Is Lehman About To Die?
UPDATE: Lehman Files For Chapter 11, BoA Buys Merril Lynch
Wall Street is preparing for one of the largest bankruptcies in U.S. history as it becomes apparent that nobody wants to buy Lehman Brothers. Government officials are keeping the public's overextended credit card sheathed as they race to keep the fourth-largest U.S. investment bank from failing before the start of trading tomorrow.
Both Bank of America and Barclays rebuffed the Fed's entreaties to scoop up Lehman's profitable parts.
Barclays said it was approached by the U.S. Treasury at the end of last week, and saw in Lehman ``a potential opportunity to significantly enhance our investment banking and investment management franchise in key areas.''`The proposed transaction required a guarantee for the trading obligations of Lehman Brothers which was potentially open-ended,'' Barclays said in a statement. ` Barclays wasn't willing to assume such an open-ended obligation.''
The US government had hoped to arrange a bailout under which other US investments banks - such as Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs - would finance a "bad bank" that would hold the most "toxic" investments of Lehman in the property and mortgage market.
The "good bank" or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK's Barclays.
Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks.
However, it appears that this plan is falling apart.
Lehman's lawyers are writing up the Chapter 11 papers as Wall Street and the Fed officials continue with their emergency meetings.
If nothing else, Bloomberg reports that the bankers and regulators were at least able to agree on a comprehensive mid-afternoon snack break:
At 11:30 a.m., five delivery-men arrived at the Fed building with carts of sandwiches, as the talks continued.
Lehman edges closer to insolvency [BBC]
Barclays Abandons Talks to Buy Lehman Over Guarantees [Bloomberg]
Lehman’s Fate Is in Doubt as Barclays Pulls Out of Talks [The New York Times]
(AP Photo/Mark Lennihan)
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By corrupting normal banking practices, going outside the 'regulated' worlds of banking and insurance, proves that certain Senators really have no clue. Yet the little dutiful Lemmings will keep re-electing them...
This all is like watching the Great Depression in slow motion. Hide the truth from the people, they're doing their level best, but when the bets are off the books, nobody can know how bad, bad is...
Get an umbrella, cause it ain't done raining yet!
Bear Sterns, Freddie Mac, Fannie Mae, soon to be Lehman... who's next on the chopping block?
I'm just glad that the government didn't SOCIALIZE this one too... seems to be going around lately.
I think the government should take every sent from the fat cats running ALL of these financial institutions who have been driving our economy into the ground. It really bothers me that these people can make millions illegally/immorally, drive the economy into the ground, and still end up sitting on more money than I'll probably ever earn in my lifetime.
"No Congress, no President has been strong enough to stand up to the foreign-controlled Federal Reserve Bank. Yet there is a catch - one that President Kennedy recognized before he was slain - the original deal in 1913 creating the Federal Reserve Bank had a simple backout clause. The investors loaned the United States Government $1 billion. And the backout clause allows the United States to buy out the system for that $1 billion. If the Federal Reserve Bank were demolished and the Congress of the United States took control of the currency, as required in the Constitution, the National Debt would virtually end overnight, and the need for more taxes and even the income tax, itself. Thomas Jefferson was concise in his early warning to the American nation, "If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
The lesson of the Deregulate Everything "free market" meme: burn, baby, burn!
Sensible regulation saves trough-feeding businessmen drunk off quarterly reports from themselves. Everyone wins.
It's pretty amazing that the intellectual father of this meme, Phil Gramm, has such a stunningly bad track record (Enron, now a ruined US financial sector...) yet is still baited about as McCain's top choice for Treasury Secretary.
Four more years of the last eight years! Yay!!
@UnStatusTheQuo: I'm just glad that the government didn't SOCIALIZE this one too... seems to be going around lately.
Don't feel too smug. This may be an issue of government inability to bail them out, not an unwillingness to do it. It could be a sign that the entire US banking industry is going to collapse by year's end.
WaMu is probably next, although I think the Fed may not be helping LEH because they expect WaMu to go and they are probably saving up for that disaster.
Sorry my friend... but I can only say the following:
What you don't know about economics is a lot!
Who's next? Probably Morgan Stanley and Merrill.
Bernanke has made it clear in a fed release that banks are to find their own way out of these messes. They are sticking to their game plan and trying to broker deals between firms, not bail them out. The Fed simply will not be able to do that throughout this fiasco.
Bear Stearns was a necessary mistake. BSC served as a clearing house to wall street transactions, if they went under, the markets, as a whole, would of been in disarray. Trades would of been lost, transactions never completed, etc. Lehmen is different, it can fail and drag down the markets, but it won't disrupt settlements of trades.
Lehman will fall along with WaMu and many others. This is like the puking scene in Stand By Me, once one big boy purges, others will suffer the same fate.
Isn't this "creative destruction" in action? Let them burn. Last week's news that Lehman was among those indicted by the Senate for arranging huge tax dodges for foreign hedge funds over the past few years using swaps is probably a factor in the reluctance of the Feds to socialize more of the economy. After all, with the recent socialization of the vast majority of the property market, and Florida's socialization of the sugar and insurance industries, they have a lot to manage at the moment. All these socializations yet still no socialized healthcare. Impressive.
Well the free market might have worked these things out, if the free market was actually involved. It wasn't. I think our brave new economic world should be (as I saw somewhere else) designated "corporatism". In a corporatistic society like the one we currently have, large corporations know that if they get big enough, they will never be responsible for their own actions because they can throw away all their money, completely fuck over all their shareholders, and the government will reward them with the taxpayer's hard-earned money. Therefore, they set up as many mergers as they possibly can to secure their status as entities that could completely destroy the economy if they failed. After enough mergers, they're big enough that they know they can take any irresponsible risk they want. Combine that with the Bush deregulation and you have the recipe for a complete economic collapse. I will actually be voting for the Democrats, despite hating them, because we need more controls on the market and to end our corporatism economy. Switch back to capitalism anyone?
Though I am terrified that McCain will win. Utterly terrified.
So not surprised that no one wants to buy them.., If someone showed up at my doorstep with a steamy bag, I think I'd decline as well
@nicemarmot617: Good point-the problem is, nobody in politics is pro capitalism anymore (i.e. no regulations or bailouts.) It's either socialism with the democrats or corporatism with the Republicans.
"Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill."
Screw 'em.
I for one welcome our new new new banking overlords..
So you think that the plan for border security is to make the American dollar so weak that Mexicans by-pass the US and go directly to Canada?
@Elviswasntmyhero:
Nice find!
@Ubermunch:
You sound about as corrupt and crooked as all those bankers!
The kicker is, Lehman (at least, the name) has a better chance of survival in Chapter 11. A fire sale would have ended the firm. Reorganization will screw their creditors, but will allow the company to survive.
Hmm... major financial institutions going bankrupt... massive corporate scandals reaching back a couple of decades... a new chairman for the Feds... a major fallout from a predictable idiotic loan system for homes due to a sudden fashion to "flip" houses... a meteoric rise, then fall of the stock market... inflationary rates climbing... interest rates climbing... oil companies making record profits from commodities trading... oil company price gouging that at least the SC Attorney General is willing to bring to court... a lack of major wars on the foreseeable horizon that could swiftly turn the country around the way WWII managed to do... massive hurricane destroying Texas, and a few more on the way towards the eastern seaboard...
All we need is a major plague or two, and we would be in a really major depression really swiftly. (Unfortunately if we did have a major plague or two it would mean a faster rise out of the depression, because there would be fewer mouthes to feed.)
Maybe the European powers will help out to keep America from sinking, since it would be a massive blow to the world economy. Probably not, but ya never know, we did rebuild their economy after they nearly killed each other... twice.
The real down side is that now, the cheap food meant to feed the masses is extremely unhealthy, unlike the cheap food of the last depression. Actually wholesome potatoes, McDonald's fries ain't. The blow to our soon to be created national health disaster will be staggering once people start really tightening their belt straps. (Not that belts will be tightened... we will end up being the fattest nation of poor people ever.)
@LeoSolaris: Europe is just as dirty in this subprime mess as America is. If our stock market crashes, they will follow shortly after.
Lifted this from a Yahoo financial message board....
"Cuban Coast Guard turns back Floridians."
Ha Ha ....funny.
Lv2
Yes... I'm corrupt because I think our country is better with a Federal Reserve system. Care to find me any support for why we should shut down the institution? Just cite me a couple of reasonable sources, ok?
There's a reason for a Federal Reserve system. Do the homework and figure it out before you start calling people corrupt. What else do you think is a good idea... the return to the gold standard?
Yeeesh! It's economically stunted goobers like you that the problem here. Educate yourself and get back to me. The educate the Bush adminstration and John McCain.
@uberbucket: Not a bad thought, but then you'd have to say no to socialized medicine too...aka, universal healthcare!
It's okay with me, all I ask is for a little consistency.
Well, it looks like we now know why Bank of America / Countrywide couldn't swoop in to rescue Lehmans. It looks like they have bigger fish to fry..err buy. Bloomberg is reporting that they will be purchasing Merril Lynch for $44 billion. Probably not enough left between the couch cushions in the lobby to pick up Lehman Bros.
Sing it with me.." Dum, Dum, Dum, Another One Bites the Dust...."
Then again, maybe we should all be relearning the lyrics to Brother Can You Spare A Dime.
The free market cries out for some rules, regulations if you will. It's been playing Ponzi for the last several years under the aegis of the "deregulators." Institutions would loan money and then sell the obligations to someone else. Noone cared that the loan could not be paid back. The disaster is playing in real time and yet we still here some politicians say if elected they will deregulate more--crazy.
One would think after the savings and loan fiasco, Enron and now this that we would understand that we need some regulation to protect ourselves and these robber barons from themselves.
If you haven't already listened to it, I suggest This American Life's "The Giant Pool of Money" podcast. You can find it here:
[www.thislife.org]
It was the May 9th 2008 show, episode 355..
" Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, as its subsidiaries remain solvent while the parent firm liquidates, 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.
Lehman has retained the law firm Weil, Gotshal & Manges. The firm's restructuring head, Harvey Miller, also spearheaded Drexel's bankruptcy filing in February 1990.
As efforts to acquire Lehman faltered, Bank of America turned to Merrill Lynch and offered at least $38.25 billion in stock for that investment bank, people briefed on the negotiations said. The deal, valued at $25 to $30 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday."
Let the cavalcade of bank failures begin!
AIG appears to be going down the shitter as well:
American International Group (NYSE: AIG) -- seeking "to stave off credit downgrades -- may seek help from the Federal Reserve. [AIG has] turned down a private-equity investment because it would have meant turning over control of the company" according to Bloomberg News. AIG plans to announce a major restructuring Monday -- CNNMoney reports AIG will "dispose of its aircraft-leasing arm, International Lease Finance Corp., which has a fleet of more than 900 airplanes valued at more than $50 billion." The New York Times estimates it needs $18 billion to stave off credit downgrades.
When things are good in the economy people scream to deregulate to save us money and to make things more efficient. When things go south a cry goes forth to regulate those bastards.
We Americans are a stupid, greedy lot.
"AIG will "dispose of its aircraft-leasing arm,"
Surely aircraft leasing is a risky business with airlines cutting schedules and not renewing their leases.
Who's next? Well, Merrill has been purchased by Bank of America, as of this weekend, so I guess that question was answered. I suppose BoA had no reason to buy Lehman when they could get Merrill, which is at least sort of still afloat.
@quail: Agreed, but I'd rather deal with the financial consequences of a little bit of inefficiency rather than a big meltdown. Consider it insurance against our financial system.
GE has a large financial arm. There's a hole in daddy's arm where all the money goes............
Where the heck is Bank of America getting all the money to buy these guys out,especially ones with shakey balnace sheets?
What the heck is it with all these week-end deals?
Some more questions? Many here have pointed out that in bankruptcy or foreclosure proceeding the evictee still winds up paying misc fees etc.ARE these financial companies/banks REALLY in that much trouble or are they just too lazy to look at their books in excrutiating detail?-or is that what they are trying avoid.
Didn't the AIG chairman or ex chairman wind up putting stock awards in his wife's name after his pay came into question or was about to? When you see shenanigans like that I'd run from that company like the wind or customer.
@u1itn0w2day: It was a for-stock buy.
Weekends? If the seller doesn't dump before Monday they'll get to watch whatever remaining value they had vanish in the panic.
@u1itn0w2day:
Don't quote me on this, but I think I read/heard a while back that BoA has a lot of foreign investors (banks from other countries) and foreign partners. BoA is, for all practical reasons, an international bank, which still happens to have its HQ in the U.S.. With the way things are going now in the U.S. banking systems, Americans' money may become safer in the hands of an international bank controlled by non-Americans. Ironic, considering the name "Bank of America."
A fact about Lehman Bros. before this debacle: A Korean bank was looking to buy them, but the Korean government advised the bank not to, because their treasury officials felt the asking price was way too much and the debt risk would have directly affected the Korean economy.
"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it." -- Congressman Louis T. McFadden in 1932 (Rep. Pa)
"Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States." -- Sen. Barry Goldwater (Rep. AR)
"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford
more excellent reasons to pull the lever for a Republican ticket for four more years. I just can't get enough of this financial failure thing as I am dying to see how big the impact will be on the economy and employment rates. Imagine how much more of this could be accomplished in 4 years!
@Elviswasntmyhero: Nice qoutes of 2 guys that died before JFK was president and one that makes no sense at all.
@papahoth, I believe Henry Ford did know a thing or two about money.
What exactly are you trying to disparage, the FACT that the Federal Reserve is run outside the confines and penchant of the federal government, or the FACT that it is mostly controlled by parties outside the U.S. . . . ?
When the system is broken, blaming the people who point it out is apparently the 'new' American way. Thanks, MSNBCNNFoxNews.
what perplexes me is why they are passing the poison pills all around here. i would think the smart move would be to isolate the worst so as not to pollute the whole mix. instead, the industry is acting more & more like the borrowers that started the ball rolling here - spend, spend, refi. spend, spend, refi.
well, what happens when people start questioning the value of CITI, BOA, JPM & some of the other larger BHCs that are swallowing these pills?
forget it...don't answer that. i'd rather just pretend that everything's fine.
Relax everyone, he's just trolling.
So, let me get this straight. Morons make a vague case about ditching the Federal reserve system and I call them out... and I'm the troll?
Sorry, pal... When people spout stupidity I'll point it out. Personally, I don't think the ant-Fed posters here even understand what the Fed does.... or about money supply and the economy... or about centralized banking...
I'm not trolling. I'm just calling "stupid" as I see it. Especially when it comes out as a sub-moronic rant/screed.
Make a case based on facts, ok? 76 year old rants from obscure congressmen, Barry Goldwater, and Henry Ford are not what I call academically solid rebuttals of the Federal Reserve system.
How about this? Why not tell me what you propose would control the US money supply in lieu of the Federal Reserve system? Let's start the debate there because I'm fascinated by what you'd propose.
Then we can turn to the Fed's lending and bond operations. I'm sure that someone so opposed to the Fed is well versed in the alternatives to its existence. Care to tell the rest of us?
"I believe Henry Ford did know a thing or two about money."
He hated the Fed because he believed it was filled with Jews.
@Ubermunch: Wow, you're kind of a dick, did you know that?
I don't think you fully understand the role civility plays in a discussion. If you disagree with Elviswasntmyhero, why don't you go ahead and enlighten us? I'm sure Elvis can do the same.
Yawn.
Here's something for all the banking scum:
If you plant ice... you harvest wind.