Monday, Monday

Oh Monday morning, Monday morning couldn't guarantee
On Monday evening that you would still be here with me.

Monday Monday, can't trust that day,
Monday Monday, sometimes it just turns out that way

-- Mamas and Papas

As the actors take and leave the stage, the drama unfolds and the chorus sings the death march for Lehman Bros, in the familiar lyrics from the Sixties. Take it away, Mamas and Papas.....


DealJounal September 14, 2008, 8:54 pm:

The Federal Reserve and Treasury Department pushed for an industry solution to the Lehman problem this weekend. But really, Wall Street firms blew their chance at finding an industry solution in the nearly six months since the demise of Bear Stearns. With that cautionary tale in the rear-view mirror, investment banks still proceeded largely with business as usual, interrupted by only sporadic attempts to sell toxic assets at low prices. Markdown, write down, announce earnings; wash, rinse repeat. And still the industry largely refused to slap fire-sale prices on those assets, and no one moved to isolate the toxic ones or otherwise clear the decks.

AHEAD OF THE TAPE:

Life isn't much easier for the survivors, however. The economy is slowing, markets are tumultuous and deal making is lethargic. Companies are raising less cash in capital markets, and hedge funds are going belly-up. Banks are shedding the leverage, or borrowed money, that turbo-charged their revenue. In the longer run, the industry faces tighter regulation and a barren market for slicing and dicing debt into securities.

The Japan Lesson: Wakarimasu??

Japan's stock-market bubble began rapidly deflating in 1990 and its property bubble followed suit shortly afterward. Many borrowers were unable to make payments on their debt and bad loans piled up on bank balance sheets. A long period of lackluster economic growth made a tough situation worse. With the financial system saddled with bad debts, Japan desperately needed its banks to acknowledge the severity of their problems and for some banks to shut their doors. But the banks, unwilling to take steps that might render them insolvent, refused to acknowledge their problems, extending the crisis.

[See this chart posted last week: Japan is now right back where it was before it's 1990's credit bubble burst, over 29 years ago.]

A year ago, Bear Stearns Cos. was reluctant to sell mortgage-related credit at a loss. Merrill Lynch & Co. Chief Executive John Thain said in a January interview that the firm's troubles were "for the most part behind us"

Merrill's perils pass to BofA:

In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion.

The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger.

In 2004, the bank bought FleetBoston Financial Corp. A year later, the bank agreed to buy MBNA Corp., the credit-card firm. In 2007, Bank of America bought Chicago's LaSalle Bank as part of the break-up of Dutch bank ABN-Amro Holding NV. Then came this year's purchase of Countrywide.

Elsewhere, Humpty Dumpty was busy scrambling other AIGs:

Insurer American International Group Inc., succumbing to relentless investor pressure that drove its shares down 31% on Friday alone, is pulling together a survival plan that includes selling off some of its most valuable assets, raising more capital and going to the Federal Reserve for help, people familiar with the situation said.

During a weekend scramble to shore up its finances, AIG turned down a capital infusion from a group of private-equity firms led by J.C. Flowers & Co. because an option tied to the offer would have effectively given them control of the company, an 89-year-old giant that does business in nearly every corner of the world.

With no buyers for an obviously bad Lehman, the Bros. are looking for government protection of a different sort:

Lehman and its lawyers are getting ready to file the documents for bankruptcy protection tonight, said a person with direct knowledge of the firm's plans. A final decision hasn't been made, though none of the other options being considered appeared likely, the person said, declining to be identified because the discussions haven't been made public.

Guambat expects there will be more to this post to come.

And just as he thought, Guambat sees Blimpy, over at the Federal Reserve hamburger stand, getting his fill of Fedburgers with his promise of gladly paying Tuesday. Head hamburger slinger Ben Bernanke didn't want Blimpy to go away hungry:

"The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement released in Washington today.

The central bank's action is aimed at assuring Wall Street that short-term funding will be readily available as New York markets open. U.S. stock-index futures slumped 3 percent in Asian trading on concern a Lehman failure will deepen the yearlong credit crisis and worsen the U.S. economy's downturn.

So, where did it go wrong? David Weidner thinks he knows:

The weak will be eaten. The strong will emerge stronger. It's Darwin. It's Adam Smith. The market will grow healthier from this pruning. The business is cyclical and blah, blah, blah. Cover your ears. You will be hearing it all week as people try to make sense of what's happened during the past 72 hours.
But the death of Lehman and the panic it has ignited on Wall Street underscores another truth: When it comes down to it, you're on your own, suckers.

Samuel Hayes, the Jacob H. Schiff chair of investment banking at Harvard Business School, says what's happening is a watershed in the history of Wall Street.

"The mantra we've operated under since the Reagan administration has been allowing deregulation to flower and counting on the marketplace to discipline players in that marketplace," Hayes said. "Without having the heavy hand of government regulation carrying that role" the market failed.

Where did it go wrong? We kept giving them our money.

But let's not too harsh. Some private sources are stepping up to provide a pool of funds for distressed banks to drink from, if you care to drink from a lion's mouth.

A group of global banks and securities firms announced late Sunday a $70 billion loan program that financial companies can tap to help ease a credit shortage that threatens global financial markets.

The ten banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool. The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs.

But maybe, just maybe, some of those parachutes made of golden silk which most of those high-falutin CEOs wear, might just have their strings cut.

The regulator of Fannie Mae and Freddie Mac said Sunday that it won't allow the companies to make "golden parachute" severance payments to the mortgage companies' ousted chief executive officers.

Spokesmen for Fannie and Freddie declined to comment on the pay decision. Messrs. Syron and Mudd couldn't be reached immediately for comment.

David Schmidt, a senior consultant at James F. Reda & Associates LLC, a compensation consulting concern in New York, estimated that, without the regulator's intervention, Mr. Mudd's exit package could total as much as $6 million to $8 million and Mr. Syron's $15 million. Those totals include pensions, continuing benefits and other payments the companies' boards might grant. It isn't clear what pension and other payments may still be made to Messrs. Syron and Mudd, given the regulator's ruling.

The collapse in the share prices of Fannie and Freddie already has wiped out much of the two executives' wealth. Since March, for instance, the value of Mr. Mudd's shares in Fannie has dropped to about $683,000 from $23.7 million.

Guambat fears Fannie and Freddie will, however, hire Dick Grasso to advise on severance packaging.


Ultimatum by Paulson Sparked Frantic End

On Tuesday and Wednesday, when Mr. Paulson called Wall Street CEOs to give them early notice of his no-bailout stance, some argued to him that the government needed to structure a rescue like that of Bear Stearns, according to people familiar with the matter.

Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and his top New York lieutenant, Timothy Geithner, summoned some 30 Wall Street executives for a 6 p.m. Friday meeting at the Fed's offices in Lower Manhattan.

"There is no political will for a federal bailout," Mr. Geithner told the assembled executives, according to a person familiar with the matter. "Come back in the morning and be prepared to do something."

Saturday morning, the CEOs and their closest advisers reconvened at about 9 a.m. and broke into groups to discuss various scenarios. Lehman representatives weren't present.

Outside the Fed's downtown New York headquarters, a fortress-like building of stone and iron, a fleet of black limousines waited for the bankers inside. At one point, they blocked the narrow streets around the building, causing a traffic jam that had to be broken up by the Fed's uniformed guards.

Shortly after 5 p.m., a clutch of Fed staffers left the building. The day hadn't gone well. The government and potential buyers remained miles apart, mainly due to the bailout issue. Wall Street executives left in cars parked in a garage to avoid being photographed by the waiting press.

One person in the Fed meetings Saturday night described them as "the world's biggest game of poker."

With different doomsday scenarios being batted around the meeting rooms, some participants felt the government would blink and do a bailout. "This is going to go down to the last second," one participant said.

During the afternoon on Sunday, two Fed policeman wheeled a large, double-decker cart filled with cakes, cookies, sandwiches, chips and bottles of water into the Fed building.

By the middle of Sunday afternoon, Barclays was out. Its plan -- to buy Lehman's subsidiaries -- was contingent on government support, which wasn't coming.

At a meeting held at the Fed offices, Mr. Paulson, Mr. Geithner and Securities and Exchange Commission Chairman Christopher Cox addressed a group of about one dozen banking chiefs. Their message was steadfast: They would not put up money to assist in salvaging Lehman.

"I think the government is playing with fire," said a top executive of a big bank.

`Tectonic' Market Shift

"I've been on Wall Street for many years, and I've never seen a weekend like this one," said Michael Holland, 64, chairman and founder of New York-based Holland & Co. "We are unwinding what has been years of silliness in the financial markets, and the silliness is being vaporized as we speak"

Is anyone left to save WaMu?