There have been comparisons of Lehman Brothers to Long-Term Capital Management throughout the week, particularly the allusion to the scene at The New York FED; any financial CEO that matters, gathering to help stage yet another rescue through a consortium of banks.
It seemed like it would happen: with Barclays and Bank of America leading the negotiations, we saw 2 contenders with ample capital to facilitate the take over. But then, for a series of reasons, it looks like the plan of all plans has fallen apart just at the finish line:
Unable to find a savior, the troubled investment bank Lehman Brothers appeared headed toward liquidation on Sunday, in what would be one of the biggest failures in Wall Street history.
The fate of Lehman hung in the balance as Federal Reserve officials and the leaders of major financial institutions continued to gather in emergency meetings on Sunday trying to complete a plan to rescue the stricken bank.
But Barclays, considered the leading contender to buy all or part of Lehman, said Sunday that it could not reach a deal without financial support from the federal government or other banks, making a liquidation more likely.
The leading proposal had been to divide Lehman into two entities, a “good bank” and a “bad bank.” Under that scenario, Barclays would have bought the parts of Lehman that have been performing well, while a group of 10 to 15 Wall Street companies would agree to absorb losses from the bank’s troubled assets, according to two people briefed on the proposal. Taxpayer money would not be included in such a deal, they said.
But that plan fell apart on Sunday, making it likely that Lehman would be forced to liquidate.
Here’s the rest of the NYT’s article.
From here, we are entering uncharted territory – the bankruptcy of a major financial institution on the heels of a government takeover, one which guaranteed a class of assets which exceeds the value of the entire United States equity market. Yes, Drexel Burnham Lambert went bankrupt in 1992, but they had hundreds of millions in outstanding obligations, not hundreds of billions. Come Monday, we will see what happens to Lehman’s counter parties, chiefly AIG. Robert Willumstadt, AIG’s CEO, is expected to announce his plan to save the company. For the sake of our financial system, I hope its not too late.
One thing is for sure; there will be one hell of a book written about the events that transpired in the past 2 weeks.
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