Dim Prospects For Lehman Brothers' Future

Treasury Department, Federal Reserve And Private Banks Prepare A Safety Net In Case Of Lehman Bankruptcy

(AP) 

Paulson, Timothy Geithner, president of the New York Fed, and Securities and Exchange Commission Chairman Christopher Cox were among those taking part in the meetings. Federal Reserve Chairman Ben Bernanke is actively engaged in the deliberations but wasn't in attendance.

Paulson went into the weekend discussions insisting that government money should not be used to resolve Lehman's problems, arguing that the current situation is different from the sale of Bear Stearns to JP Morgan Chase six months ago in which the Fed put up $29 billion in loans.

In Lehman's case, Paulson believed that financial markets have been aware of Lehman's problems for a much longer period and have had time to prepare and investment banks also now have the ability to obtain emergency loans directly from the Fed, a crucial support that they did not have back in March when Bear Stearns was rescued.

A person familiar with Paulson's thinking said on Friday that Paulson was "adamant that there be no government money in the resolution of this situation." This person, who spoke on condition of anonymity because of the sensitivity of the negotiations, said on Sunday that Paulson had not changed his views during the three days of talks.

Paulson's tough bargaining stance received support from outside observers Sunday, who argued that the government had no choice but to draw a line in the sand.

"If Treasury put money into the Lehman deal, then going forward no deal would get done without Treasury help," said Mark Zandi, chief economist at Moody's Economy.com. "Every potential buyer would wait until Treasury stepped in and that would mean Treasury would be on the hook for a lot more bailouts."

In the Lehman talks, bankers and government officials were also trying to tackle a broader agenda that includes problems at American International Group Inc. and Washington Mutual Inc., said the investment bank officials, who were briefed on the talks.

AIG, the world's largest insurer, and WaMu, the nation's biggest savings bank, have taken steep losses during the past year from risky investments. Investors, worried they do not have enough cash on their balance sheets to withstand further hits, unloaded their shares on Friday.

Lehman put itself on the block earlier last week. Bad bets on real-estate holdings - which have factored into bank failures and caused other financial companies to founder - have thrust the firm in peril. It has been dogged by growing doubts about whether other financial institutions would continue to do business with it.

Richard S. Fuld, Lehman's longtime CEO, pitched a plan to shareholders Wednesday that would spin off Lehman's soured real estate holdings into a separately traded company. He would then raise cash by selling a majority stake in the company's unit that manages money for people and institutions. That division includes asset manager Neuberger Berman.

Financial Institutions Brace For Lehman Bankruptcy

A top investment banking official says U.S. and foreign banks are planning major steps to inoculate the global financial system as a bankruptcy filing by Lehman Brothers appeared likely.

The official said Sunday the banks would create a pool of money up to $50 billion to lend troubled financial companies. And officials at the U.S. Treasury and the Federal Reserve are expected to say they are prepared to make additional loans.

The plan comes as top government officials and Wall Street executives hold marathon meetings about Lehman's future.

The official says the Fed and Treasury are pushing Bank of America to buy Merrill Lynch. The person, with direct knowledge of the talks, was not authorized to speak publicly because the discussions were ongoing.

Possible Merger On The Horizon

Bank of America Corp. and Merrill Lynch & Co. are in talks about a possible combination of the two financial companies, the Wall Street Journal reported on Sunday.

Bank of America had considered buying Lehman Brothers Holdings Inc., but pulled out of that deal and considers Merrill Lynch to be a better fit, the Journal said on its Web site, citing people familiar with the matter.

Spokesmen for Bank of America and Merrill Lynch did not immediately return calls seeking comment.

Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest brokerage. A combination of the two would create a global banking giant to rival Citigroup Inc. - the biggest U.S. bank in terms of assets.

Major banks and brokerages met this weekend with government officials to try to formulate a rescue of Lehman. However, with no government financial support, banks were reluctant to make an acquisition.

The likely withdrawal of Bank of America, along with the pullout of Barclays PLC from the talks, raised the specter that Lehman might be forced to file for bankruptcy protection.

Merrill Lynch, as the world's largest brokerage, has more of a foothold in the retail market than Lehman.

"This is the ultimate New York institution," said Jim Wilcox, professor of financial institutions at the University of California, Berkeley's Haas Business School. "Bank of America has had designs on Manhattan one way or another for some time."

And while Merrill's books are far from clean, there is a bit less uncertainty about its financial health.

"It's awfully difficult to get anyone to take on a fundamentally insolvent instution. And if that's the concern that people had about Lehman, it's a much tougher sale," Wilcox said.

In July, Merrill sold its stake in financial news and data provider Bloomberg LP for $4.43 billion to raise capital, and then sold a huge chunk of its toxic asset-backed securities and issued new stock to raise another $8.5 billion.

[pensacola98]

$60 Billion in soured real estate holdings is enough to break their back!

[andor3]

Sept 15, 2008: Black Monday. Hold on to your hats.

[Michael Arnold]

Run for your life.

[nwihoosier]

Peace and Love
Tuckerdmbfck, you have no clue. Are you aware that you are clueless?
Peace and Love

[occams_taser]

Phil Gramm and Bill Clinton together made sure the Economic Hit Men hit America. And this is the result.

Didn''t Marx say a capitalist will sell you the rope to hang him with? Well, the correct analysis is that a capitalist will buy a government official in order to get rid of government regulations against it, in order that he may hang himself!

[missingamerica]

"Several private-equity firms were also believed to be interested in Lehman''s assets."

''Tis those "private equity firms" who, in demanding ever higher returns, force corporations to go offshore in search of cheaper labor.

''Tis those "private equity firms" who, through their purchase of influence among the Republican Party, helped bring about the lax and absent regulation that created the level of corruption that has lead to the fallout we see now.

''Tis those "private equity firms" who take profitable corporations and tear them apart to squeeze more money out of them, and when they are reassembled, things like pensions and healthcare plans are gone.

Turning Lehman over to "private equity firms" is truly opening the henhouse door for the convenience of the fox.

[andor3]

"Government don''''t need to be the all seeing eye and control... All they have to do is start tossing these guys in jail."

helloo? government is who sets and enforces the laws. Tossing these guys in jail is government control.

[andor3]

wait a minute... we all know the system, especially under Bush and Co., is run for the rich. So just figure out how this benefits them.

My bet is millions of Americans are about to lose our retirement savings. They warned the system would fail unless they could steal the funds from Social Security in a "privitization" coup.

[shanev137]

Don''t worry...Bailout Bush will take care of you.

[ajaxtheleast]

At my level,,,"What, me worry.!??

What''s the difference between something being

there to trickle down and it doesn''t trickle down

and nothing being there to trickle down

and nothing trickles down.??



One might think that it would take two or more American Presidents to leave behind countless
war crimes, the disapation of our national
credibility, the animosity of the world
and the destruction of the American
financial system as a legacy.

[republic1776]

Once word gets out about Chads new "roomy" Bubba who left a candy bar under his pillow.
Wallstreet will sart playing nice, out of fear.

[republic1776]

Government don''t need to be the all seeing eye and control.
Our Government is bloated as it is.
All they have to do is start tossing these guys in jail.
The market will straighten out real fast.

[cbsblogger]

This is the fault of an administration with a philosophy that banks and corporate America should have free reign to do their thing without any restraints or controls from government. We see other results regularly with dangerous drugs, no labeling on country of origin, and financial companies that police themselves.

Wait until investors discover that the mutual fund companies have been running without any SEC oversight and the same way and all those statements and quoted NAVs aren''t worth the paper they are printed on.

[whitemale08]

Lemon Brothers is gone and so is the entire Global Financial System!

We are living in some very very critical times and stagflation worse then the 70''s has already set in.

Now it''s time for hyper-inflation in the style of Zimbabwe and Weimar Germany before WWII. This will be triggered by Hank the Snake Paulson on Sept 30th to kick-off the Fannie and Freddie Bailouts.

Brace yourselves if you haven''t already and buckle your seat-belts because we''re headed for a New Dark Age!

[republic1776]

This is the fault of Congress.
Nobody will go to jail.
They will all walk away with their pockets full of cash.
Payback time...
Clinton days of smoking the books are here.
Keep voting for the same two parties.

Bob Barr 08
REAL CHANGE

[mortgagemom1]

WHEN THE FEMALE EMPLOYEES COMPLAINED - THEY WERE TREATED LIKE THEY WERE IGNORANT. THEY ONLY BELIEVED IT WHEN THE MEN COMPLAINED. IF YOU WENT TO HR, THE MALE BOSES WERE PROTECTED. THEY LIED! THEY WOULD HARASSE YOU, YOU WOULD REPORT THEM, THEY WOULD GET YOU IN HR AND LIE, THEY ALWAYS PROTECTED THE GOOD OLD BOYS. WOMEN HAD NO VOICE.

[mortgagemom1]

LEHMAN''s also - knew they were having service problems. when the employees complained, they hide the problems. They also would not allow employees to holed second jobs, do volunteer work, etc.. you had to be married to lehmans. If your child got sick, you were forced on FMLA -even if you had 3 weeks of vacation time. THEY DESERVE TO GO DOWN

[mortgagemom1]

Lehman''s new they were buying bad paper! They created it, forced their a/e''s to sell it. If they didnt sell, it they harassed them, demoted the good managers and kept hiring more HEARTLESS MALE MANAGERS the slimball''s -outsorced to INDIA to save money -yes that was our AMERICAN homes loans out sorced to INDIA.
IF you complained - they treated you like an idiot and ignored the problem. Hired people who didn''t know what they were doing. Treated experienced people liked dirt. If you told the trueth - you were blackballed and without a job.

[credibility2]

Let''s not forget the stupid little person with flimsy and risky credit histories actually thinking they were entitled to get any type of mortgage just because they were breathing air and who also didn''t even bother to seek legal counsel as to the propriety of their too good to be true mortgage loan. They also contributed to this sinking ship. None of the CEOs or other executives of these firms should get anything, including the investors who did nothing to self-regulate. The perfect storm is starting to really drop some nasty weather on all of us, including the global markets. The DOW futures are already below 250 and it''s hours before the markets start active trading in this country and elsewhere.

[culturechang]

I still ask what good is (was) all the mortgage insurance premiums paid during the past 20 years? Wasn''t that supposed to mitigate the bank''s risk. Why aren''t these "policies" being called upon OR were these premiums just lining someone''s pocket?