Lehman Brothers, the oldest firm on Wall Street, is experiencing a run on the bank, much like Bear Stearns last March. These runs begin to feed on themselves for the simple reason that, if I’m a financial manager and I have a lot of money stashed away at Lehman, if they go under, I am going to lose at least some of it. What to do? Pull your money and business. The more people that pull their money and business, the less money Lehman has to do business. Thus the run.
The federal government does NOT want to bail out Lehman because they realize they’ve already set a precedent with Bear-Stearns and Fannie Mae/Freddie Mac. Most of the bidders for Lehman are saying, “we want the deal that Bear got.” So far the government is resisting, who knows what they’ll end up doing. I do know 2 things: 1. It will be another long weekend for Henry Paulson and Ben Bernanke; and 2. The more bailouts they have, the more risk they pile onto taxpayers, while only putting off the day of reckoning (maybe to the next administration?). Good luck being the next Herbert Hoover, whoever wins the election.