By GottaLaff
Today's Quickie:
Senate Banking Committee Chairman Chris Dodd, D-Conn., is calling for a federal investigation into the "Lehman situation" and other companies that may have fudged their balance sheets, contributing to the financial crisis.About time. I can't wait to see which Congress members defend Lehman.
I liked this speech very much, he sounded very stern.
The FBI is investigating four major U.S. financial institutions whose collapse helped trigger a $700 billion bailout plan by the Bush administration.And who has all those ties to Freddie and Fannie and [insert financial giant here]? What's going to happen to all of Gramm-pa McCain's bestest buds?Two law enforcement officials said Tuesday the FBI is looking at potential fraud by mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Lehman Brothers Holdings Inc. (LEH, Fortune 500), and insurer American International Group Inc. (AIG, Fortune 500)
The inquiries, still in preliminary stages, will focus on the financial institutions and the individuals that ran them, a senior law enforcement official said.
By GottaLaff
Palin/McCain = Bush III, Cheney II:
2007:
Lehman hires Jeb Bush as private equity advisor 30 Aug 2007 Lehman Brothers has hired Jeb Bush, brother of the President of the United States, as an advisor to its private equity business, a source familiar with the situation said. Lehman hired another relative of U.S. President [sic] George W. Bush last year--George Walker, a second cousin, who heads up the bank's asset management business.2008:
Lehman Brothers files for Chapter 11 protection 15 Sep 2008 Lehman Brothers, a 158-year-old investment bank choked by the credit crisis and falling real estate values, filed for Chapter 11 protection in the biggest bankruptcy filing ever on Monday and said it was trying to sell off key business units. [Lehman Brothers, a 158-year-old banking institution survives the Industrial Revolution and two world wars... but not Bush.]And...
Dow falls 500 points in worst day since 2001 --Investors react to Lehman Brothers bankruptcy and Merrill Lynch sale 15 Sep 2008 A dramatic makeover of Wall Street sent stocks falling precipitously Monday, with the Dow Jones industrials sliding 500 points in their worst point drop since the September 2001 terrorist attacks. Investors reacted badly to a shakeup of the financial industry that took out two storied names: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.
UPDATE:
As bankruptcy looms for Lehman, regulators and top execs work to contain damage and calm markets. Fed expands lending to banks. [...]Top Wall Street officials and federal regulators, who began meeting Friday, remained in talks on Sunday evening at the Federal Reserve Bank of New York in the hopes of devising a plan to save Lehman and allay fears that threatened to roil U.S. financial markets Monday.
"We're all still here, that should tell you something," a Fed official told Fortune.
Lehman Brothers Holdings Inc. prepared to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation.Lehman and its lawyers are getting ready to file the documents for bankruptcy protection tonight, said a person with direct knowledge of the firm's plans. A final decision hasn't been made, though none of the other options being considered appeared likely, the person said, declining to be identified because the discussions haven't been made public.[...]
The U.S. Treasury and the Federal Reserve have struggled for three days to prevent the investment bank from failing before markets open tomorrow, people familiar with the situation said. With the two most serious bidders out of the picture, Lehman's options are few.
``The best case is that the Fed offers a 48-hour standstill by backing Lehman's liquidity directly to win time for other bidders to come forth or the previously interested parties to reconsider,'' said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. ``The worst case is bankruptcy, and Lehman goes down the tube.''
By GottaLaff
I am, admittedly, an economic dunce. I handle my own money well, but don't understand much about how all of this works. I have a terrible habit of glazing over when I hear words like "broker dealers" and "shadow banking system". But I do understand this (and there's a lot more detail where this came from):
It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer. [...]Now watch the video again. It's under a minute.
What we are facing now if the beginning of the unraveling and collapse of the entire shadow financial system, a system of institutions (broker dealers, hedge funds, private equity funds, SIVs, conduits, etc.) that look like banks (as they borrow short, are highly leveraged and lend and invest long and in illiquid ways) and thus are highly vulnerable to bank like runs; but unlike banks they are not properly regulated and supervised, they don’t have access to deposit insurance and don’t have access to the lender of last resort support of the central bank (with now only a small group of them having access to the limited and conditional and thus fragile support of the Fed). So no wonder that this shadow banking system is now collapsing. The entire conduits/SIV system has already collapsed with the roll-off of their ABCP financing; next is the collapse of the broker dealers (Bear, Lehman and soon enough the other ones) that rely mostly on unstable overnight repos and other very short term funding for their financing; next will be hundreds of poorly managed hedge funds that will face a tsunami of redemptions; and finally runs on money market funds that are not supported by a large financial institutions or other smaller member of the shadow banking system as well as highly leveraged and distressed private equity funds cannot be ruled out either.
This is indeed the most severe financial crisis since the Great Depression and occurring at a time when the US is falling in a now severe consumer led recession. The vicious interaction between a systemic financial and banking crisis and a severe economic contraction will get much worse before there is any bottom to it. We are only in the third inning of a nine innings economic and financial crisis. And the only light at the end of the tunnel is the one of the incoming train wreck.
By GottaLaff
Lehman Brothers will file for bankruptcy protection on Sunday night, according to people briefed on the matter, 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.
It was not clear whether the government would appoint a trustee to supervise Lehman’s liquidation, or how big the financial backstop would be.
Lehman’s broker-deal subsidiaries would not be a part of the bankruptcy filing. Those entities must file under Chapter 7 rules, which are the procedures for liquidation, under the assumption that it is the best way to protect customers. The Securities Investor Protection Corporation would handle the liquidation of such brokerages, and bankruptcy lawyers say that customers are likely to receive their holdings back.
Moreover, changes to the bankruptcy code mean that counterparties to Lehman’s credit-default swaps can seize their collateral at any time, posing an enormous potential risk to the entire financial markets. Investment banks, hedge funds and other financial players labored throughout Sunday to offset their exposure to Lehman, moving their contracts to other firms.
MCCAIN: "I still believe the fundamentals of our economy are strong."
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