Lehman Files For Bankruptcy

The New York Times is reporting (via DealBook) that Lehman will file for bankruptcy this evening. [Ed.: It's now official - see Lehman press release (.pdf)]

The story notes that the Federal Reserve will take lower quality assets as collateral for loans and a consortium of banks will provide financing to assist an orderly liquidation of the company.

I am not sure that one can have an orderly liquidation of a company which has been around for a century and a half. This is confirmation, proof positive, that we live in a most troubled time.

One week ago we watched and cheered (I did) as the Treasury rescued Fannie Mae (FNM) and Freddie Mac (FRE). That effort provided only the briefest interlude of calm in the markets. There is some historic climax to this series of crises lurking just around the corner. At every twist and turn in this year-long saga, the result which has ensued has always been the worst case scenario. We are, I believe, headed for a very, very ugly end to this story.

The government has not been able to hold back the forces which have taken down financial giant after financial giant. Capitalism demands pain. Good risk is rewarded and imprudent risk is punished. We were engaged in an orgy of imprudent risk taking for nearly a decade and now a heavy price will be paid for the violation of so many simple and common sense precepts of trading.

I truly fear for our economy and our system the next several days.

Futures plummet.

• • •

The Federal Reserve has expanded the type of collateral it will lend against at the Primary Dealer Lending Facility.

Separately, I was watching CNBC and they are reporting that AIG (AIG) is looking for a bridge loan from the Fed.

CNBC also reports that the Fed forced Merrill (MER) to put itself up for sale.

THIS WHOLE THING IS FINANCIAL SCIENCE FICTION.

• • •

CNBC is reporting (and I do not see it anyplace on the net to which I can link)  that 10 banks and investment banks will contribute to a fund with total capital of $70 billion.

The CNBC anchor thought that this would function as a private discount window of sorts which contributors could access, if need be.

Comments

[Just The Facts:]

You and I both. I hope Cox has enough sense to immediately ban all short selling - of everything. Or as a minimum, all naked shorting.

2008 Sep 14 07:45 PM

[Moses:]

Wow Just the Facts, are you really that dumb? More manipulation and government regulation....that's just we need. Maybe equities are not realistically reflecting the economic turmoil we are in and need to fall. Some people don't realize that stocks don't always go up, just look at the period from 1929 to 1954...

2008 Sep 14 07:55 PM

[Metzenbaum ...:]

""The AP also said officials at the U.S. Treasury and the Federal Reserve say they are prepared to be more generous in the Fed's emergency lending program for commercial and investment banks.""

Sounds like US taxpayer $$$ for crap toxic assets... again.

How long are you gonna take this, American citizens? The rest of us need a vibrant economy from you... and not capitalist profits and socialized losses.

WAKE UP!

2008 Sep 14 08:05 PM

[SW Richmond:]

None are blind as those who will not see.

"One week ago we watched and cheered ( I did )as the Treasury rescued FNMA and Freddie Mac."

And then the very next sentence: "That effort provided only the briefest interlude of calm in the markets."

(My) good money after (other stupid banksters') bad. And it did no farking good at all except to put me and my kids, as taxpayers, deeper in the hole. If you really cheered when F&F were nationalized then you are part of the problem, a skimmer who thinks that the average guy deserves to be raped.

Thanks for writing this and telling us all where you stand. Where is Madame Defarge when we need her?

2008 Sep 14 08:05 PM

[AMV613:]

Why did you cheer the bailout of Freddie Mac and Fannie Mae. I think it is a good thing that the companies and investment companies that have manipulated the markets, have caused managements to focus on quarterly earnings and not on the future are all now suffering from their own greed and short-sightedness. Perhaps in the aftermath, the market will right itself and wring out more than 20 years of greed-driven excesses.

2008 Sep 14 08:40 PM

[DaveW:]

just the facts, are you serious?! Shorting is the evolutionary pressure keeping our market healthy - like the wolf is to the the elk herd, the strong live and the weak die. You may not like it but it keeps the group healthier.

2008 Sep 14 09:55 PM

[Crocodilian:]

It is becoming alarmingly clear that we've built a system of financial relationships so complex and interdependent that understanding them is impossible. No less a figure than Warren Bufffett warned that derivatives were likely to create such risks. . . now we have to endure the pain of "figuring out what these damn things are worth" to recall Ben Bernanke from a year ago.

The weird part is that sub-prime was never that big a part of the US financial system.

But then, the Credit Anstalt was never that big, either . . .

2008 Sep 14 10:12 PM

[Alan von Al...:]

I think I understand why Mr Jansen approved of the Frannie bailout. It may unravel and revealed to be ineffective, typical of all govt "action" as a rule. But it was advertised as a backstop. No one wanted a meltdown.

And now we have it. That's the real import of Mr Jansen's post, above. Lehman, AIG, Merrill, maybe Goldman too. The jig is up, correct?

2008 Sep 14 11:11 PM

[Kevin Lamson:]

READ EM AND WEEP AND LET THE CHIPS FALL WHERE THEY LAY!

In my opinion it is high time that these Wall Street executives and their respective firms are exposed for what THEY, not the "shorts", have done to their companies and American finance by playing it fast and loose with the TRUTH. The truth about how much bad debt they flipped into the domestic and international markets and the truth about how much there executives reaped by reporting false profits tied to this mortgage loan flipping scheme. Flooding the markets with phony paper. The American public should be outraged at how our government regulators, politicians and the Bush administration allowed Wall Street to get away with this international fleecing of investors. It is an international embarrassment that America’s bankers ripped off the world in the new "global economy". But, we must now "let the cards read and the chips fall where they may". We need to turn out these crooks, their companies and their disastrous scheme in order in order to regain trust and return international confidence in the American business and banking practices. Not continue to hold our cards and pretend we have a winning hand .

2008 Sep 15 03:01 AM

[Steven Hansen:]

actually, maybe we would be better off without any investment banks. they are some of the bigger criminals who have been manipulating the market.

2008 Sep 15 03:36 AM

[asteroids:]

If the $70B exists, I think it's a "mutual defense fund" to
stop the Bears. Eg. Bears target company X. Company
X borrows from the fund for a short period to boost its
stock and stop the Bears.

2008 Sep 15 05:11 AM

[gabe borens...:]

The Tresaury has made a decision.The financial universe is watching.Judging by the statements,that is not the solution many foreign officials have expected. Questions and volatility will continue .Thse are historical moments and the officials can not committ any blunder.The Treasury and the Central Banks should stay by just in case......
Investors reaction after the knee jerk reaction? That is the question .

2008 Sep 15 05:12 AM

[Schweizer:]

So business will move elsewhere, and LEH investors and bond holders will suffer loses. this has been building for over a year so it is no surprise. LEH was obviously very exposed and didn't protect themselves, so they died. That's what is suppose to happen.

2008 Sep 15 06:21 AM

[buyitcheap:]

$70 B? you sure you didn't lose a Zero in there somewhere - wait, if they can leverage it 50 times, then that'll fix things!

2008 Sep 15 07:40 AM

[brucely:]

Hi, this is is brucely. glad to read article this.
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brucely
www.shepelskylaw.com

2008 Sep 29 05:18 PM