Officials discuss Lehman Brothers The Associated Press
WASHINGTON — The Federal Reserve Bank of New York held an emergency meeting Friday night with top Washington policymakers and major financial institutions to discuss the future of Lehman Brothers. The meeting, which was attended by Treasury Secretary Henry Paulson, was held at the offices of New York Federal Reserve Bank president Timothy Geithner. The meeting was confirmed by Fed spokeswoman Michelle Smith. Smith refused to disclose what financial institutions participated in the meeting or whether the group had reached any conclusion over how to resolve the crisis facing Lehman Brothers. She said that in addition to Paulson and Geithner, Christopher Cox, the chairman of the Securities and Exchange Commission, was in attendance for the discussions. The private sector participants were described by Smith only as “senior representatives of major financial institutions.”
Bank bailout hits financing snag Officials seek buyer for Lehman Brothers BY JEANNINE AVERSA AND JOE BEL BRUNO The Associated Press
NEW YORK — The field of possible buyers for Lehman Brothers narrowed Saturday, but the parties involved in the discussions over the wounded investment bank’s future were at loggerheads over how to finance the rescue. An investment banking offi cial said Bank of America Corp. and Britain’s Barclays Plc have emerged as the front-runners for Lehman Brothers after a possible cash injection from its rival Wall Street banks and brokerages. Top officials from the Federal Reserve and the Treasury Department and executives from several Wall Street banks met at the New York Fed’s downtown Manhattan headquarters Saturday for the second day in a row to try to hash out a deal to rescue Lehman Brothers. GLOBAL REPERCUSSIONS The financial world was watching. Failure could prompt skittish investors to unload shares of fi - nancial companies, a contagion that might affect stock markets at home and abroad when they reopen Monday. Discussions are expected to continue today, said Andrew Williams, a spokesman for the New York Fed. The investment banking official, who asked not to be named because the talks were ongoing, said the investment houses were balking at paying to polish up Lehman’s balance sheet so Bank of America or Barclays could buy a financially clean firm. He said the investment banks were angling for the government to provide some money, as it did when it helped JPMorgan Chase & Co. buy Bear Stearns in March, because they would get little to nothing in return for their help. The government has drawn a line in the sand over using taxpayer money to help rescue Lehman Brothers, however. The official said the talks were tense and neither side appeared willing to back down. Besides selling the company whole or piecemeal, Lehman could be liquidated, perhaps with financial firms agreeing to still do business with the company as it wound down. Or, a financial company or companies could buy Lehman’s “good” assets. Its shunned or devalued real-estate assets could be placed in a “bad bank” financed by other banks. Saturday’s participants included Treasury Secretary Henry Paulson, Timothy Geithner, president of the New York Fed, and Securities and Exchange Commission Chairman Christopher Cox. Citigroup Inc.’s Vikram Pandit, JPMorgan Chase & Co.’s Jamie Dimon, Morgan Stanley’s John Mack, Goldman Sachs Group Inc.’s Lloyd Blankfein, and Merrill Lynch & Co.’s John Thain were among the chief executives at the meeting. Representatives for Lehman Brothers were not present during the discussions. They gathered on the heels of an emergency session convened Friday night by Geithner — the Fed’s point person on fi - nancial crises. Federal Reserve Chairman Ben Bernanke is actively engaged in the deliberations but wasn’t in attendance. Geithner convened the meeting Friday evening and told bankers gathered at the New York Fed to come up with a solution or risk being the next to go under, investment banking officials with direct knowledge of the talks said. They spoke on condition of anonymity because the talks were ongoing. A spokesman for Lehman declined to comment about the meeting. Other potential buyers could include Japan’s Nomura Securities, France’s BNP Paribas and Deutsche Bank AG. All have declined to comment. OTHER LOOMING ISSUES Participants in Saturday’s meeting were also trying to tackle a broader agenda that includes problems at American International Group Inc. and Washington Mutual Inc., said the investment bank officials, who were briefed on the talks. AIG, the world’s largest insurer, and WaMu, the nation’s biggest savings bank, have taken steep losses during the past year from risky investments. Investors, worried they do not have enough cash on their balance sheets to withstand further hits, unloaded their shares on Friday. AIG’s shares dropped about 31 percent on Friday. WaMu’s shares shed about 3.5 percent. Shares of investment bank Merrill Lynch & Co. Inc. also lost 12.3 percent. Lehman’s stock closed at $3.65 Friday — an all-time low and down nearly 95 percent from its 52-week high of $67.73. Lehman Brothers and AIG are the top priorities, said the investment banking officials. WaMu insisted Friday it has adequate capital to fund its operations even as it announced another multibillion dollar write-down on bad mortgage loans. WaMu has 76 percent of its deposits insured by the Federal Deposit Insurance Corp., an independent agency created by Congress to insure deposits in banks and thrifts up to at least $100,000. AIG has lost more than $18 billion over the last three quarters due to investments tied to subprime mortgages. Global fears intensified Saturday that Lehman’s collapse would stagger markets and undercut confidence in the U.S. financial system. Germany’s Finance Minister Peer Steinbrueck urged that a resolution be found before Asian markets open, warning ominously, “the news that is coming out of the U.S. is bad.” LOOKING FOR WAY OUT Lehman Brothers Holdings Inc. put itself on the block earlier this week. Bad bets on real-estate holdings — which have factored into bank failures and taken out other fi - nancial companies — have thrust the 158-year-old firm in peril. It has been dogged by growing doubts about whether other financial institutions would continue to do business with it. Richard S. Fuld, Lehman’s longtime CEO, pitched a plan to shareholders Wednesday that would spin off Lehman’s soured real estate holdings into a separately traded company. He would then raise cash by selling a majority stake in the company’s unit that manages money for people and institutions. That division includes asset manager Neuberger Berman. Government officials want to avoid a Bear Stearns-like bailout; the Fed in March agreed to provide a loan of nearly $29 billion as part of JPMorgan Chase & Co.’s takeover of the firm. Unlike Bear, Lehman can go directly to the Fed to draw emergency loans if it needs a quick source of ready cash. In recent weeks, though, there’s been no indication that Lehman has done so.
Government officials want to avoid a Bear Stearns-like bailout;
Government should have avoided the Bear Stearns bailout just as well. $29 BILLION DOLLARS tacked on to our debt that we will be paying for years and years and years. And all of this to save a private business.
When the INSANE are running the ASYLUM In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche
“How fortunate for those in power that people never think.” Adolph Hitler
Bankers huddle to avert panic Lehman rescue fails; Bank of America seen buying Merrill BY JOE BEL BRUNO, CHRISTOPHER S. RUGABER AND MARTIN CRUTSINGER The Associated Press
NEW YORK — A failed plan to rescue Lehman Brothers was followed Sunday by more seismic shocks from Wall Street, including an apparent government-brokered takeover of Merrill Lynch by the Bank of America. A forced restructuring of the world’s largest insurance company, American International Group Inc., also weighed heavily on global markets as the effects of the 14-month-old credit crisis intensified. A global consortium of banks, working with government officials in New York, announced late Sunday a $70 billion pool of funds to lend to troubled financial companies. The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges. Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion “to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets.” The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed. Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying “potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses.” Futures pegged to the Dow Jones industrial average fell more than 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index this morning. Asian stock markets were also falling. Lehman Brothers may be forced to seek an orderly unwinding of its businesses. All potential buyers walked away after the U.S. Treasury refused to budge on its refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac. Expectations that the 158-year-old Lehman would survive dimmed after Barclays PLC withdrew its bid to buy the investment bank. Barclays and Bank of America were considered front-runners to buy Lehman, which is foundering under the weight of $60 billion in soured real estate holdings. Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company’s financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor’s office through the weekend to craft a solution that protects policyholders, according to Dinallo’s spokesman David Neustadt. Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for $29 a share, according to the Wall Street Journal. That’s a premium to its closing price on Friday of $17.05 but only a fraction of its price of almost $100 a share early in 2007. Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world’s largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets. The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses. And Bank of America’s own fi - nances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January. The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. The weekend’s developments will likely spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation. Samuel Hayes, finance professor emeritus at Harvard Business School, said the current administration may get a lot of blame for the situation, which could benefi t Obama. “Just the psychological impact of this kind of failure is going to be significant,” he said. “It will color people’s feelings about their well-being and the integrity of the financial system.”
Stocks set to plunge after fall of Lehman Bros. By TIM PARADIS, AP Business Writer 11 minutes ago
U.S. stocks headed for a sharply lower open and Treasury bond prices soared Monday as investors reacted to a stunning reshaping of the landscape of Wall Street. A series of events took out two storied names Sunday: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.
Stocks posted sharp losses in markets across much of the globe as investors absorbed a bankruptcy filing by Lehman and Merrill Lynch's forced sale to Bank of America for $50 billion in stock. And perhaps most ominously, American International Group Inc. is asking the Federal Reserve for emergency funding. The world's largest insurance company plans to announce a major restructuring Monday.
The swift developments are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt.
Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by $60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions. Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.
But many market observers have said for months that a cathartic sell-off is necessary for Wall Street to purge its worries over bad debt and the tight credit conditions that have hobbled the economy. A scare and subsequent sell-off in the markets could establish conditions for a market bottom to form.
Dow Jones industrial average futures fell 372, or 3.3 percent, to 11,086. Standard & Poor's 500 index futures fell 48.00, or 3.81 percent, to 1,210.50. Nasdaq 100 index futures fell 49.25, or 2.8 percent, to 1,730.25.
Bond prices surged as investors fled to the security of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.50 percent from 3.72 percent late Friday. The dollar was lower against other major currencies, while gold prices rose.
Markets in Tokyo and several other Asian money centers were closed for holidays. In afternoon trading, Britain's FTSE 100 fell 3.64 percent, Germany's DAX index fell 3.33 percent, and France's CAC-40 fell 4.37 percent. The European Central Bank, the Bank of England, and the Swiss central bank stepped in an attempt to calm markets by making more short-term credit available to banks.
Light, sweet crude dropped $4.43 to $96.75 in premarket electronic trading on the New York Mercantile Exchange after damage to Gulf of Mexico oil infrastructure from Hurricane Ike was less than Wall Street feared. Worries about a slower economy have also weighed on oil prices in recent weeks. Oil is down sharply from its mid-July highs when it hit a record over $147 a barrel.
But despite the pullback in oil, prices the gas pump rose above $5 per gallon in some parts of the country Sunday after Ike left some the nation's refining capacity inoperable.
The reduced headcount of Wall Street firms Monday left Goldman Sachs Group Inc. and Morgan Stanley as the remaining big, independent firms. The two are slated to report quarterly results Tuesday and Wednesday, respectively.
The shake up comes only a week after the government bailed out mortgage lenders Fannie Mae and Freddie Mac and ahead of big economic developments this week. The Federal Reserve is expected to make a decision on interest rates on Tuesday. Meanwhile, on Monday, Wall Street is also expecting a reading from the New York Fed on regional manufacturing gas well as a report on industrial production.
Put your money in a 'bank/credit union'. This is clearly NOT the time to take risks with the stock market. As it is, we will be paying for ever for the past bail-outs. Let's help all of us out by pulling our money out of stocks and into banks so we don't have to bail ALL OF US OUT in the future. I pulled mine out for now. Put it in a 1 year CD. IT'S SAFE, and won't cost you guys/girls a dime.
When the INSANE are running the ASYLUM In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. -- Friedrich Nietzsche
“How fortunate for those in power that people never think.” Adolph Hitler
I happen to be a licensed securities professional with over twenty years Wall Street experience. This is no place for me to dispense advice but I will say this: Don't panic! Be prudent instead. There are ways to limit your risk exposure without stuffing all your money in your mattress.
As far as bailouts go: I think Lehman was rightly let to fail. I also think that Merrill wouldn't have failed ultimately but that the government brokered takeover by BofA was a move to try to get ahead of matters and was savvy. The assets on the books of these brokerages was vastly different with different consequences to any failure. That said, the next big domino in this equation is AIG which, like Fannie and Freddie, cannot be allowed to fail.
Today's stock market collapse makes for splashy headlines but the truth is it represents needed capitulation; capitulation somewhat overdue as evidenced by the recent volatility. We have serious problems but among the largest is a simple crisis of confidence which must be rectified...or you ain't seen nothing yet...though there are still some other teetering dominos out there.
I don't believe we're at a bottom yet, but we're probably "near" one anyway and historically, when panic and fear take over there is usually opportunity and much money to be made. I intend to be one of them.
10 Ways to Protect Your Finances From the Crisis by Brett Arends Monday, September 15, 2008
Here are ten things that this financial panic means for you.
1. Check that your bank accounts are federally insured. The Federal Deposit Insurance Corporation (FDIC) guarantees deposits up to $100,000 per person. If you have to hold more than that, spread it across multiple banks. As a taxpayer you are paying for this insurance. Use it.
2. Make sure your brokerage accounts are federally insured, too. The Securities Investor Protection Corporation (SIPC) guarantees you at places like Lehman Brothers, Merrill Lynch, E-Trade and the like up to $500,000, including $100,000 worth of cash. The same rules apply: If you have more to invest, spread it across multiple firms. Note: The SIPC is only there to make sure you get your shares and bonds back if a brokerage fails. It does not, obviously, guarantee those investments' value.
3. Put money in thy purse. If this market and this economy get any tougher, cash isn't just going to be king any more. It's going to be king, queen, emperor, lord high chamberlain, and the whole court – including the royal cat and crazy prince Ruprecht locked in the attic. The easiest way to make or find a buck is to save it. So take an axe to those family budgets. The restaurant meals. The Super Duper Everything Cable package. The rip-off checking account with the high fees and low interest. It's all costing you.
4. Set up a home equity line of credit while you still can. I usually don't like advising people to take on more debt, but if access to ready cash might be a life saver it's best to line it up. That's especially true if you are worried about your job. Credit is already tight, and it may get a lot tighter still.
5. Refinance your mortgage. The panic on Wall Street just caused a collapse in the interest rate on long-term US Treasury bonds, as lots of investors rushed there for safety. And that usually leads to a fall in long-term mortgage rates.
6. Stop pulling a Monty Python when it comes to your worst investments. If you ever saw John Cleese and Michael Palin perform their famous skit about the dead parrot, you know exactly what I mean. No, your Fannie Mae shares aren't "resting." They're lying at the bottom of the cage with their feet in the air. What more do you need to know? So stop waiting for them to "recover" before sorting out your portfolio.
7. Don't panic. Journalists, like markets, tend to move in herds. And by the nature of their jobs they write about the plane that crashes instead of the thousands that land safely. Remember, too, that pundits want to seem really wise by putting on serious expressions and saying things like "we don't know how this thing is going to play out," and "the situation could get a lot worse". Bah. Guess what? We never know how things are going to play out. And the situation could get a lot better too. That's the future for you.
8. When it comes to your short-term money needs, nothing has changed. Any money you might need within the next year or two should be held in cash or equivalents. That was true two years ago and it is true now. The stock market is no home for money you may need urgently. It could fall 30% or jump 30%. Nobody knows. You can get a one year CD paying 5% right now, and it's federally guaranteed.
9. If you are investing for five years or more, buy some stock. The investment outlook is much, much better today than it has been for several years, because shares are much cheaper. World markets overall have fallen 27% from last year's peak. They're not a steal at current levels but they are not particularly expensive either. Invest globally. Vanguard Total World Stock gives you the whole world and low fees. If you are looking for a value focus, Morningstar analyst Bridget Hughes likes Oakmark Global. Another good one is Tweedy, Browne's new Worldwide High Dividend Yield Value. The list is not comprehensive. Remember: I am not trying to call the bottom of the market. Things could fall quite a bit further ahead. No one knows. So only invest little, often, and broadly.
10. If you want to worry about anything, worry about your taxes. The worse this crisis gets, the more they will end up putting the taxpayer on the hook to prevent a meltdown. Taxes are going up sooner or later anyway, no matter who wins the election, because of our gigantic federal deficits. (If you think Lehman Brothers was bad, you should look at Uncle Sam). And you can forget about any talk of tax breaks. Oh, and if you want a break from worrying about taxes, worry about Treasury bonds. Deficits won't do anything good for them.
I happen to be a licensed securities professional with over twenty years Wall Street experience. This is no place for me to dispense advice but I will say this: Don't panic! Be prudent instead. There are ways to limit your risk exposure without stuffing all your money in your mattress.
As far as bailouts go: I think Lehman was rightly let to fail. I also think that Merrill wouldn't have failed ultimately but that the government brokered takeover by BofA was a move to try to get ahead of matters and was savvy. The assets on the books of these brokerages was vastly different with different consequences to any failure. That said, the next big domino in this equation is AIG which, like Fannie and Freddie, cannot be allowed to fail.
Today's stock market collapse makes for splashy headlines but the truth is it represents needed capitulation; capitulation somewhat overdue as evidenced by the recent volatility. We have serious problems but among the largest is a simple crisis of confidence which must be rectified...or you ain't seen nothing yet...though there are still some other teetering dominos out there.
I don't believe we're at a bottom yet, but we're probably "near" one anyway and historically, when panic and fear take over there is usually opportunity and much money to be made. I intend to be one of them.
I know you have issue with conspiracy theories and yes so do I.....but, I feel that folks in high places either elected or placed have a panoramic view......and one view I am betting they have is the demise of paper money.....with global economy the next generations will have no knowledge of the gold standard and it will be 'credits'/ATM/barcode for them......their placement of value will be based on confidence in the systems of which there is no individuality---ie:China and the likes......maybe not so 'weird' but very very controlled...
this is an example of knowing what an apple pie is without knowing what an apple is, or even what wheat or sugar are.........
foundations based on hot air......that is what happens when we use our homes as bartering tools.......
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
I know you have issue with conspiracy theories and yes so do I.....but, I feel that folks in high places either elected or placed have a panoramic view......and one view I am betting they have is the demise of paper money.....with global economy the next generations will have no knowledge of the gold standard and it will be 'credits'/ATM/barcode for them......their placement of value will be based on confidence in the systems of which there is no individuality---ie:China and the likes......maybe not so 'weird' but very very controlled...
this is an example of knowing what an apple pie is without knowing what an apple is, or even what wheat or sugar are.........
foundations based on hot air......that is what happens when we use our homes as bartering tools.......
...you are a product of your environment, your environment is a product of your priorities, your priorities are a product of you......
The replacement of morality and conscience with law produces a deadly paradox.
STOP BEING GOOD DEMOCRATS---STOP BEING GOOD REPUBLICANS--START BEING GOOD AMERICANS
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