Lehman Races Clock; Crisis Spreads - Susanne Craig et al, Wall St. Journal
Lehman Brothers Bailout? Just Say No - Jesse Eisinger, Portfolio
If Lehman Fails, Would You Feel It? - Tom Petruno, Los Angeles Times
A Vicious Cycle, Gone Global - Steven Pearlstein, Washington Post
'Franron' Bailout: Good Plan, Bad News - Bill Fleckenstein, MSN Money
Sec'y Paulson Wants a Halt to Public Bailouts - K. Guha, Financial Times
A Big Regulator for the Little Investor - William Gruver, New York Times
Financial Markets Need A Referee - Barry Ritholtz, Forbes
Time To Redefine What a Recession Is Exactly - The Economist

< Go To Nouriel Roubini's Global EconoMonitor Main Page <h1 class="posttitle"> If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system</h1> PrintShare Delicious Digg Facebook reddit Technorati Nouriel Roubini | Sep 13, 2008 It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.

Lehman Receives Bid For Asset Management Unit, But Who Takes the Toxic Waste?Sep 14, 2008

Main stumbling block for private sector solution for Lehman: Where to offload off-balance sheet toxic waste? Aborted Super-SIV initiative in December shows that private sector is reluctant to back 'bad bank' without government financing help and subsidize acquirer of goo bank. Authorities are reluctant to backstop Lehman obligation as they did with Bear Stearns because after having access to Fed lending facilities it is clear that Lehman is insolvent, not illiquid as Bear Stearns was when the run occurred, or as LTCM was in 1998--> lender of last resort is not justified in those cases and BS intervention was already borderline legal for a non-commercial bank. 'Too interconnected to fail' in the CDS market is again an issue.
• Sep 14: Different solution outlines emerge (via Reuters):
  1) private sector sponsored 'bad bank' taking the toxic, real-estate assets amounting to around $85 billion. Barclays and Bank of America interested in 'good bank'. However, sale of asset management unit still on the table.
  2) The Dealbreaker.com website said that Bank of America Corp would take most of Lehman's good assets, with Barclays and Japan's Nomura Holdings also playing a role.
  3) Britain's Sunday Express newspaper said Bank of America, Barclays and Goldman Sachs were expected to agree to divide up Lehman, with Barclays taking its asset management arm.
  4) The Wall Street Journal reports in its online edition that Barclays was emerging as a leading contender to buy Lehman but that a deal was still dependent on government support.
  5) Some analysts have downplayed the impact of Lehman's woes on broader markets, arguing that signs of the bank's trouble have been emerging for weeks and that clients, banks and other market players have had ample time to limit their exposure--> "Anyone betting on a Lehman bailout made a silly bet."
  6) Charles Peabody: "pre-packaged bankruptcy" the best possible scenario for Lehman since it would keep the bank's broker-dealer operating subsidiary intact even if largely wiping out equity holders and hurting bondholders--> Lehman has hired law firm Weil Gotshal & Manges to prepare a potential bankruptcy filing.
  7) CDS Dealers were considering showing one another their exposure to Lehman, which might allow a dealer that sold a credit derivative to the firm, and another that took an opposing position with the bank, to cut it out of the middle. These efforts may help make any wind-down of Lehman's trading books more orderly
• Sep 12: LEH received bids for its asset-management unit from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice. Earlier reports talk of Bank of America, JC Flowers, and China's CIC SWF deciding whether to make a joint bid. Barclays is also mentioned to be interested.
• FT Alphaville, naked capitalism, Dealbreaker: Authorities are working on a private sector solution without committing to backstop Lehman debt as occured with Bear Stearn--> will there be an investment bank/ private equity led consortium? Will current investment rules for private investors be lifted?
• S&P, Sep 9: Lehman's long-term `A' and short-term `A-1' were put on credit watch with ``negative'' implications--> rating services are all reviewing Lehman's credit ratings for downgrades, and if they are lowered, Lehman said it could have to post as much as $2.9 billion in collateral to its counterparties, some counterparties have a minimum rating requirement for their brokers.
• Lehman reports loss of $3.9bn in Q3 and gross mark-to-market losses on complex debt instruments of $7.8bn. After taking into account hedges, the losses were $5.6bn--> Korea Development Bank confirms failed talks on equity stake. CDS above 500bp. As of Sep 10, writedowns at $13.8bn match new capital raised at $13.9bn
• LEH announces 3 strategic moves: 1) Lehman plans spin-off of $25-30bn troubled commercial real estate portfolios into a vehicle called Real Estate Investments Global which will be traded publicly by Q1 2009; 2) will auction a 55% majority stake in Neuberger Berman asset management unit which is worth $8-9bn in the next few weeks (--> Blackstone, KKR eye bidding); 3) reduces dividend. Moreover: LEH is also in talks with Blackrock to sell $4bn of the bank’s UK residential mortgage portfolio.
• IRR: A large part of Lehman's $40bn CRE portfolio is a high-risk loan known as bridge equity made with Archstone, a metropolitan apartment developer, and most of the rest are floating-rate loans, which are riskier, according to a person who reviewed the offering.
• Sep 4 NYT: LEH considers splitting itself into a “good” bank and a “bad” bank--> idea reminiscent of aborted private sector-backed Super-SIV?
• BlackRock, the largest publicly traded U.S. fund manager more than doubled its stake in Lehman during Q2, becoming the 10th biggest shareholder--> Plender: cross-financing of assets seems a bit incestuous, and a residual exposure to assets sold by vendor financing always remains.
• Couterparties says they are still trading with Lehman thanks to Fed's liquidity backstop.
• Fitch (via RGE): At the beginning of the turmoil Bear Stearns and Lehman had the highest mortgage toxic waste ("residual balance") exposure as percent of adjusted equity on balance sheet: BSC = 54.5%; LEH = 53.3%; GS = 21%; MER = 17.8%; MS = 8.3%. LEH is the biggest mortgage underwriter and commercial papter dealer.
• Cumberland: Main difference to BS: Lehman generated over 60% of their revenues outside the U.S. in Q4 2007, better liquidity position and access--> problem is thin capital base and high leverage, not liquidity (esp. since PDCF)
• Ftich: Level 3 assets booked under new SFAS 159 produced book gains of $750m at Lehman in 07Q3 (largest amount among 5 brokers) but Fitch decided that gains from credit spread widening on own debt will not be considered in evaluating operating performance (i.e. like short their own instruments is not a sign of confidence)--> Gains from structured notes spread widening as percentage of pre tax earnings was 62% at Lehman in Q3; 129% at BS; 7% at GS; -17% at ML; 17% at MS.
• Fahey (Fitch): Lehman Brothers reported Level 3 assets-to-equity of 1.68x in 3Q07 (BSC 1.56; GS 1.84; MER 0.70; MS 2.74 although the latter is the gross notional Level 3 asset value, not netted with derivatives hedges in Level 1 or 2 as reported by other banks)--> all ratios up in following quarters (esp. GS)

<h1 class="posttitle"> Would Lehman’s Default Be a Systemic CDS Event?</h1> PrintShare Delicious Digg Facebook reddit Technorati Elisa Parisi-Capone | Sep 13, 2008 One of the justifications brought forward for bailing out Bear Stearns was that in its role as major counterparty in the $62 trillion credit default swap market the fallout would be simply too widespread. Isn’t the same true for Lehman Brothers? The International Swaps and Derivatives Association (ISDA) published in 2007 a report Credit Derivatives: An Overview with the following list of major counterparties in the CDS market:

http://www.rgemonitor.com/econo-monitor/25...temic_cds_event

Potential Lehman Fall-Out Goes Global: Authorities Convene European Banks As WellSep 14, 2008

Main stumbling block for private sector solution for Lehman: Where to offload off-balance sheet toxic waste? Authorities are reluctant to backstop Lehman obligation as they did with Bear Stearns because after having access to Fed lending facilities it is clear that Lehman is insolvent, not illiquid as Bear Stearns was when the run occurred, or as LTCM was in 1998. However, too interconnected to fail is again a problem--> U.S. authorities are also in touch with heads of top European banks.
• Roubini: If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system. A holistic approach is needed at this point.

http://www.rgemonitor.com/10000?cluster_id=12899

[b]SUNDAY[!]: One of the most dramatic days in Wall Street history...
LIQUIDATE: Banks, Brokerages Prepare for Possible LEHMAN Bankruptcy...
ON THE BRINK...
BARCLAYS Abandons Talks...
Feds Balk at putting up taxpayer money...
CEO hubris contributed to meltdown...
BANK OF AMERICA reaches deal to buy MERRILL LYNCH for $44B....[/b]

In Frantic Day, Wall Street Banks Teeter

Offer for Merrill Accepted; Lehman Nears Liquidation
By ANDREW ROSS SORKIN 13 minutes ago In one of the most dramatic days in Wall Street history, Merrill Lynch agreed to sell itself to Bank of America for about $50 billion, while Lehman Brothers headed toward bankruptcy.

• Nation’s Financial Industry Gripped by Fear

News Analysis
Jittery Road Ahead
By FLOYD NORRIS and VIKAS BAJAJ 14 minutes ago Wall Street and the federal government faced off over the weekend, raising worries of a worldwide sell-off when markets open on Monday.

Chip East/Reuters

The headquarters of Lehman Brothers in New York on Sunday.


Big Insurer Seeks Cash as Portfolio Plummets
By MICHAEL de la MERCED And GRETCHEN MORGENSON 15 minutes ago A.I.G., the insurance giant, is seeking a bridge loan from the Federal Reserve as it faces a potential downgrade.

• Times Topics: American International Group

More Financial News

• Hard Fall for a Venerable Firm
• Purchase of Merrill Fills a Dream for a Bank
• Banks Fear Next Move by Shorts

• Hard Fall for a Venerable Firm
• Purchase of Merrill Fills a Dream for a Bank
• Banks Fear Next Move by Shorts

Crisis on Wall Street as Lehman Brothers Totters, Merrill Lynch Is Sold, AIG Seeks to Raise CashLehman faces the possibility of liquidation and Merrill Lynch sold itself to Bank of America on a day in which the U.S. financial system was shaken to its core.
The government's decision to reject a bailout for Lehman touched off a nerve-wracking test of the U.S. financial system's ability to hold itself together amid the worst series of shocks it has faced in decades.


Fed Plans Expanded Lending Facilities

The Federal Reserve is expected to expand its lending facilities, taking a wider array of securities, including equities, as collateral for its loans. (Fed statement)

AIG Scrambles to Raise Cash
| Banks Roll Out $70 Billion Loan Program
Financial-Sector Distress Likely to Hold Back Stocks
Goldman, Morgan Grasp at Bitter Prize
| U.S. Must Own Up to Its Bank Crisis
Heard on the Street: Wake-Up Call
| Even the Strongest Will Have to Adjust | More
Sydney Retreats on Financial Tumult
| MarketBeat: Mother of All Mondays
Real Time: What a Difference a Crisis Makes |
Deal Journal: How Wall Street Can Save Itself
Mean Street: Wall Street Gets Set to Make a Killing |
Complete Coverage

Statements From Fed, SEC: Collateral Broadened; Working With Lehman See Full Post | See Blog

THE OUTLOOK
U.S. Must Own Up to Its Bank CrisisThe U.S., mired in economic crisis, faces the prospect of swallowing the advice it once offered Japan: take decisive action to deal with ailing banks.

EUROPE BUSINESS NEWS
Central Bankers Debate U.S. ActionsCentral bankers world-wide are debating the U.S. actions of aiding financial firms and wrestling with where to draw the line.

Lehman Prepares Bankruptcy Filing as Bank of America, Barclays Quit Talks Lehman Brothers Holdings Inc. prepared to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation.

World May Face `Japan-Like' Stagnation Amid Credit Crisis, GIC's Tan Says The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.

Greenspan Says Crisis May Be `Once in Century' Event, More Firms Will Fail Former Federal Reserve Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime-mortgage market last year ``is probably a once in a century event'' that will lead to the failure of more firms.

Thai Economy Being Devastated by Political Crisis, Finance Minister Says Thai Finance Minister Surapong Suebwonglee, a contender to become the nation's next prime minister, said economic growth may be derailed this year and next as political turmoil paralyses government spending.

Europe Shuns U.S.-Style `Active Role' in Boosting Economy, Bank Bailouts European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.

BofA Reaches Deal for Merrill - Karnitschnig/Mollenkamp/Fitzpatrick, WSJ
Lehman Expected To File Bankruptcy - Ross-Sorkin/White/Anderson, NYT
Hubris--Is Thy Name Richard Fuld? - Frank Partnoy, Financial Times
Barclays Withdraws Bid; Still No Buyer for LEH - Landy/Irwin, WaPo
AIG Scrambles To Raise Cash - Karnitschnig, Pleven & Lattman, WSJ
Wall Street Banks Fight for Life - Guerrera, Guha & Farrell, FT
Banks Fear Next Move by Shorts - Louise Story, New York Times
When Can We Start Breathing Again? - Felix Salmon, Market Movers
Wall Street Gets Set To Make a Killing - Evan Newmark, WSJ's Deal Journal
Why We Absolutely Need a Rate Cut - Tom Brennan, CNBC
Too Few Regulations? No, Just Ineffective Ones - Tyler Cowen, NY Times
US Opts To Avoid LEH Rescue - Mollenkamp, Craig & Ng, Wall St. Journal

The Mother of all Mondays - Tim Annett, MarketBeat
What a Lehman Bankruptcy Filing Might Look Like - DealBook
How Wall Street Can Save Itself - Heidi Moore, Deal Journal
Live Blogging Lehman CNBC Show - Barry Ritholtz, Big Picture
El-Erian Sums It Up Nicely With Word 'Unthinkable' - Curious Capitalist

Transcripts & Videos
Notes on the Merrill-Bank of America Deal - Maria Bartiromo, CNBC
Roubini Says U.S. Financial Industry Facing 'Disaster' - Bloomberg
What Is The SEC's Role in All of This? - CNBC
O'Rourke Says Lehman Bankruptcy 'Not Good' for Stocks - Bloomberg

Lehman Races Clock; Crisis Spreads
- Susanne Craig et al, Wall St. Journal
If Lehman Fails, Would You Feel It?
- Tom Petruno, Los Angeles Times
Lehman Brothers Bailout? Just Say No
- Jesse Eisinger, Portfolio
BofA Reaches Deal for Merrill
- Karnitschnig/Mollenkamp/Fitzpatrick, WSJ

China may cut its dollar holdings - CICC: China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation's biggest investment banks.

US economy: Retail sales slump as consumers tighten their belts: Analysts had expected sales to rise by 0.3% last month but data from the Commerce Department today showed a fall of 0.3%. This is the second month in a row that sales have declined, and the figure for July was also sharply revised, to a drop of 0.5%. It had previously been reported as a 0.1% fall.

Warning: 30 airlines will go bust this year: Up to 30 more airlines will go bankrupt before Christmas, the chief executive of British Airways warned yesterday, as the biggest rescue of stranded passengers in travel industry history began.

Roubini Says U.S. Financial Industry Facing `Disaster'

http://www.bloomberg.com/avp/avp.htm?N=av&T=Roubini%20Says%20U.S.%20Financial%2 0Industry%20Facing%20%60Disaster'&clipSRC=mms://media2.bloomberg.com/cache/vGSBVu4jp7qY.asf://http://www.bloomberg.com/avp/avp.ht...GSBVu4jp7qY.asf

Wall Street Meltdown: Lehman Files for Record Bankruptcy, Merrill Lynch Is Sold, AIG Seeks Capital- AP When Wall Street woke up Monday morning, two more of its storied firms had fallen. Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed. Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in a $50 billion all-stock transaction. And the world's largest insurance company, American International Group Inc., was forced into a restructuring as it sought a lifeline from the Federal Reserve.... » read more

Related Stories

• Stock futures plummet on Lehman, Merrill, AIG news- AP
• World stock markets sink on Wall Street crisis- AP
• Fed moves to deal with financial crisis- AP
• Lehman and Merrill to pound already bloody job market- Reuters

The Mother of all Mondays - Tim Annett, MarketBeat
What a Lehman Bankruptcy Filing Might Look Like - DealBook
Palin-Barricuda Index, Part II - Rafael Resendes, Capitalist Nexus
How Wall Street Can Save Itself - Heidi Moore, Deal Journal
Live Blogging Lehman CNBC Show - Barry Ritholtz, Big Picture
El-Erian Sums It Up Nicely With Word 'Unthinkable' - Curious Capitalist

Transcripts & Videos
Notes on the Merrill-Bank of America Deal - Maria Bartiromo, CNBC
Roubini Says U.S. Financial Industry Facing 'Disaster' - Bloomberg
What Is The SEC's Role in All of This? - CNBC
O'Rourke Says Lehman Bankruptcy 'Not Good' for Stocks - Bloomberg

Transcripts & Videos
Notes on the Merrill-Bank of America Deal - Maria Bartiromo, CNBC
Roubini Says U.S. Financial Industry Facing 'Disaster' - Bloomberg
What Is The SEC's Role in All of This? - CNBC
O'Rourke Says Lehman Bankruptcy 'Not Good' for Stocks - Bloomberg

SPENGLER
Lehman and the end of the era of leverage

The failure of Lehman Brothers and Bear Stearns does not reflect the breakdown of a particular kind of corporate culture. What took both firms down, rather, is a sudden break in the chain of expectations between the present and the future. Today’s savers no longer have any confidence that they will earn enough to fund their retirements by putting money at risk. And so the Great Crash of 2008 enters a new phase. (Sep 15, '08)

Silences say it all
Lehman Brothers' death throes demonstrated that here, at last, was one US financial institution that, though big, was not "too big to fail", one that at last would pay for its promiscuous and profligate ways. If we should say nothing but good of the dead, then there's nothing else to say. Next up for the measuring tape is Bank of America/Merrill. - Julian Delasantellis (Sep 15,

Economy


China Cuts Interest Rates as U.S. Financial Turmoil Adds to Global Risks China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dimmed the outlook for economic growth.

Fed Eases Loan Terms, Banks Set Up $70 Billion Fund in `Firebreak' Effort The Federal Reserve widened the collateral it accepts for loans to securities firms to include stocks in an effort to help Wall Street weather Lehman Brothers Holdings Inc.'s plans for bankruptcy.

ECB, Bank of England Join Federal Reserve in Soothing Markets After Lehman The European Central Bank and the Bank of England joined the Federal Reserve in taking action to soothe financial markets spooked by Lehman Brothers Holdings Inc.'s bankruptcy filing.

U.S. Industrial Production Fell More Than Forecast as Automakers Slumped Industrial production in the U.S. fell in August by the most in almost three years as the slowdown in consumer spending prompted automakers to cut back.

World May Face `Japan-Like' Stagnation Amid Credit Crisis, GIC's Tan Says The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.

Lehman Says It Will Seek Bankruptcy Protection as Suitors, Government Balk Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.

Europe Shuns U.S.-Style `Active Role' in Boosting Economy, Bank Bailouts European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.

Swinging Real, Won Point to More Pain as Economies Recouple Amid Slowdown Swings in emerging-market currencies may foreshadow further losses for traders already suffering from the broadest declines this decade.

British Business Lobby Predicts Recession, Calls for Half-Point Rate Cut The Confederation of British Industry, the nation's top business lobby, said the central bank should slash its benchmark interest rate in November by the most in seven years to halt a recession.

Paulson's Fannie, Freddie Takeover Diminishes Financing Options for Banks Treasury Secretary Henry Paulson's decision to seize Fannie Mae and Freddie Mac may choke off the biggest source of funding for financial companies suffering from the collapse of the subprime mortgage market.

Industrial Production in U.S. Fell More Than Forecast: Table of the Day Following is a summary of the U.S. industrial production and capacity utilization report for Aug. released by the Federal Reserve.

Lehman Files for Biggest Bankruptcy as Suitors Balk

• Bloomberg
• 09/15/2008 07:37 AM

ECB, BOE to Pump Cash Into Markets

• WSJ ($)
• 09/15/2008 05:16 AM

Lehman Files for Biggest Bankruptcy as Suitors Balk

• Bloomberg
• 09/15/2008 05:03 AM

Banks Roll Out $70 Billion Loan Program

• WSJ ($)
• 09/14/2008 09:54 PM

A.I.G. Seeks $40 Billion in Fed Aid to Survive

• NY Times
• 09/14/2008 09:24 PM

Wall Street banks fight for life

• FT ($)
• 09/14/2008 08:50 PM

Fed Widens Collateral for Loans to Investment Banks

• Bloomberg
• 09/14/2008 08:11 PM

Bank of America Reaches Deal for Merrill

• WSJ ($)
• 09/14/2008 08:00 PM

Banks Discuss Forming Fund to Invest in Troubled Finance Firms

• Bloomberg
• 09/14/2008 07:59 PM

Rush Is On to Prevent A.I.G. From Failing

• NY Times
• Morgenson
• 09/14/2008 06:12 PM

Obama, McCain try to seize economy issue- APThe Federal Reserve announced late Sunday several steps to cope with the worst credit crisis in decades, including broadening the types of assets that investment banks can put up to get emergency loans from the Fed.

• Bank of America's Ken Lewis on Merrill Lynch- CNBC.com
• Lehman moving to sell all of investment management unit: report- Reuters
• Citi, exposed to Lehman, says it has ample capital- Reuters
• AIG, Washington Mutual spreads rise sharply- AP
• Meltdown shakes up Wall Street's workers- AP
• NY allows AIG to borrow from subsidiaries, shares fall 50%- AP
• Wachovia shares nosedive amid rising bank concerns- AP
• Treasurys jump following Lehman bankruptcy- AP
• Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn't Act- Tech Ticker

Breaking News
Dow Plunges 450 Points to Below 11,000 on Lehman Bankruptcy, Merrill Sale, AIG Woes- AP Stocks retreated sharply and Treasury bond prices jumped Monday as investors reacted to a stunning reshaping of the landscape of Wall Street that took out two storied names: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.... » read more

Related Stories

• Paulson: Americans should remain confident in U.S. financial system- AP
• Your Loan Denied: Main Street Fallout of Wall Street Crisis- Tech Ticker
• Oil sinks to 7-month low on Lehman failure, light Ike damage- AP
• Wall Street crisis could put Fed rate cut in play- AP

[b]Stocks Slide Most in Six Years...
DOW DOWN 500+ POINTS...
LEHMAN GOES BUST...
BIGGEST BANKRUPTCY EVER...
DAY OF RECKONING: CEO hubris contributed to meltdown...
Abu Dhabi 'wait and see' on troubled banks...
PUMP: Fed Injects $70 Billion of Reserves to Banking System, the Most Since 9/11...
Obama blames Wall St. crisis on Republican policy...
McCain: Regulations needed...
Bloomberg: NYC 'Well-Positioned' to Weather Revenue Drop..
Paulson vows to maintain stability...[/b]

No final act in sight for U.S. financial crisis By Alex Berenson
Sunday, September 14, 2008 A lot of smart people have tried to call the bottom on Wall Street this year.

So far, they have all been wrong.

Since the financial crisis first hit in August 2007, markets - and the financial industry - have gone through a series of swoons, each more dizzying than the last.

Last week, the crisis reached a new pitch, as Lehman Brothers, the fourth-largest U.S. investment bank, struggled to avoid joining Bear Stearns on the trash heap, and shares of Washington Mutual, the largest savings and loan, fell briefly below $2.

Now even Wall Street's professional optimists have given up predicting exactly when their industry might stabilize. One senior executive at a top investment bank suggested recently that there was no ending in sight to the crisis.

Until now, the cataclysm in the banking and securities industry has damaged but not derailed the rest of the economy. Economists generally predict that the United States will grow slowly over the next few months but avoid a deep recession, especially if oil prices fall farther, easing pressure on consumers, and exports remain strong.

But as the Wall Street crisis moves into its second year, the risks to the overall economy are increasing. The economy grew during the first half of the year, but businesses are cutting jobs and consumers are reducing spending. In August, the unemployment rate reached 6.1 percent, compared with 4.7 percent less than a year ago.

Until the worst turmoil on Wall Street ends, the economy will struggle, said Sung Won Sohn, an economist at California State University, Channel Islands, in Camarillo, California, who studies financial markets.

"Until and unless we have financial markets stabilize, I don't think we will see a meaningful recovery in housing, and therefore in the economy," Sohn said. He said he expected economic growth to remain close to zero through the middle of 2009 before finally beginning to accelerate.

Steven Wieting, the United States economist for Citigroup, said: "We're describing the U.S. economy as recessionary."

Wieting and other economists say that the Federal Reserve and the government have few good options left to ease the pressure on financial firms or the economy. The Fed has already cut short-term interest rates to 2 percent, below the rate of inflation, and the government has offered consumers and businesses $150 billion in tax rebates and cuts this year.

The Fed has also taken several measures to buoy the financial industry, such as allowing more banks access to low-interest, short-term loans. Yet Wall Street continues to struggle through the aftereffects of the biggest speculative bubble in history.

Financial services companies have cut more than 100,000 jobs this year, according to Challenger, Gray & Christmas, an executive placement firm, and deeper layoffs may come this fall.

Yet the picture may not be entirely bleak. When the chaos finally ends, Wall Street will almost certainly be smaller and more risk-averse. That change could eventually put the economy on firmer footing.

The crisis appears to mark the end of a bubble in the financial markets that has lasted nearly two decades. The speculation began in technology stocks in the 1990s and turned to real estate, commodities and private equity buyouts this decade. Along the way it powered the New York City economy and helped drive income inequality nationally.

While the stock market has not been as frenzied this decade as it was at the end of the 1990s, rampant speculation took over many other financial markets, Wieting said. "In the last couple of years, financial activity became less related than we've seen before to real economic developments," he said.

Now Wall Street is reeling, as a significant fraction of the speculative real estate loans that banks made during the boom years are underwater. Because banks have limited capital to absorb losses, investors worry that those losses will overwhelm them.

The problem has been worsened by the financial instruments that banks hedge funds and insurance companies have created to swap loans and risk with one another. In theory, those products can help investors and companies diversify risk, but they are nearly impossible to value.

"Investors just don't know what these assets are worth," said Ed Yardeni, president of Yardeni Research. "There's no transparency. It's totally up to management to decide what these assets are worth and tell their accountants."

For example, Lehman said last week that it had $20 billion in tangible equity- money that would theoretically be available to its shareholders if Lehman had to be liquidated. But those same shareholders valued Lehman at only $2 billion as of Friday, proof that they do not have confidence in the way Lehman has calculated its assets.

Now investors are demanding that banks like Lehman and Washington Mutual raise capital or sell their assets to raise cash and prove that they are solvent. But when banks are under pressure, they cannot easily find new investors or purchasers for their assets. It is as if a family were told to sell its home overnight, for cash, or lose it. The family would surely receive a far lower price than the property would generate in a more orderly sale.

So, one by one, the banks that took on the most risk are facing the real possibility of going under. Those with stronger balance sheets, such as Morgan Stanley, Goldman Sachs and JPMorgan Chase, are suffering much less.

For Wall Street, the lesson has been sobering - and unlikely to be forgotten for several years, said Sohn, the California State economist.

"The restraint in the credit markets will last quite some time," Sohn said. In the mortgage business, which saw the worst excesses, loan practices may remain stricter for at least a decade, he said. The results will be both positive and negative, he said.

The speculation that has produced wide swings in commodities prices and vacant housing subdivisions across California and Florida may become less prominent. But people who want to buy homes may continue to struggle to get mortgages, even if they have excellent credit.

Companies that need loans to expand, or just to survive rough economic patches, will also have a harder time finding financing.

"We went overboard," Sohn said. "As a result, the financial market is imposing some discipline on our behavior, and it's painful. But that's how the system works."

Jared Bernstein, senior economist at the Economic Policy Institute, a liberal research group in Washington, said that, in a best-case outcome, greater risk aversion in the financial markets might eventually encourage the United States to rely less on bubbles and speculative lending to drive economic growth.

Instead, the government could pursue policies designed to drive wages higher for middle- and lower-class Americans, he said, allowing them to buy homes and cars without taking on ruinous debt.

"We have to find a new way - or maybe it's an old way - to stimulate enough demand for the economy to do what it's supposed to do without speculative excess," Bernstein said. "A recovery that's driven by more broadly shared prosperity, where consumption is fairly evenly shared through the economy, that kind of growth is more sustainable."

Even so, Bernstein said he was not cheering Wall Street's deep struggles. "The financials are the heart of the credit system, and credit is the lifeblood of our economy," he said. "There's no question that we will pay a cost in terms of much diminished growth if this continues."

Correction:

'Franron' bailout: Good plan, bad news
Did I say "Inflation", I meant "deflation".
The Joys of Ownership
Financial Russian Roulette
The Lehman Lesson
How housing bill helps banks, not taxpayers
Alt-A Mortgages Next Risk for Housing Market as Defaults Surge

Paulson's Fannie, Freddie Takeover Diminishes Financing Options for Banks Treasury Secretary Henry Paulson's decision to seize Fannie Mae and Freddie Mac may choke off the biggest source of funding for financial companies suffering from the collapse of the subprime mortgage market.

[b][b]America 's Financial Apocalypse Heralds Decade Long Depression [/b][/b]
http://www.marketoracle.co.uk/Article6256.html

The Demise of the Shadow Banking System and of the Broker Dealers: Some Media Appearances Nouriel Roubini | Sep 15, 2008 I discussed in detail over the weekend the Lehman and Merrill crisis and explained why - as I argued months ago - the remaining broker dealers (now only Morgan Stanley and Goldman Sachs being left) will go bust unless they merge with a financial institution that has a stable base of insured deposits. The business model of broker dealers is fundamentally broken and cannot be fixed. I elaborated in detail in a series of interviews yesterday and today on these views. Here are below the links to these interviews.

Here is a link to my July interview on Tech Ticker ("They're All Toast': Roubini Says Brokers, Even Goldman, Can't Stay Independent") where I predicted the demise of all of the independent broker dealers.

Subprime Mortgage Meltdown: Paulson's Quick Draw - by Peter Schiff - 2008-09-15

Lehman collapse means all bets for the financial system are now off

By Philip Aldrick, Banking Editor
Last Updated: 7:08pm BST 15/09/2008



Any bank harbouring hopes of an end to the credit crunch had a rude awakening today.

Lehman Brothers' bankruptcy has dealt the money markets another crippling blow, incapacitating them for who knows how long. Since the crunch struck last year, the markets have been in seizure. But, with the careful nursing by governments and central banks, they appeared to be on the slow road to recovery. No longer.

Fears about other banks' exposures to Lehman and renewed uncertainty as to where the crisis may strike next will freeze the wholesale markets up again. The crunch is back with a vengeance.

It's not hard to see why. Lehman's collapse into bankruptcy protection is the biggest corporate debt default in history and, in the complex interwoven world of modern banking, no one properly understands where the risks lie.

Wall Street's titans gathered on Sunday afternoon to start the process of working out their positions by sitting down with other banks and tracking the paths of these impenetrable credit structures. It will take months at the very least for them to establish their "naked" exposure.

Establishing those positions is vital. Last week, for example, David Wright, deputy head of the European Commission internal market unit, noted that regulators still didn't know the full size of global securitised product issuance.

"We have to believe the numbers, " he said. "If we can't, we can't restore confidence." Without confidence, banks will not secure wholesale market funding. As the largest user of the wholesale markets in the UK, HBOS' 30pc share price fall on the London Stock Exchange this morning appeared to reflect those concerns.

What little confidence the markets had restored in recent months has been knocked for six. According to experts, Lehman has $150bn of debt outstanding. By comparison, US telecoms group WorldCom - the largest debt default until today - had $23bn to $30bn (depending on whose estimates you use) when it went bust in 2002.

Lehman bonds and loans that were trading at 80 cents to 90 cents in the dollar last week on fears of collapse are this morning worth little more than 40 cents, according to credit market experts.

In other words, about $70bn of Lehman debt held by other institutions has been wiped out. The holders of that debt, therefore, are facing huge potential losses with untold ramifications of their own.

The scale of the potential crisis is exacerbated by the credit default swap (CDS) markets. CDS's are insurance contracts for holders of corporate debt that guarantee to pay back the loan in the event of the company's bankruptcy.

Most of these products are offered by other banks to low-risk institutions like pension funds. Sandy Chen, a banks analyst at Panmure Gordon, reckons this is "where the real stress will come from".

He estimates that the "CDS market as a whole had notional contracts worth four times greater than the underlying debts issued". By his calculations, which differ slightly to the credit analyst's above, that would make "$350bn in CDS's written on Lehman debts".

Even using a more optimistic valuation of 60 cents in the dollar for the value of the debt, he says this could cost the banks providing the insurance $140bn. By comparison, when the sub-prime crisis struck last year - tipping the markets into seizure - the initial cost was estimated at $200bn, though it has turned out to be multiples more.

Furthermore, Lehman's collapse will flood the market with assets for which there are very few buyers anyway. The banks are already having to writedown their positions on a quarterly basis, often because the valuation of these assets is declining.

With a flood of such securities now expected to deluge the market, prices will tumble further - necessitating more writedowns.

Central banks know it will be touch and go. Hence the $70bn liquidity pool provided by ten of the biggest investment banks for any one of them that needs to tap it.

Hence the decision by the US Federal Reserve to widen the set of assets eligible as collateral for Treasury loans to include all investment grade paper, and to almost double the size of these Treasury loans to $200bn.

Hence the extra £5bn of liquidity the Bank of England is providing the UK money markets.

As CDS contracts are called in and financial counterparties pull back from the money markets, the same funding crunch that did for Northern Rock and Bear Stearns will rear its head. Another even more opaque "unknown" is the "second order implication" for banks - the indirect effect as those banks badly damaged by Lehman start to reel.

As to the size of the counterparty risk - defined as other banks that have complex financial instruments held through Lehman - no analyst or credit market expert could hazard a guess as to the likely cost. Mr Chen said Lehman had $729bn of "notional derivatives contracts" that Lehman believed in May were worth $16.6bn.

Again, any losses will have to be punched into the complex, interlaced banking system to work out where the liabilities ultimately may lie.

At the very least, the collapse of Lehman is potentially as costly as the $200bn initial estimate of the US sub-prime mortgage fall out.

Given where that has left the world's banks - in terms of losses, writedowns, capital raisings and share price falls - there's every reason to be worried.

As Alan Greenspan, the former chairman of the Federal Reserve, said over the weekend: "We will see other major firms fail."

http://www.telegraph.co.uk/money/main.jhtm.../bcnbank115.xml

« 30-year T-bond yield hits record low as buyers swarm | Main

<h1 class="entry-header">Grim market mood could goad Fed into a rate cut today</h1> 3:00 AM, September 16, 2008 A week ago, it’s fair to say, Federal Reserve policymakers had absolutely no intention of cutting their benchmark short-term interest rate at today’s regularly scheduled meeting.

How the Masters of the Universe ran amok and cost us the earth
That storm broke yesterday, with stock markets tumbling around the world. In London, the FTSE 100 plunged almost 4 per cent to 5204.2. Scotland's banking giants were among the biggest victims. HBOS slumped 17.5 per cent; Royal Bank of Scotland lost 12.2 per cent. In the US, the Dow Jones industrial average suffered its biggest fall since 9/11.

The collapse effectively began at 6pm last Friday. The place: the offices of the New York Federal Reserve. The occasion: an emergency meeting of the most powerful figures in American banking and finance aimed at staving off a massive bank collapse.

Those who stepped from their limousines to be present included Richard Fuld, the chairman and chief executive of Lehman Brothers; John Mack, the head of Morgan Stanley; Jamie Dimon, of JP Morgan Chase; Vikram Pandit, of Citigroup; Lloyd Blankfein, of Goldman Sachs; Bob Diamond, the head of Barclays Capital; and senior representatives from Mellon Bank and Royal Bank of Scotland.

"We are the biggest overseas bank in America", explained an RBS spokeswoman. "There was an 'all points bulletin' from the Fed and they called us in".

Awaiting them along one side of the boardroom table was the United States Federal Reserve chairman, Ben Bernanke – nicknamed Helicopter Ben for having slashed interest rates and showered Wall Street with money earlier this year to avoid the very disaster that was about to unfold.

Flanking him was Hank Paulson, the US treasury secretary, and Tom Geithner, chairman of the New York Fed. It was Geithner who opened the meeting – and presented Wall Street's finest with the fright of their lives.

Either there was a Wall Street rescue for Lehman, or the investment bank would have to face the consequences. An eerie silence ensued.

An analyst at RBS Greenwich in New York summed up the most dramatic meeting of America's top bankers thus: "I thought last weekend was crazy, but this one was even more chaotic.

"Everyone expected to hear by early Sunday evening that the Fed/Treasury had managed to arrange a shotgun wedding for Lehman with someone – Bank of America, Barclays, private equity. A funny thing happened on the way to a deal.

"The New York Fed called in all of the head honchos and said that they had a great deal for them. One lucky participant would get to buy Lehman's business and their 'good' assets for a bargain price.

"The others would get a consolation prize: a chance to contribute their own precious capital to fund a bank of Lehman's 'bad' assets. The Fed and Treasury were said to be 'adamant' that public money would not be involved in any bail-out.

"No government money? OK, no deal."

The meeting set the tone for the weekend. By Saturday morning, more than 100 bankers were involved. Paulson refused to budge on pleas for government underpinning of the Lehman "bad bank" proposal: $41.8 billion (£23.3 billion) of property and up to a further $40 billion of "toxic" assets that had been infected by subprime mortgage loans or derivatives.

Cookies and coffee arrived. Then ghoulish crowds began to gather, reminiscent of those that had assembled in Wall Street 80 years ago as the stock market crashed.

The last of the meetings broke up late on Sunday, by which time there were no fewer than three separate frenzied huddles of investment bankers. One comprised credit traders trying to agree an orderly unwinding of Lehman's default swaps to avoid utter mayhem yesterday morning.

Another room was full of regulators trying to put a floor under AIG, the world's biggest insurer, whose shares had crashed the previous week.

The third was putting together a massive $50 billion rescue takeover by Bank of America of Merrill Lynch – the investment bank to broking giant that is famous for its "raging bull" logo.

The United States is now in the throes of its biggest banking crisis in 70 years, stirring terrible memories of panics, bank failures, bankruptcies and mass unemployment. First Bear Stearns had to be rescued. Then the government had to take over Fannie Mae and Freddie Mac, the two largest US mortgage providers. Now Lehman Brothers.

Dick Fuld, who threatened to break the legs of any partner caught shorting Lehman stock – gambling on the value of shares falling – is now just another name on a lengthening list of the "Masters of the Universe", a phrase made famous by Tom Wolfe in his 1987 novel of Wall Street ambition and greed, The Bonfire of the Vanities, who have crashed to earth.

AND as Fuld crashed, his personal shareholding in the bank tumbled by more than $500 million. The list of the investment banking world's fallen giants already reads like a Who's Who of money: Charles "Chuck" Prince, the chief executive of Citigroup; Jimmy Cayne, the chief executive of Bear Stearns (RIP); Peter Wuffli, the UBS chief executive, and Marc Ospel, its chairman.

How has it come to this? What caused America's fourth-largest investment bank to crash and file for Chapter 11 bankruptcy? It is unctuously described by some as a "venerable, 158 year-old" institution. In truth, there is nothing particularly venerable about Lehman Brothers – and its elevation to "greatness" is recent.

It began in 1844 as a small shop in Montgomery, Alabama. It developed as an investment company, had a rocky ride in the 1970s, and in the early 1980s was bought by American Express, which sold it in 1993, when Fuld became chief executive.

Lehman floated on the stock market as a minnow boutique bank, with earnings of only $75 million.

But Fuld, a Lehman lifer, was already getting used to life in the "bulge bracket" (a group of investment banks considered the world's most powerful).

Before he took up the top post at Lehman, he found himself in a Las Vegas casino when a bad gambler blew $4 million. The gambler was following a classic strategy: when the cards go against you, double up the bet, because eventually things are sure to turn your way. Fuld took notes on a cocktail napkin as the gambler imploded, reaching the conclusion that bad luck can always continue longer than seems reasonable. "I don't care who you are," he wrote later. "You don't have enough capital."

How prophetic that was to prove.

From 2004, Fuld's fortunes were transformed as Lehman's profits surged. The bank rode what an earlier generation would have seen as a convergence of utter improbables: a wave of deregulation, typified by the scrapping of the Glass-Steagall Act (which kept retail and investment banks separate); low interest rates; and a wave of financial innovation that turned the most toxic loans into fancy credit products.

Sky-high bonuses and share-option packages poured fuel on this fiery concoction.

Lehman embarked on massively leveraged property acquisitions and expansion. Equity trading soared. And the bank plunged heavily into subprime lending. Indeed, just ahead of the market collapse, Lehman underwrote more mortgage-backed securities than any other firm.

IT built up a staggering $88 billion portfolio, 44 per cent more than Morgan Stanley and four times the $22.5 billion of shareholder equity the bank had as a buffer against losses.

But losses? What were they? Mortgage lending had a low default record. And the bank was on a roll, creating ever more ingenious financial products that bonus-driven salesmen sold to bedazzled clients. The group posted record profits, the shares soared towards $70 and bonuses and stock options gushed forth.

Fuld joined the bulge bracket. He was paid $34.5 million in 2005, comprising a base salary of $750,000, a $13.8 million cash bonus, and stock and options worth $19.94 million.

So how does his demise compare with the other fallen idols who have now fled the crashing debris in Wall Street? They may have driven their banks – and their shareholders – into enormous losses. But the former Masters of the Universe will never know what it's like to live in a subprime home.

By the end, 62-year-old Fuld was Lehman's biggest individual stockholder. Despite the crash, he stands to leave with about $65 million, based on Lehman's Friday morning stock price of $3.73. This tally includes 8.6 million unrestricted shares worth some $32.1 million as of Friday morning – though they had been worth $582 million last November before the credit crunch hurricane struck.

Chuck ("I'm still dancing") Prince left Citigroup with a package said to be worth $40 million. He also received a pension of $1.74 million and another one million stock options – worthless at the time of his departure. Merrill Lynch's Stan O'Neal spent much of last summer perfecting his golf swing, confident that his trusty lieutenants at Merrill could avoid those subprime bunkers. It turned out to be a bad call.

HE WAS ousted last October as the first waves of the credit crunch struck, with a retirement package reckoned at more than $160 million.

Jimmy Cayne, 15 years at the top of Bear Stearns, was said to be on the golf course in June 2006 just as the bank dropped the first of many clangers, with a 10 per cent dive in profits. Worse followed, with the bank having to put up $3.2 billion to try to rescue its imploding hedge fund.

By mid-March last year, when the bank collapsed, Cayne, who would rush from Wall Street by chopper to the private Hollywood Golf Club in New Jersey to play 18 holes before dark, had already relinquished the reins, handing over the chief executive's role to Alan Schwartz.

When Schwartz went cap in hand to the New York Fed for a $30 billion bail-out, Cayne was said to be competing in the North American Bridge Championship in Detroit.

Cayne and his wife, Patricia, sold all their 5.6 million shares in Bear Stearns – worth as much as $1.2 billion in January 2007 – for $61.3 million at the end of March this year. The couple recently bought two adjacent apartments in New York's plush Plaza building for $28.2 million.

He left with a $30 million "golden goodbye" – enough to do up his Park Avenue property and a mock Tudor mansion in Greenwich, Connecticut. But it emerged that the mansion, set in 2.3 acres of land, was surplus to requirements. "It no longer meets his needs,'' said the local estate agent, trying to sell it for $6.15 million. He was forced to cut the asking price.

That's how tough it gets at the top in Wall Street.

Scots bank giants shudder as shockwaves cross Atlantic

SHARES in global businesses plunged and analysts warned of a prolonged recession yesterday after leading investment bank Lehman Brothers filed for bankruptcy.

The move prompted Merrill Lynch, another of the top four US investment houses, to agree a £28 billion takeover bid from the Bank of America.

And it came after insurer American International Group approached the Federal Reserve for £22 billion of short-term financing.

The misery spurred the Bank of England to pump an extra £5 billion into the markets to improve liquidity for frightened banks, and the Fed to accept stocks in exchange for cash loans for the first time.

And MPs on the Treasury select committee said the Bank of England should be given greater powers to call for failing banks to be nationalised in the wake of Northern Rock.

Analysts warned the "whole of the international financial system" was at risk and, if it recovered, would be ensnared by far tighter regulation than in the past.

The FTSE finished 4 per cent lower, the Dow Jones plunged by almost 4 per cent, or 500 points, and shares dropped across the board.

Edinburgh-based banking giants RBS and HBOS were among the worst-hit firms. HBOS reached a yearly low when its stocks almost halved in value at one point in trading. They later rallied to end with a 17.55 per cent drop.

Lehman, a 158-year-old company with about 25,000 staff worldwide, including about 5,000 in the UK, filed for Chapter 11 bankruptcy in the US, which puts its operations under the ward of the courts.

Its share price tumbled 90 per cent last week after it reported a £2.2 billion loss precipitated by a £3.9 billion "hit" from commercial property and subprime mortgage losses.

The collapse came after Barclays Bank pulled out of a buy-out deal, reportedly because the US government had refused to issue guarantees.

The government's refusal to get involved is seen by analysts as a turning point following the use of public money in high-profile bail-outs of failing organisations including Bear Sterns, Fannie Mae and Freddie Mac.

Ten of the world's biggest banks committed to establish a £39 billion borrowing facility to bolster global liquidity.

Vince Cable, the Liberal Democrat Treasury spokesman, said the situation was "very grave". He said there would be intervention to stop banks failing because the "whole of the international financial system" was at risk.

"I think the least we are going to have to learn from this is that the whole of the financial sector simply cannot return to where it was before. It is going to have to be much more tightly regulated in the public interest."

When the markets opened in the wake of the collapse, UK banks were worst hit.

However, Angela Knight, chief executive of the British Bankers' Association, said "no UK bank was in a similar position to Lehman", which does not take retail deposits.

A spokesman for Gordon Brown, the Prime Minister, said the Treasury, Bank of England and Financial Services Authority were in "very close contact" with their US counterparts.

The funds released by the Bank were almost five times oversubscribed by banks. The European Central Bank also made undisclosed funds available to financial institutions. But the Fed refused to step in with direct assistance.

Professor William Perraudin, of Imperial College Business School in London, said banks would again become suspicious of lending to each other, leading to another plunge in the already fragile property market.

In the UK, administrators PWC said Lehman Brothers, the principal UK trading company in the Lehman group, was one of four firms in administration.

Refugees of financial storm flee with golf clubs and fine wines

CLUTCHING golf clubs, branded umbrellas and what appeared to be a box of fine Languedoc wines among other office knick-knacks, bewildered ex-employees yesterday streamed out of the Lehman Brothers' European headquarters at Canary Wharf in London.

Of the collapsed US investment bank's 4,500 UK-based staff, about 24 were made redundant immediately, with the majority due to find out where they stand today or tomorrow.

Staff were sent e-mails telling them the bank was filing for bankruptcy and to report for work at 7am.

Watched by a row of security guards, those who turned up were handed a printed sheet warning them not to engage in any financial transactions.

Tony Lomas, a lead administrator for PricewaterhouseCoopers, which took over the financial firm after it filed for bankruptcy protection yesterday morning, said the "extraordinarily complex" company could take six years to wind up and he was uncertain whether they would be able to pay the £42 million monthly wage bill this Friday.

After staff were given the choice simply to go home yesterday, some of them cried. Others were on the phone to headhunters and recruitment agencies. Elsewhere in the building, employees tried to use up credit on their canteen cards and others consoled themselves with a drink in the company canteen. Many spent the morning clearing their desks and swapping contact details.

Edouard d'Archimbaud, 24, from Paris, arrived in Canary Wharf for his first day of work but did not even make it as far as his desk. Mr d'Archimbaud, who was due to start a £45,000-a-year job as a trader, said he was told on arrival that everybody had lost their jobs. He said: " I've taken out a six-month lease on a flat and I don't know how I will pay for it."

Graduate trainee Jack Reynolds, with the company for only a week, said: "My career has been halted at the first hurdle."

Kirsty McCluskey, 32, who worked on the trading floor, said: "It is terrible. Death. It's like a massive earthquake. It's final. Everybody is just finishing up."

One banker, who is expecting twins, was among the staff laid off. Marion Guilbert, 36, said: "I have been there for seven years. It's even more emotional for a pregnant woman, but you have to take the positives out of it."
http://thescotsman.scotsman.com/economicin...s-of.4494032.jp

If the Fed goes for a half point drop panic immediately because that will signal we're going down the same trail as Japan did following their housing collapse in the 1989-present decline. I don't think they're that crazy.



But should they do that, let me be the first one to hold up Taleb's great little article and suggest that this will trigger a global cascading collapse because we're not talking about a single-dimensional heads/tails, yes/no kind of decision. We're now in territory where all it will take is for just one piece of sand in the gearbox to tear the whole global economic engine apart.



Not that it's not falling apart anyway - it's just a matter of how bad are you going to be personally hurt by events coming down the pike and how do you protect yourself?




http://www.urbansurvival.com/week.htm

http://www.cnbc.com/id/15840232?video=856915680


Whitney On Wall Street's Future

Welcome to the Depression.

THE BEAR'S LAIR
Fed's misplaced fulcrum
The pathological US attitudes to borrowing expose the Federal Reserve as the true culprit behind the present and coming financial troubles. Absent a chairman since Paul Volcker with the requisite moral courage, the Fed's statutes must be revised to force his future all-too slippery successors to pursue Volckerian policies.- Martin Hutchinson

Dust off the Chicago Plan
An easily implementable plan drawn up in the wake of the Great Depression had the potential to contribute to lasting financial stability and would have precluded the high leverage and monetization of credit instruments that have helped create the present crisis. It is time to dust off the Chicago Plan, and this time act on it. - Hossein Askari and Noureddine Krichene

Spooky stats from the US Mint
The riddle of missing US gold and silver has several possible answers, some horribly ugly, such as: "It's all gone." With measures of gold prices at dirt-bottom levels, that is not such bad news at it appears.
CREDIT BUBBLE BULLETIN
Too big to suffer a loss
Perhaps the US Treasury and the administration will stick to their word and not provide taxpayer funds to save Lehman and others. Yet why is there the feeling that the next step of government intervention will be to bolster the "repo" market? (Sep 15, '08)
Doug Noland looks at the previous week's events each Monday.
THE WEEK AHEAD

MARKET RAP
A respite, but no reprieve
The ongoing declines in Asian markets showed a small lull, and some reversal, with Seoul making phenomenal gains and New Zealand also performing well. But the region is by no means out of the woods, with Chinese exchanges plunging to their lowest levels in months. (Sep 12,

The Pentagon Strangles Our Economy:

Why the U.S. Has Gone Broke

By Chalmers Johnson

The neoconservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination. Continue