Here is something I posted over in unfunnybusiness over on JournalFen and decided to share with my flist here on LJ.
Last week, cassildra posted about the federal government's takeover of Fannie Mae and Freddie Mac and how it scared her silly. This weekend, the possible End of Banking As We Know It (tm) continued with the bankruptcy of Lehman Brothers, the purchase of Merrill Lynch by Bank of America, and the attempts to save insurance giant AIG. First, the New York Times headlines.
BTW, the LJ cuts just aren't working. I've been trying, but all my efforts to fix the HTML, which works nicely over at JournalFen, are completely failing here. Sigh.
Nation’s Financial Industry Gripped by FearFear and greed are the stuff that Wall Street is made of. But inside the great banking houses, those high temples of capitalism, fear came to the fore this weekend.Lehman Expected to File for Bankruptcy ProtectionAs Lehman Brothers, one of oldest names on Wall Street, appeared to unravel on Sunday, anxiety over the bank’s fate — and over what might happen next — gripped the nation’s financial industry. By late afternoon, Merrill Lynch, under mounting pressure, entered into talks to sell itself to Bank of America.
Dinner parties were canceled. Weekend getaways were postponed. All of Wall Street, it seemed, was on high alert.According to people briefed on the matter, Lehman Brothers will file for bankruptcy protection on Sunday night, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.
Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.
But Lehman’s filing is unlikely to resemble those of other companies that seek bankruptcy protection. Because of the harsher treatment that federal bankruptcy law applies to financial-services firm, Lehman cannot hope to reorganize and survive as a going concern. It will instead liquidate its holdings.
In Frantic Day, Wall Street Banks TeeterIn one of the most extraordinary days in Wall Street’s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.Banks Fear Next Move by Shorts
The dramatic turn of events was prompted by the cataclysm of losses that has shaken the American financial industry over the last 14 months.
The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.Rush Is On to Prevent A.I.G. From Failing
In May, David Einhorn, one of the most vocal short sellers on Wall Street, made no secret he was betting against Lehman Brothers. Now, some investors are afraid that fund managers like him will take advantage of the climate of fear stirred up by the troubles of Lehman to single out other weak financial firms whose declining share prices would bring them rich rewards.
At emergency meetings over the weekend, the heads of major financial institutions urged Timothy F. Geithner, the president of the New York Fed, and Treasury Secretary Henry M. Paulson Jr., to consider having the Securities and Exchange Commission reinstate a temporary rule to limit the risky but potentially lucrative practice of betting on a firm’s falling share price, according to two people who were briefed on, but did not attend, the meetings.
They are concerned that short sellers might fix their gaze on other big financial institutions. But Wall Street may be breathing easier after one company frequently mentioned, Merrill Lynch, began advanced talks on Sunday to sell itself, and another, the insurance giant American International Group, moved toward a restructuring in an effort to strengthen its financial position.
The American International Group, the insurance company, is planning a major reorganization and a sale of its aircraft leasing business and other units to stabilize its finances, a person briefed on the company’s strategy said on Sunday.
A.I.G. became one of the focuses at an emergency gathering of Wall Street executives over the weekend, and was trying to arrange a capital infusion in the face of possible credit downgrades.
It was unclear whether A.I.G. would succeed in its capital search, but a person briefed on the discussions said it was seeking more than $40 billion even as it tried to sell assets to shore up its financial footing. Among the businesses likely to be sold is A.I.G.’s aircraft leasing business, the International Lease Finance Corporation. Founded in 1973, the business has nearly 1,000 planes in its fleet.
As I mentioned in cassildra's post, the financial doom blogs had been following Freddie Mac and Fannie Mae's troubles closely and they've also been anticipating the collapse of more Wall Street investment banks after Bear Stearns imploded.
There are at least two diaries on Daily Kos about the situation.
Wall Street Gripped By Fear (UPDATEx3: The Mother of All Mondays)
breaking: Merrill Lynch and Lehman just Failed
Of course, The Automatic Earth, the definitive financial doom blog has been predicting exactly this kind of financial meltdown and its two most recent posts cover the situation in excruciating detail. The title of today's post pretty much sums up how dire the bloggers consider to situation to be.
Debt Rattle, September 13 2008: Hit List
Debt Rattle, September 14 2008: Women and Children First
The last update for tonight, I thought you have to see this, just to see how companies value themselves, and how surreal that often is. Using Lehman’s valuations of similar subprime assets, AIG just lost $14 billion, or 18% of its entire value.
And then, on top of that, we can safely presume it has overvalued its CDOs as well, even as it claims a mark-to-market value (yeah, depends on the market?!), and it will lose another $20-30 billion on that. Mind you: AIG, as soon as tomorrow morning, is forced to sell into a hostile overcrowded market.
AIG looks destined to lose over $100 billion in "presumed" asset value in one day. Not on stock, but on assets and swaps valuation. Does not look good.
See you in the morning.
Mish's Global Economic Analysis is hardly a doomer blog, but it pulls no punches.
AIG Struggling To Stay Alive, Begs Fed For Cash
High Stakes Poker Update: Cinderella, Merrill Side Bets
High Stakes Poker Game In Progress
High Stakes Poker Update: Barclays Refuses To Go "All In"
Culture of Life News, which takes a mystical view of the situation, chimes in.
Lame Lehman Brothers Takes Bullet To Head
The Bank Implode-O-Meter hasn't quite caught up, but it's getting there.
- Lehman Brothers: no buyers yet
- Wa Mu Wipped Again
- Death Knell
- Dissolving Lehman Brothers
- Wa Mu Giving it Up
James Howard Kunstler hasn't weighed in yet, but he's likely to be insufferable, just as he was after Freddie Mac and Fannie Mae.
As for the effect of all this on US taxpayers, just read the cartoon below.