I SPENT much of last night watching the meltdown on Wall Street with growing alarm. It was not a pretty sight. 

Lehman's demise was forgotten and the self-congratulatory press conference hosted by the bosses of Merrill Lynch and Bank of America celebrating their firms' proposed marriage was shoved aside, as the financial storm lashing Wall Street turned on the next victim - the venerable American International Group (AIG) - which was, until recently, the biggest insurer in the world.

At 2am, I was still getting SMSes from friends worried whether their insurance policies with American International Assurance, AIG's life insurance unit, were safe, as the price of the beleaguered financial giant evaporated by as much as 75 per cent, before steadying slightly on news that New York State had thrown it a lifeline by allowing it to borrow up to US$20 billion assets from its units to use as a bridging loan.

Since the sub-prime crisis erupted in the United States, there have been many dark moments but the problems had seemed so far from Singapore's shores until now.

AIG's troubles will affect the thousands of insurance policyholders here, but the Monetary Authority of Singapore has given the assurance that AIA Singapore "currently meets all the regulatory requirements" to maintain sufficient financial resources to meet all its liabilities to policy holders.

As I write, The Straits Times Index has plummetted another 60 points to 2429, after opening for trading about 30 minutes ago. In particular, banks are hard-hit by the selldown.

DBS Group Holdings has tumbled 50 cents to $15.96 - its lowest levels in two years.

Since March when the US central bank's orchestrated rescue of troubled investment bank Bear Stearns, STI had held above 2,800 support for five months. But last month, it took only two weeks to fall below the 2,700 support. In the next week or so, it crashed below the 2,600 level. Yesterday, it plunged below the important 2,500 support.
 
On hindsight, the failure of the latest US government's efforts last Monday to restore calm to the jittery financial markets by rescuing mortgage giants Fannie Mae and Freddie Mac should have rung alarm bells among traders to scramble for the exit, as fast and as best as they can.
 
In bailing out the two firms, US treasury secretary Hank Paulson had, in effect, drawn a line in the sand.

Freddie Mac and Fannie Mae might be the extent he was prepared to go in rescuing troubled financial firms in the United States. Other US financial firms may in deep trauma, but they would have to look after their own - find a white knight as Merrill Lynch did in the arms of Bank of America, or go down into the pages of history like Lehman Brothers.
 
It is a bitter pill for investors to swallow to watch billions go up in smoke in the biggest exercise of wealth destruction in history.
 
But some will argue that it is necessary.

Until Sunday, Lehman was casting around for a lifeline, trying to get other Wall Street rivals to take a portion of its toxic debts while surrendering itself to a global bank which would then become a serious rival to those doing the handout. Surely, it is naive for Lehman management to believe that rival firms would fall for such a plan.
 
The worry is that AIG may go down the same route, casting around for the Fed to lend them US$40 billion and commercial lenders to extend a US$70 billion, when decisive actions are needed to stop the downward spiral.
 
Lehman's demise will be the start of the closing of a chapter on unbridled greed where private equity funds bid up assets at outrageous valuations and chased commodities like crude oil and base metals to record high levels.
 
It will also mark the end of an era where brash investment bankers take enormous risks and make irresponsible commitments, believing that the US government will be there to bail them out when trouble looms.
 
The rest of us - small investors - will simply have to hunker down and sit tight until the hurricane season now lashing global financial markets blows over.
 
Many readers have asked me for a strong support level which STI can rest on. My answer is that it is not STI's support but the duration of the credit crisis now confronting us that matter. Will it end next week, next month, or next year? 
 
Former Fed chairman Alan Greenspan's answer is simple: Home prices must stop falling first, for a recovery in the US to take place.
 
Some day, the weather will turn balmy and investors can smile again.

Until then, take care not to be blown away in a storm which is gaining in ferocity. Hurricane signals will be hoisted - repeatedly.