Stick a Fork in Lehman…It’s Done

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.

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3 Responses to Stick a Fork in Lehman…It’s Done

  1. Brandon says:

    It looks like they are not bailing this one out, which I guess at some point they had to stop. Should be painful, but hopefully it will start to get some of the bad debt out of the system.

  2. Brandon says:

    Apparently the CEO had a few chances to sell portions of it earlier this year which might have given it enough liquidity to keep going. Too late now so it seems.

  3. John Murphy says:

    I’m not sure this will “heal” anything just yet. I think we’re still on the downward slope of banks admitting their problems which are far deeper than any of them are admitting. This is why I’m not sure Bank of America is getting a “good deal” in buying Merrill Lynch. I read somewhere that the actual cost of buying Bear Stearns (as compared to the apparent cost of $10 per share) is somewhere around $109 per share because of debt they are uncovering.

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