial system was shaken to the core by a stunning series of events on Wall Street - Lehman Brothers filed for bankruptcy, Bank of America agreed to buy Merrill Lynch and the largest US insurer by assets American International Group (AIG) hunted for cash.
The world's fourth largest investment bank Lehman Brothers went under because the US government did not try to save it like it did Fannie Mae and Freddie Mac a week ago and orchestrated the sale of Bear Stearns to JP Morgan Chase earlier.
Lehman thought of bankruptcy after being turned down by Barclays and Bank of America, the top suitors, following Federal authorities declining to provide financial backup to them.
But while global financial markets went into a tizzy, some analysts hoped that Bank of America's announcement Sunday on Merrill Lynch, third largest investment bank of the US, might provide enough assurance to calm investors.
According to the $44 billion deal, Bank of America will pay $29 per share for the 94-year-old Merrill Lynch, which is 70 percent premium above Merrill's Friday close at $17.05 per share.
Meanwhile, AIG fell by almost half in early trading Monday as the company failed to present a plan to raise capital and stave off credit downgrades.
AIG executives were in discussions Sunday with buyout firms including KKR & Co. and J.C. Flowers & Co. as the insurer sought to raise $20 billion in capital and sell $20 billion of assets. AIG has also sought a $40 billion bridge loan from the Federal Reserve, the New York Times reported.
Meanwhile, about 10 major banks, including Citigroup and Credit Suisse Group, reached an agreement to create a $70 billion borrowing facility committing their own money, which could be used to tide over the financial crisis.
The Federal Open Market Committee (FOMC) has also called an unscheduled meeting Tuesday - for the first time in a decade - to boost investor confidence.
The giants of financial markets have been shaken up by losses of hundreds of billions of dollars in bad mortgages in the housing markets.
The fate of both Morgan Stanley and Goldman Sachs will now be closely watched.