Lehman to be Liquidated?

The New York Times is reporting that both the Bank of America and Barclays negotiations fell through. Here’s a taste of the ugliness:

The overarching goal of the weekend talks was to prevent a quick liquidation of Lehman, a bank that is so big and so interconnected with others that its abrupt failure would send shock waves through the financial world. Of deep concern is what impact a Lehman failure would have on other securities firms, insurance companies and banks, notably Merrill Lynch and the American International Group, both of which have come under mounting pressure in the markets.

A.I.G., one of the world’s largest insurers, may need to raise $30 billion to $40 billion to avoid a severe downgrade to its credit rating, according to people briefed on the situation. An A.I.G. spokesman, Nicholas J. Ashooh, called that estimate speculative and declined to comment further.

Some considered the weekend talks as high-stakes brinksmanship.

Both Barclays and Bank of America expressed interest in buying Lehman and were negotiating hard, initially insisting that the government provide financial support. But federal officials were adamant that no public money be used — a big point of contention because many of the top Wall Street executives believe that their banks, which have each written down tens of billions of dollars in assets, do not have the capacity to lead the rescue on their own.

The prospects of a deal involving Bank of America appeared to fade as talks progressed Saturday and it became clear that the government would not stray from its position.

Challenger, Gray & Christmas notes that there have been over 100,000 layoffs in the financial industry since August 2007.

Also today, Greenspan states the obvious:

The weight of the housing and credit crises, he added, “is in the process of outstripping anything I’ve seen” and has yet to run its course. “It will continue to be a corrosive force until the price of homes in the United States stabilizes,” perhaps next year, he said.

These are, indeed, dire times.


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