Debating the Lehman Collapse

by: Felix Salmon September 12, 2008 | about stocks: LEH    
Felix Salmon

Felix Salmon

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There's a lot of sympathy for Lehman Brothers (LEH) today -- a lot more sympathy than there ever was for Bear Stearns. Dick Fuld might not be the friendliest chap on Wall Street, but his shop is well-liked and well respected: There will be sadness when it no longer exists in its present form.

But although Lehman's demise is sad, that doesn't mean that the US government should step in to prevent it, and it also doesn't mean that it shouldn't happen, in some kind of normative sense. Indeed, the death of Lehman could be systemically helpful if it shows that the markets can survive a financial collapse without government cash shoring things up. Or that's my point of view, anyway. Dear John Thain has the opposite opinion: here's an IM conversation we had this morning.

DearJohnThain: Quick question ... have you seen anywhere what is actually causing this shotgun wedding for Lehman?
Felix Salmon: Two words: share price
DearJohnThain: Doesn't make sense to me.
Bear, at least, was about to be insolvent...
Felix Salmon: What doesn't make sense? Why the share price is falling, or why a falling share price makes Lehman untenable?
DearJohnThain: the latter
Felix Salmon: because counterparties will stop doing business with Lehman, and the ratings agencies will downgrade
which of course for a bank is the kiss of death
DearJohnThain: Argh. Seems so .... "self fulfilling" ... shouldn't be this way
Felix Salmon: All levered institutions rely on confidence
"credit" comes from the Latin "to trust"
without trust and confidence, no bank can survive/
DearJohnThain: Seems like, in this scenario, Treasury and the Fed should be able to step in and do something to show confidence ... like guarantee a loan to Lehman
Felix Salmon: Why? so that Lehman can survive?
The survival of any individual bank should never be systemically necessary
DearJohnThain: To keep the system stable
Felix Salmon: Why is a world with Lehman more stable than a world without Lehman?
DearJohnThain: I agree that trust is a big piece... but it's a chicken and egg problem here... Share price is falling because people don't trust them and people don't trust them because they see the share price keep falling...
Felix Salmon: right
DearJohnThain: So, what if this is being driven by shorts or rumors...
Felix Salmon: Capitalism needs bank failures occasionally, to punish institutions which lend $30 billion to commercial real estate at the top of the bubble.
If you overlever yourself and make bad investments, you become susceptible to shorts and rumors, yes. That's a good reason not to overlever yourself.
DearJohnThain: Or just people selling out because of skittishness.
That's an unstable system.
Felix Salmon: The system should be unstable. it doesn't exist to perpetuate banks, it exists to efficiently allocate capital.
DearJohnThain: Someone with trust should step in, make an objective call, and move on.
If they are indeed well capitalized, then they should be able to survive.
Felix Salmon: The Fed and the Treasury have no responsibility to ensure that well capitalized banks survive.
That's not their job
DearJohnThain: Well, if well capitalized banks can't survive, then who can?
Felix Salmon: Transparent banks which can convince their counterparties and lenders that they're solvent.
DearJohnThain: ehhh... seems inefficient that someone can believe you're not solvent when you are and there's no way to fix that
Felix Salmon: It can be fixed ex ante, by not overlevering. It can be fixed if you're really not solvent by just selling the assets which people are worried about at a high price, if they're really worth that much.
It's not like Lehman didn't have any warning. The credit crisis has been going on for over a year. They had every opportunity to derisk back at $65 a share, and they didn't. Now they're paying the price.
They knew full well that the more leveraged they were, the more likely they were to blow up. That was a risk they took with their eyes open.
DearJohnThain: Well, they also took their precautions.
Felix Salmon: What precautions? Firing the CFO?
DearJohnThain: They secured enough capital for a year...
and even raised plenty more to keep a cushion.
They have 11% tier 1 capital now...
Felix Salmon: It's the asset side of the balance sheet that people are worried about, and they barely touched that.
DearJohnThain: I dunno... knowing that market, I just think it's people trying to profit from their problems...
Felix Salmon: This is Wall Street, of course there will always be people trying to profit from everything.
On Wall Street, profit is a good thing, remember?
DearJohnThain: Something intellectually dishonest (and illegal) about profiting from something that is false and being perpetuated.
Felix Salmon: There's nothing intellectually dishonest or illegal about profiting from shorting LEH
The only thing which is illegal is spreading rumors about Lehman you know to be false
DearJohnThain: Exactly.
Felix Salmon: And there's NO indication that anybody is doing that
DearJohnThain: And those "Lehman is going under rumors" started around the same time Bear did...
"Lehman is next."
Felix Salmon: They were right!
DearJohnThain: Well, I would claim they were wrong if Lehman gets taken over and was never insolvent...
Or was never going to be insolvent without intervention
Felix Salmon: Who knows if they're insolvent? Lehman is a black box, no one knows what goes on inside.


Jesse wrote about it back in March and none of those issues were ever really addressed

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This article has 30 comments:

  •  
    Sep 12 12:02 PM
    well it looks like banks future depends ultimately on trust, and not many out there are trusting anybody, so is that means that WaMu gain is over?
    Reply | Link to Comment
  •  
    Sep 12 12:26 PM
    Its really embarrassing how many so-called "capitalists"... want the government to step in and rescue over-levered banks with balance sheets that cannot be deciphered even by insiders.

    Even though (most) people like Dick Fuld, not even his friends and supporters can figure out the value of what is on LEH's books. Its not obvious that Dick Fuld knows, given there is no market for many of these assets. LEH's supporters keep whining about an alleged capital ratio or book value -- both of which rely on questionable accounting judgments about the very assets that are causing the banks demise.

    The most telling thing is to ask what would LEH do if one of its own customers got over-levered? What would LEH do if you bought something on leverage through LEH and that asset went down?

    The answers are obvious: over-levered customers would be required to de-lever immediately, selling whatever assets at the current market price. If you tried to argue with your broker that XYZ stock is undervalued by the market and so the margin call is totally unfair-- your broker would just laugh at you. These responses are not unique to Lehman; the same outcome would happen at any brokerage.

    You know what people think about those who cannot take their own medicine...
    Reply | Link to Comment
  •  
    Sep 12 12:37 PM
    Both are right. Dear John Thain is more right, much more so. The damn SEC sits on its hands and does NOTHING while short sellers and hedge funds ILLEGALLY naked short sell LEH to death which CAUSES counterparties to lose confidence and this leads to the spiral we are witnessing. Plain and simple.

    However, LEH should know better and have become much more transparent about its situation, and they should have done so 2Q. Which is why MER might be a good bet to pick up on these drives down - I haven't studied it but at least they appear to try and deal with these issues.

    At the heart of this though, DEAR JOHN THAIN is exactly right. And further, this whole mark to market fiasco needs to stop. If your neighbor's house goes into foreclosure and sells for $10,000, does that mean your previously $300,000 house is worth $10,000.

    But we have leaderless government that does nothing proactive other than goofy "bailouts" rather than getting to the heart of the matter. Ever wonder why? They want consolidation, they want more control over the matters, and if bankers weren't so damn stupid, now they're going to have Uncle Sam in their business for years to come.

    Short selling abuses - illegal naked shorting - was supposed to be stopped in July. It is now September and it is occurring by every sheeple hedge fund with an "idea" to throw around.
    Reply | Link to Comment
  •  
    Sep 12 12:48 PM
    If LEH were able to make its books transparent -- which is impossible given the assets they hold -- the short sellers would be discredited in an instant. LEH's lack of transparency is the problem.

    If the questionable assets were a small part of the total, and small in relation to shareholder equity -- the short sellers would have nothing to go on. LEH's excessive leverage is the problem

    Short selling "abuses", if they exist, are only possible because of poor decisions made by LEH.

    Crying about short sellers is the sort of thing Wall Street USED TO make fun of when the former President of Indonesia did it at the start of the Asian crisis.

    No one has ever cited a single example where an otherwise solvent firm was brought down by speculators / short sellers. A strong solvent firm (or country) has numerous easy ways to fight any short selling.
    Reply | Link to Comment
  •  
    Sep 12 01:08 PM
    "No one has ever cited a single example where an otherwise solvent firm was brought down by speculators / short sellers. A strong solvent firm (or country) has numerous easy ways to fight any short selling. "

    Hmm. Seems to me that buyers of firms shorted to death (Countrywide, Bear, Indymac,Leh...) won't have any reason to communciate post ante that the buyee was acually in great shape, so the above statement is fairly silly.
    Reply | Link to Comment
  •  
    Sep 12 01:17 PM
    "Hmm. Seems to me that buyers of firms shorted to death (Countrywide, Bear, Indymac,Leh...) won't..."

    Every example you cited (except LEH, which is on going) has been found in hindsight to be insolvent. BAC has refused to guaranty the debt of Countrywide. JPM refused (even with the Fed's gun to his head) to take Bear Stearns unless the Fed took $29 billion of garbage. IndyMac is already straining FDIC.

    And Goldman Sachs has said flat out they will not take LEH unless the Fed or Treasury takes some bad assets out of the mix.

    So either Goldman is crazy -- or Research123 thinks he knows more than people who have actually been given detailed access to LEH's books.
    Reply | Link to Comment
  •  
    Sep 12 02:23 PM
    I found this blog entry to be insightful (the comments as well). Keep up the good work guys. For my own $0.02, I hope LEH does not disappear.
    Reply | Link to Comment
  •  
    Sep 12 03:10 PM
    The best way to resolve the current 'confidence' crisis and to prevent people from unethical profiting from it is to revert to the old paper scrip system. This will make sure that any short selling is genuine - not sold from 'made up' scrips. As long as we have threshold securities still in existence, its very easy to make a case that a company is going under....that is the power of words in a proclaimation.
    Reply | Link to Comment
  •  
    Sep 12 03:32 PM
    The whole short sale conspiracy theory has been repeatedly discredited -- in addition to the president of Indonesia, short sale conspiracy advocates are keeping company with the CEO of overstock.com ...

    The NY Times also discredited the idea that naked short sellers are somehow manipulating markets
    norris.blogs.nytimes.c.../

    The fact is, healthy companies don't ever seem to fall victim to these alleged conspiracies -- or more to the point, they are very transparent and conservatively leveraged, so it is very easy for a healthy company to convince the markets that the short sellers are wrong.

    There is no conspiracy to drive down LEH or any other financial company. They are over-levered into too many illiquid assets. As sad as it is to see LEH go, it is dying because of its own mistakes
    Reply | Link to Comment
  •  
    Sep 12 03:38 PM
    And none other than Warren Buffet has dismissed the naked short selling conspiracy...

    jeffmatthewsisnotmakin...

    Buffet is not worried about naked short selling of Berkshire Hathaway -- in fact he offers to hold a special meeting to help anyone who wants to try.

    Buffet cites a windfall profit he made off short sellers in US Gypsum

    Short selling is simply not an issue for a well run firm.
    Reply | Link to Comment
  •  
    Sep 12 03:45 PM
    I think many of the comments miss the point. The point here is that if the low share price is the reason to force an otherwise solvent company to do a deal, or for the rating agencies to downgrade, or for any other number of things, and the share price is because of "rumors" or other things that aren't true, then that's bad. If Lehman is solvent then something should be done to tell the market that. The Fed should have an interest in ensuring stability if it isn't at the cost of lying or causing a moral hazard.

    Short sellers don't enter into my thinking, although they are a natural source of rumors. Sometimes it's just something more interesting than nothing getting caught in the echo chamber--talking heads need something to say, CNBC needs to fill it's airwaves. Paulson and Geithner (sp?) should just go on T.V., say they have examined Lehman's books, and say that they stand ready to fund any requests LEH might make of the Fed via their collateralized lending programs. This would stabilize the market, Lehman, and stop a completely unnecessary fire sale. After Lehman there is nothing to stop the other firms from falling prey--especially if Lehman didn't need to sell itself.

    -DJT
    Reply | Link to Comment
  •  
    Sep 12 04:10 PM
    DJT -- I think we understand your point, you are missing ours.

    If, as you seem to suggest, LEH's stock is "unfairly" battered down -- why wouldn't one or more of Dick Fuld's numerous friends on Wall Street start buying like crazy?

    Why wouldn't Goldman (or Morgan Stanley or whomever) buy LEH stock and make a windfall once the market "comes to its senses"?

    Goldman is certainly in at least as good position (arguably better) than anyone on this board to evaluate Lehman's assets/liabilities. So is Morgan Stanley. So are many others. Why doesn't Warren Buffet jump in? Heck, why doesn't some allegedly greedy hedge fund manager jump in? If Lehman stock is "unfairly" down (whether short selling or "rumors" or whatever conspiracy), why don't any of these well heeled, long term investors want to make easy money?

    The obvious answer is: Lehman stock is down for very good reasons. Over-leverage, illiquid assets that are difficult to value and even more difficult to sell, and poor risk management

    Lehman has had access to Fed lending programs for months (since two days after Bear's collapse) -- so its very confusing why would you suggest Paulson and Geither go *announce* something that everyone has known for months? It has already been done -- and it failed to stablize the markets.

    Dick Fuld is a smart guy -- what makes you think he hasn't already shown the books to potential buyers? There have been many rumored suitors (Goldman, BankAmerica, Korean Development Bank, etc)

    This isn't an unnecessary fire sale -- its the very easily anticipated result of a decision to get overlevered in illiquid assets.

    You need to think ahead a few moves with your suggestion that Lehman be given a pass-- especially at taxpayer expense. How could Lehman ever hope to enforce a margin call against a customer in the future? Do what we say, not what we do?
    Reply | Link to Comment
  •  
    Sep 12 06:42 PM
    I agree that a lot of what Lehman is facing could have been prevented had Lehman been more transparent regarding their numbers. Keeping shareholders in the loop with developments would also have been a good idea instead of the long periods of silence.

    However, if Lehman is to fail which looks very likely, then the SEC/Fed/Shareholders are effectively condoning irrational activity based on pure speculation. Financial statements indicate the company is solvent. Auditors have signed off on these statements. So there is no logical reason to explain the massive drop in the share price which in turn has caused rating agencies to place Lehman under immense pressure to do a deal. This is turn results in less value placed on Lehman's assets from a fire-sale perspective.

    One can only hope a third party other then BAC/Barclays sees the inherent value in Lehman and invests in Lehman to pull them through. This will kill off all those that brought down the share price in anticipation of failure and will indicate that the market does not appreciate illogical activity like this. Otherwise where will the madness end?
    Reply | Link to Comment
  •  
    Sep 12 07:00 PM
    Auditors also signed off on Enron's books. The only thing auditors do is spot check some (not all) assets.

    Goldman and Morgan Stanley (and Lehman) have no way to properly value many of the illiquid assets on Lehman's books. The assets are listed at costs established during the real estate bubble -- way too high.

    If Goldman et al are unable to value the assets -- its ridiculous to cite a bunch of CPAs rubber stamping Lehman's cost as being in any way accurate.

    The firm is not solvent and there is no madness. There is nothing illogical about the price. If there was any merit to LEH, there are many smart and cash rich players who would jump in and take the free money.
    Reply | Link to Comment
  •  
    Sep 13 01:25 AM
    Blah blah naked shorts blah blah. LEH is not on the Reg SHO list. It never has been as far as I can determine. And it certainly hasn't been on the list for 307 days, as USO has.

    You want to make a case the LEH is suffering the equivalent of a bank run, fine. Do it without baseless allegations of naked shorting.
    Reply | Link to Comment
  •  
    Sep 13 09:12 AM
    If Lehman is greatly undervalued at the present time, someone with a big, strong balance sheet will do a deal this weekend. Some price like $5/share.
    The solid balance sheet of the new buyer will restore confidence in Lehman and the company will prosper. That buyer then can sit back and reap the rewards of his purchase of undervalued assets at an irrational discount created by short sellers.
    Or...
    Reply | Link to Comment
  •  
    Sep 13 09:21 AM
    This whining from you people on Wall Street about "naked short selling" is a joke...right?

    I mean really..for the last eight years with the SEC with a "bell around its neck", "the deregulation" of the financial industry, "financial innovation" (aka making up money), a tax structure you could only dream about 15 years ago..you had one hell of a party. Now the chickens have come to roost and you want Uncle Sugar...meaning people like me who are small business people who were working our asses off building real companies, taking real risks...like putting up our homes, selling assets to raise investment money to save your arses, again! Let me think about...NO.

    I have been in favor of "saving Freddie and Fannie" they did get too big to fail..also Bear...it would have been too much of a shock to the system...but at some point someone has to hit the wall...and Lehman seems as good a place to start as any where.

    This will end once the short sellers get their asses kicked on one of these...(which they will not). Until then I hate to be the one to tell you this....party over.

    disclosure...short the S&P 500 and Russell 2000
    Reply | Link to Comment
  •  
    Sep 13 10:23 AM
    gramps2: kudos! It must get old repeating yourself. I believe Bear, Fannie, Freddie, Lehman, et. al. must be allowed to fail. If the system cannot survive a collapse then we have no system. Let them fail, wait for the dust to settle and pick up the pieces after.

    Creative Destruction is required for our capitalist system to succeed. Each bailout is one more step to a nationalized financial system.

    And people like OregonRain and myself (yeah, I've got a small business too and everything I own is at risk every day) are the ones who pay the price. Lehman gets to borrow at the Fed. My credit line gets shut down. I'm transparent and solvent. Bring the SOB's down.
    Reply | Link to Comment
  •  
    Sep 13 12:16 PM
    Gramps2, you missed my point. Lehman's books state the company is solvent. If Lehman is allowed to fail on top of Bear whose books also indicated they were solvent, then no one will believe the numbers of the remaining financial institutions and thus where would the madness end? I believe the accounting standards at to blame for this. When it comes to assets, they should be carried at amortized cost except where impaired and then should be written down. That way there are no fake profits until realized, directors don't get paid absurd bonuses based on paper profits, and we will truly know how liquid a company actually is. Confidence will be restored in the financial sector. However, the only way to restore this confidence now is to save Lehman.
    Reply | Link to Comment
  •  
    Sep 13 12:17 PM
    Should a liquid and healthy company disappear due to a vulgar display of power by the trading community? Seems so. Then the stock market is no longer a legitimate institution and it should be reformed.
    After Lehman, just any publicly traded company could be the next victim.
    Reply | Link to Comment
  •  
    Sep 13 02:10 PM
    If they were solvent, wouldn't someone snatch them at fire sale prices?
    Reply | Link to Comment
  •  
    Sep 13 03:17 PM
    riskyreward -- I think I understand your point now.. but I still disagree. Accounting has ALWAYS been an art, not a science. You cannot look at book value or P/E ratios as if they were some sort of precise measurement. At best, they are a snapshot of a moving target. At worst, they are nothing more than artifacts of accounting rules.

    People have been debating the merits of "mark to market" and "cost basis" literally for centuries (the concepts were the same, the names sometimes changed).

    Mark to market gained popularity precisely because cost basis does not reflect impaired value unless and until management "recognizes" it. Plenty of CEOs have inflated earnings by simply delaying that "recognition"... Mark to market regained popularity because CEOs would pretend acquisitions were successful -- there are many instances from the 1980s were a CEO overpaid for another company (creating enormous amounts of "goodwill"), but when it became obvious that the acquisition wasn't paying for itself, CEOs refused to write down the worthless good will.

    Now the pendulum has swung to the opposite extreme, and people are rehashing all the complaints against mark to market.

    But as investors, we shouldn't get ourselves tangled up in accounting minutia. We have to look at the underlying business(es) and understand what is going on.

    You have no doubt read about all the homes being foreclosed upon all over the country? The even larger number of people who are behind on mortgage payments? You must have read how home prices as a multiple of income are STILL many times higher than historical "norms". These people are not paying (and probably cannot pay).

    If they cannot pay, that means the folks on the other side of the transaction-- the people who own the mortgage securities-- are not getting paid. Lehman (and the rest) paid money up front to buy the mortgages (ultimately they lent the money to the homeowners) -- and now they are not going to be paid back.

    That means they have billions in losses... it doesnt matter if you look at it on a cost basis or a mark to market basis -- they have massive losses either way.

    Lehman's problems are compounded because they bought those mortgages at extreme leverage. And many of the mortgages are in securitized forms that are very illiquid -- making them difficult to price even if you are a mortgage securities analyst/trader.

    That is why Lehman (and many other banks) are insolvent -- whether you use cost basis or mark to market accounting.

    There are hundreds of investors with a lot of cash and a lot of smart analysts working for them who would sweep in and buy Lehman on the cheap if they were truly solvent.
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  •  
    Sep 13 05:38 PM
    please go to this free blog mbafolio.blogspot.com. He has an interesting blog on Lehman written in July. It seems he was right on target
    Reply | Link to Comment
  •  
    Sep 13 06:04 PM
    Very well put gramps2. But as you said many other banks are probably insolvent too. So something has to be done this weekend or the house of cards will come tumbling down. I like the idea of all banks spinning off dubious assets into a "SpinCo" to which they would then provide liquidity to run itself off. This way the focus will be back on core earnings and nothing else. I'm not sure what punishment should be given to financial institutions for their recklessness but let's stabilize things now.
    Reply | Link to Comment
  •  
    Sep 13 06:52 PM
    riskyreward -- there are a lot of problems with the "Spinco" idea
    (1) You have to be able to place a "real" value on the spun off assets. That involves some sort of price discovery (aka "mark to market"). By definition, there is no widespread agreement on the value of these assets -- meaning it will be almost impossible to make "Spinco" be bankruptcy remote. The creditors of "Spinco" will have a firm legal claim on the assets of the surviving portion of the company.

    (2) The market value of many of these companies suggest that the losses on "Spinco" exceed the positive value on the otherwise surviving businesses. That's a fancy way of saying the remainder of Lehman isn't going to survive

    (3) There is no way to create a stable system in which the rewards go to the lucky / politically connected -- but the costs are born by "the system" (aka the taxpayers). Whether anyone wants to admit it, the parts of Lehman that might survive benefited tremendously from the parts that are now causing its demise. Why should the "surviving" parts benefit doing good times, but not suffer during bad times? And why on Earth are the rest of us responsible for their mistakes?

    Every little hot dog vendor on the street is not "too big to fail". No matter how entangled Lehman is with the rest of the street -- everyone has known about the Lehman problem for months. Any firm that did not control their exposure over those months deserves to fail.

    Arguably some of the most prominent firms on Wall Street 30 years ago were names like White & Co, EF Hutton, Loeb, Salomon Brothers, and Paine Webber. They were all as important in their day as Lehman or Morgan Stanley is to today's market. They are all gone -- and the world did not end. Drexel Burnham failed almost overnight, and again the world did not end. Even the junk bond market is still alive and well. The world will miss Lehman and many others that will soon fail -- but life will go on.

    There will be a disruption when Lehman fails, but it won't bring down any well managed firm... The CEOs of the other companies are **SUPPOSED** to be doing daily credit analysis on all their counterparties. They have all had months to adjust to the current crisis. If they haven't adjusted, if they aren't doing their jobs, then they deserve the fate of any business that isn't doing its job.

    Things will stabilize when trust and confidence is restored to the system -- not when a bunch of government bureaucrats and central economic planners pick and chose which firms will survive or fail based on politics.

    Firms that don't do their job well have always failed -- except in crony capitalist economies where government props them up. Consumers and taxpayers are always worse off when this happens.

    The best solution to this problem is the one the U.S. suggested (and almost imposed) on Asia 10-15 years ago... Don't prop up bad businesses; instead let new entrepreneurs step in and meet consumer demands. Get government spending under control.

    Lots of people have tried to blame free markets for this crisis... but if we were more honest: it was the Fed that lowered interest rates too far. It was Alan Greenspan (the Fed again) that recommended everyone switch to adjustable rate mortgages, and it was bank regulators that failed to regulate banks on liar loans and abysmally poor (non existent?) risk management practices. Government's push to promote home ownership -- at any price-- was a big part of the problem. Fannie Mae and Freddie Mac are both political entities sponsored by the government.

    If taxpayers go and bail out the failed companies (which we really cannot afford to do anyways) -- it means the same geniuses that caused this problem remain in business to mess things up again and again. The economy needs new companies with new ideas and better management -- those new companies will never come to be if they have to compete against government/taxpayer subsidized ponzi schemes. Part of the reason why Fannie and Freddie got so oversized is because they had implied government backing and could borrow money 80 basis points cheaper than the competition (and according to a Federal Reserve study, less than 25bp of that was passed along to homeowners).

    People always want to take action and "do something!!!" -- but sometimes the best thing to do is nothing. Have a little patience. This too shall pass.
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  •  
    Sep 13 11:57 PM
    Supurb posts, Gramps2. The best material I have read on SA. I congraulate you.
    Reply | Link to Comment
  •  
    Sep 14 02:27 PM
    great post gramps2
    Reply | Link to Comment
  •  
    Sep 14 03:51 PM
    great post gramps2 - btw Barclay's has pulled out of the talks is what I'm reading on the wire... narrows it down to Bank of America and a far few others.
    Reply | Link to Comment
  •  
    Sep 14 05:41 PM
    Great post Gramps2. Very refreshing!
    Most important aspect of this weekend is what is not being said!
    1) What is the real value of these securities?
    2) If the real value is placed on the Lehman's assets, how much more write off is due at from players?
    3) What about exposure from other countries – Europe, Asia, South America, Eastern Europe? Remember – condos in Rio, Guatemala City, Prague, Odessa, Mumbai, Dubai, Shanghai and last but not least – Timbuktu ……… are more expensive than one overlooking central park in New York. All financed with same toxic securities if not worst.
    4) Will we allow Middle East Money or Chinese money to buy Merrill?
    5) Is this a precursor for federal bailout of Merrill?

    We do not elect government to run business. No one is indispensable. We have to cut our losses and move on. If that is the bitter medicine we have to take to recover, so be it. It is better than being a Banana Republic.