As Lehman Brothers raced to find a buyer on Saturday, U.S. government officials and Wall Street chieftains mapped out options to prevent an abrupt collapse of the crippled bank and arrest the downward spiral threatening other financial companies.
Several possibilities began to emerge as top Wall Street executives met under the guidance the Federal Reserve and Treasury Department. One would involve major banks and securities firms providing a financial backstop to facilitate a sale of Lehman. Another option would involve an agreement among Wall Street players to keep trading with Lehman as the bank seeks an orderly liquidation.
Those briefed on the talks said the situation was still fluid and other options could emerge.
Adding urgency to the discussions were growing concerns that other big financial institutions like the insurance giant American International Group and Merrill Lynch might face a similar crisis and also need billions of dollars in capital to strengthen their businesses.
The spreading troubles were the latest sign that even the government’s extraordinary interventions into private enterprise during the last year have not been enough to halt the unraveling of the financial system.
IMNSHO, the federal government ought to do what is necessary to protect uninvolved third parties from ruin because of Lehman’s implosion, but Lehman itself should be allowed to collapse unimpeded. Government is creating one huge moral hazard by attempting to bail all these fatcats out. They need to fail, and they need to fail spectacularly.
I used to take down insolvent insurance companies for a living. In all cases unsound financial practices were at the bottom. (And in many cases the top management looted the company). As hard as it is, particularly when you have to fire employees whose no fault it is, Jeffersonian is right.
I am not sure what an uninvolved third party is or how they can be protected. That said, I am about done with government bailouts of big companies that engaged in bad business practices. I agree with the two preceding posts. Sink or swim. This is capitalism not schoolyard T-ball where no keeps score and no one wins or looses.
ICXC
John
Who are the innocent uninvolved third parties? How about IRA investors or retirees who own bonds. They have acted responsible by saving for their retirement. While so many people tried to live beyond their means by exploiting the housing market, these investors just want to be able to afford to live.
Cole,
With all due respect an IRA is not Social Security. It’s an investment just like any other except for its intended purpose for which it is given certain tax advantages. But the government does not and should not guarantee people’s IRA investments. When you invest either in an IRA or for any other purpose the responsibility lies with the investor to choose wisely.
Bonds in most cases are safe investments because even if the company goes under bond holders are typically at the head of the line for assets in bankruptcy proceedings. Stock holders are part owners of the company. If the company goes under then the stock holders made a bad business decision. Bad business decisions have consequences.
Fanny Mae and Freddie Mac had their bonds implicitly backed by the U. S. Federal Government. Given that fact I believe the Feds had to step in. However Lehman Brothers is a private firm.
Caveat Emptor
ICXC
John
#5 Ad Orientem: You really didn’t make your case against my point. A major part of the wealth in this country is in retirement accounts. People my age have paid for more than two generations into SS and none of it was really saved for us, but spent on others. If we invest through a brokerage firm even in the most conservative funds, I would say we are innocent. Yes, the guaranteed bonds get paid first, then the unquaranteed, and the stockholders are the biggest losers. Now if you go back to my original point about who were trying to make it rich and who were trying to invest wisely, and then point to who may really be the victims, I think my statement is valid.
If we just privatized social security, these investment bankers would still be thriving.