the visible hand

it is the theory which decides what can be observed – einstein

Lehman: the unraveling

Posted by ecoshift on September 14, 2008

Very compelling news day for the financial markets. I’m just an ordinary average guy. Spent most of the day cleaning out the garage when not reading financial blogs. Near as I can tell tomorrow will be a memorable and volatile day.

Calculated Risk did an awesome job keeping up with all the rumors and the shape of various options being considered in New York and London. CR had nearly 1k visitors online in the early evening. The summary post is up now. Paulson hung tough and refused to guarantee a bailout for Lehman Bros. So Barclay’s and BofA both walked away from the deal. Lehman was expected to file for bankruptcy by midnight tonight, filing now likely by market open tomorrow. Roubini spells out the implications.

Major banks will combine resources to create a 70 billion lending pool and BofA has agreed to buyout Merrill. This will be viewed as good news, though markets are near capitulation.

Half the Asian markets are closed for a Monday holiday, but the All Ordinaries is off 2.35% and Taiwan off 4.38% as of 9pm PST. Dow futures are off over 334. Expect to head into serious bear market territory tomorrow (20%+ off the peak) with a falling dollar and rising oil prices. So the Fed is opening up it’s lending facilities to a broad range of collateral including equities. So despite the lack of explicit guarantees, the taxpayer will still backstop the markets.

The liquidation of Lehman’s assets is going to bring market prices to assets marked to model throughout the financial system threatening balance sheets across the board. Lots of of assets will be sold into contracting markets. Yikes. Fannie and Freddie are sooo last week.

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