Fed 'Engineering' Lehman Sale This Weekend

Posted by urbandigs

Fri Sep 12th, 2008 08:09 AM

A: I didn't know the fed's mandate was too orchestrate and engineer deals? Did you? Oh well, I guess it fits under the criteria of price stability, as in, stock prices will get killed if Lehman fails!

Not on vacation yet and Lehman's funeral service has already been announced. Well, ok, not a funeral service, but close. I believe Lehman has about 20,000 employees (verification?), who were on the receiving end of about $9,500,000,000 of bonuses last year! Today, Lehman could not find a buyer on its own or raise billions in capital, and so, the fed/treasury will have to facilitate a sale so as to avoid counterparty disruptions, financial instability, and risk of a systemic crisis in our system. Ain't deleveraging a bitch!

Its a very sad story and final chapter for this very old firm. The result of this will be tons of lost wealth, mainly held by LEH shareholders and employees who own stock options, and a likely shedding of half the work force. It's amazing that it appears a combination of a few firms will have to work together to buyout the firm. Very telling of the severity of this credit crisis, deflation, toxic assets, and the environment in general. Geez, who would have though that leveraging 30:1 could have such horrible ramifications?

I spoke about Lehman's problems on this site for about 10-12 months now, so it should be no shock to those who 'get it' and read this site. For those out there keeping their head in the sand, or choosing to view the bright side because doom & gloom ain't their cup of tea, it's time you wake up to the reality that this is the worst credit crisis since the great depression! More bailouts to come and the next Big 3 in my view are WaMu, Merrill, and Wachovia.

The markets have become 'used to' bailouts these days and I just don't see how this is a good thing. At some point, the markets will be forced to handle shocks on their own. For individual stories, I'm sorry, but I just can't feel sorry for someone who earned a million dollar bonus, on top of a very high six figure salary, who now finds their stocks options worthless and job at risk. This is what comes with playing the big games on wall street with the big firms, earning the big salaries. I'm not saying you deserve it, I'm saying this is the risk that comes with high reward if your firm is on the wrong side of bets in a very tough environment. As I said in January in my piece, "Bonuses: It's 2009 That Will Hurt More" :

"The derivatives trade of securitizing loans and selling them off in pieces on the secondary mortgage markets generated billions in revenue for these banks & brokerages. Now that the housing bubble popped nationally, risk has been re-priced, secondary mortgage markets are not functioning properly, liquidity dried up for mortgage backed securities, and the announcement of billions in losses and potential insolvencies, THE GAME IS OVER! How will these banks and brokerages generate the kind of revenue that they got used to generating the past few years? "
Put yourself back into time & place when I stated this; Bear was still alive & Lehman stock price was trading at $62! I knew the revenue model going forward for wall street firms was broken, and that toxic assets would ultimately cause tons of pain for the big firms. One of the reasons Lehman got in trouble, outside of their highly toxic holdings, was their future prospects for generating revenue! This is a wall street problem for many firms, and we have not even seen any regulation yet resulting from government intervention; trust me, its coming. Wall street will have to wait to see how the industry is regulated, to devise a new financial innovation to replace the securitization model of bundle, re-rate, and sell that is all but dead. I just don't see how things will ever go back to the way they used to be after this credit bust cycle.

For 2009 wall street bonuses, I would expect them to be down about 50% from 2008 levels. OK, now Im off!

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