Panic on Trading Floor: Lehman Files for Bankruptcy

Photograph of Lehman Brothers employees leaving the Midtown office yesterday--after emptying their offices--by David Karp/AP

The financial industry's worst weekend ended on these notes: Lehman Brothers filed for bankruptcy, after being unable to find a buyer; Bank of America, previously interested in Lehman Brothers (but didn't want to buy it without government protection) decided to buy Merrill Lynch for $50 billion; and there's concern AIG and Washington Mutual will fall next. The financial markets are expected to be in tumultuous territory, and a banking analyst told USA Today, "We are in a hysteria."

Despite filing for Chapter 11 protection, Lehman has still hopes to sell its broker-dealer operations, according to CNBC. Some important figures: Lehman has $613 billion in debt, which, per Bloomberg News, "surpasses Drexel Burnham Lambert's failure in 1990." It also lost 94% of its stock value over the past year.

A trading session was opened between 2 p.m. and 6 p.m. yesterday, The Wall Street Journal reports, "to ease fears...The idea was to allow firms to try to unwind their derivatives transactions with Lehman by finding other parties to step into Lehman's shoes." However, one trader said, "People were screaming at each other over the phone, asking: How can this work?"

Merrill Lynch, which has lost 68% of its stock value over the past 12 months, ended Friday with a $17.05/share price; Bank of America is buying it at $29/share. This turns Bank of America, the biggest retail bank, into a behemoth; a portfolio manager told Bloomberg News, "If Bank of America can put a fence around the bad assets, that retail distribution is a powerhouse. The Merrill Lynch combination makes more sense than a Lehman deal.'' However, a placement firm executive warned, "B of A is known for making big cuts. They go in and thin it out."

Also of note:

To deal with the credit shortage, ten banks-- Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS--agreed to each put $7 billion into a "collateralized borrowing facility."
AIG is looking for raise cash--if its credit rating is downgraded to the point where "counterparties [can] withdraw capital from their contracts with the company," the firm will "survive for only 48 hours to 72 hours," a source tells the Times.
The Fed will expand its lending facilities.
Now there are just two NY-based securities firms--Morgan Stanley and Goldman Sachs.

Contact the author of this article or email tips@gothamist.com with further questions, comments or tips.

By Jen Chung in News on September 15, 2008 8:48 AM

Comments [rss]

rdsizzle

Seems like street crime could make a big comeback and perhaps could be a decent way to earn a living for the next few years....

Fritzdecat

on the positive side this is just like a giant Forest fire...Sure theres financial ruin but after a while new green shoots will appear

had to happen no matter who is to blame

Fritzdecat

Chips you seem to change your tone I thought this was all about Real Republicans with you

"Obama, McCain...neither will change it."

MCCAIN WILL DEFINITELY MAKE IT WORSE

NannyState

Lehman may be sold to Barclays today. I'm surprised the Eurovultures aren't more prolific in the skies above Midtown. Where's Fortis and Dexia? Doesn't BNP Paribas want some of this tasty carrion? Must Jamie Dimon sit alone at this banquet?

Bottomless Chips

Hows it funny... You blaming slick Willy for the past eight years when maybe you might acknowledge the damage done by Dubyanomics.

Borrowing Billions from the Chinese to fight the waste of a War in Iraq, Tax breaks when we should be paying down the debt.

The housing bubble has nothing to do with Iraq. Of course I don't believe in our foreign policy of the war, but this is undoubtedly because of the low federal funds rate in the post-NASDAQ years. You can pretend it's Bush's fault, and Lord knows I have issues with him, but it's simply not. He postponed this as long as he could be allowing the easy monetary policy to continue, but it had to come.

Borrowing from the Chinese for Iraq is an utter non-sequitur. That's going to create a new bubble, but more than likely is what's going to eventually bring us to our knees. I'm reading about a possible cut to the interest rates. What? What we need is to jack it up, and go through the hurt now. Unfortunately, it's an election year.

To deny this bubble as being Clinton and Greenspan's fault is naive and overlooks the facts.

Tax breaks when we should be paying down the debt.

Does it even matter at this point? We're never paying down our debt or shrinking our trade deficit. We're just going to continue to print and tax until we're insolvent and China has the purchasing power. Obama, McCain...neither will change it. Better buy up precious metals while they're relatively cheap.

Fritzdecat

Hows it funny... You blaming slick Willy for the past eight years when maybe you might acknowledge the damage done by Dubyanomics.

Borrowing Billions from the Chinese to fight the waste of a War in Iraq, Tax breaks when we should be paying down the debt.

Yeah where are the real conservatives? If Nixon was here he would be spinning in circles at the current Idocracy.

Bottomless Chips

Fritzdecat,

While the banks are culpable, who lets them spend wildly? The Fed. They're the real problem, and until we recognize this, we'll keep having these bubbles and their eventually bursts.

We should've gone through this post-NASDAQ but Alan kept pumping money in through artificially low federal funds rates.

How is it funny? What's funny and upsetting is when we're not accepted the cold, hard truth. We're almost all in denial, but things are going to continue to get worse.

Fritzdecat

true republican ideals = blaming slick willy for the last 8 years

Thats the funniest thing I've heard all day

Bottomless Chips

So where have your "true Republicans" been the last eight years? Certainly not in the White House.

Well I was talking about Congress, but, yes, they're not in the WH, either.

Spirit of 76

So where have your "true Republicans" been the last eight years? Certainly not in the White House.

Bottomless Chips

Ladies and Gentlemen, once again, the Republicans.

[Republicans play third song]

[final commercial break]

[Back for goodbyes/credits/a depression that rivals 1929]

Republican ideals (true Republican ideals) would've prevented this. You can thank Slick Willy, Greenspan, and Helicopter Ben for this.

bagelman

can somebody please explain why that douche-bag is making a peace sign and holding up the Lehman sign? is that guy trying to tell us that the latest round of wall street layoffs have no interest in class war?

i'm awfully confused.

everyAframe

HOST:

Ladies and Gentlemen, once again, the Republicans.

[Republicans play third song]

[final commercial break]

[Back for goodbyes/credits/a depression that rivals 1929]

Bottomless Chips

as I understand it, if you have less than 100k in a FDIC bank, you're covered by the Fed, at least until the Fed collapses. Which I wouldn't be surprised at, all things considered.

You're fine because the Fed can always fire up the presses, which isn't a good thing. But the FDIC has called for more money from the Fed, which is also not a good thing and shows the impending doom.

smitty

People are outside the building, staring up at it as though it's on fire.

Anna_Merkin

Eurodollars. Blue Horseshoe says "buy Eurodollars."

virgil

as I understand it, if you have less than 100k in a FDIC bank, you're covered by the Fed, at least until the Fed collapses. Which I wouldn't be surprised at, all things considered.

EastRiver

Hmm. If WaMu is going under, maybe I should go and max out my WaMu Visa.

Do you plan on filing for bankruptcy, too? Otherwise, your debt remains an asset to WaMu.

babyhitler

they'll try to get a job doing what they've been doing but find out that dudes from bear stearns and other companies that went down are in front of the queue. Then they'll try to get a cut in pay but find that the pay is way too low. At the end of the day, they are accustomed to extravagance and they will have to suck it up.

Spirit of 76

I wrote a couple of months ago that a lot of pain was coming down the pike, but people wouldn't listen.

Hmm. If WaMu is going under, maybe I should go and max out my WaMu Visa.