Impossible? I knew the mess now highlighted by Bear Sterns, Northern Rock,
Fanny, Freddie, GM, IndiMac, Lehman and so many other institutions, hedge funds
and time bombs in waiting was on the table years ago. If for no other reason
than I used to read Doug
Noland's Credit Bubble Bulletin every week. But it is all going down right
now; figuratively if not literally as in "it's all goin' down, man". This is
serious.
Read the AP report below. Think about the desperation as these guys try to
cobble together another major bailout. I think it is telling that the government
is balking at [outwardly] impairing the taxpayer (and their children) further
after Fannie & Freddie as noted in this line: "The government has drawn
a line in the sand over using taxpayer money to help rescue Lehman Brothers,
however." At times like this I wonder about what could be the only remaining
viable 'solution', yes the same solution that got us where we reside today,
IN FLAY SHUN. With commodities in the tank and contraction/recession at hand
the Fed has the cover needed to burn it baby, burn it. They are balking at
outwardly obvious taxation. But what about initiating plans to employ a more
clandestine form of taxation, the kind they always opt for in the end? This
weekend, if we listen closely we may be able to actually hear the comforting
sound of the Huey rotors warming up.
The pun was not intended but the potential next bubble we experience could
be those pummeled down leveraged vehicles (to the price of gold), the gold
miners in the Huey (HUI). 'But Gary, in the previous
post you freaked me out with the possibility of new lows in the HUI!' Yes,
but that is technical - it must be respected. What I am talking about now is
fundamental and structural. Risk management never goes out of style, but I
can see a set up where money supply gets ramped to beat he band. Policy makers
have the cover (deflationary impulse) right here and right now.
Feds, Wall Street race to try to save Lehman
Sunday September 14, 7:39 am ET
By Jeannine Aversa and Joe Bel Bruno, Associated Press Writers
As financial world frets, government and brokerage leaders try to hash out
Lehman rescue NEW YORK (AP) -- 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 official 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 try to hash out a deal
to rescue Lehman Brothers.
The financial world was watching. Failure could prompt skittish investors
to unload shares of financial companies, a contagion that might affect stock
markets at home and abroad when they reopen Monday.
Discussions are expected to continue Sunday, 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 financial 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.
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."
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 financial 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.
Bear's sudden meltdown led the Fed to engage in its broadest use of lending
powers since the 1930s. Fearful that other firms could be in jeopardy, the
Fed temporarily opened its emergency lending program to investment firms,
a privilege that for years was granted only to commercial banks, which are
subject to tighter regulation.
Those actions -- along with the Bush administration's take over of mortgage
giants Fannie Mae and Freddie Mac just last week -- have spurred concerns
that taxpayers could be on the hook for billions of dollars and companies
will be encouraged to take on extra risks because they believe the government
will come to their aid.
Paulson and Bernanke, however, have said they needed to help Bear Stearns
and Fannie Mae and Freddie Mac to avert a financial calamity that would devastate
the national economy.
Lehman's Fuld is currently a member of the New York Fed's board of directors.
At
times like this, I wonder about the possibility of another bubble out there
on the horizon; a very unlikely bubble that could be more powerful then the
tech stock bubble, the credit/housing market bubble, the oil and various commodity
bubbles... the bubble I wonder about is a gold stock bubble. 'Da minas' will
benefit as gold outperforms other assets in a global economic contraction.
If gold actually rises amid economic disarray the miners should blast to new
highs in the secular bull market. Or if heaven forbid gold approaches its inflation
adjusted 1980 highs to reach $2300 per ounce the miners are going to make the
dot.com's look like child's play.