Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch...

I’m no economist, but this last week has been amazing. Some of the largest financial firms in the world are melting down as I type. Merrill is being sold, Lehman Bros, unable to find a buyer, is filing for bankruptcy protection. Bear Stearns is all but a memory.

I have a pretty good understanding of why this is happening, but I don’t know what the immediate repurcussions will be. What is going to happen to the market in the next month or so? What are the next dominoes to fall? Is this limited to the financial sector or are other industries about to get sick?

No one knows, and that’s why this is a crisis rather than a downturn.

The latest is that AIG is crawling to the Fed for a bailout bridge loan to avoid bankruptcy. AIG is huge, huge, huge!

This is not pretty. It affects us all.

Just to be snide, if there is a massive meltdown (as if it already isn’t massive) probably McCain and Obama will both pull out of the race citing the fact that they don’t want to touch this mess.

It kinda feels as if they tried to slip that one by with no one noticing.
That’s very disturbing

Do you have a link for this? They manage my 401K.

From Bloomberg:

So is it time to panic yet?

Thanks, although now I feel like a moron. Turns out we switched companies a year or so ago. Guess I should really pay more attention to those quarterly statements, but they’ve just been a little depressing lately…

If Lehman and AIG go down this week it may be. I’m wondering what the deal is with Citibank. They were teetering and we haven’t heard much from them lately. If they go down with the rest than we might as well do a leveraged buyout with China and all learn to speak Mandarin.

This is kind of a General Question, but since this thread exists…

Does anyone know where a bank like PNC fits into all of this? Is it relatively insulated?

There hasn’t been much discussion of PNC’s parent company, which is a large financial services firm. That doesn’t mean it can’t go belly up, but PNC bank, like any other commercial bank, should be FDIC insured. I wouldn’t worry too much about your accounts there.

Well… speaking of FDIC, in the event of a bank failure, what happens to people whose deposit accounts are over the limit, but whose sum of deposits + loans is under 100K?

(Yeah. I should move the excess. Just seems scary to try to pick a bank right now. What are the chances that FDIC itself will collapse?)

I don’t know. That would be a good GQ thread.

According to an AP article, Lehman has apparently had problems for quite a while now, and that the markets are “more prepared” to deal with it, whatever that means. It also says that reports claim that AIG is announcing a restructuring plan tomorrow.

As I mentioned in another thread, none of these are as surprising as Bear Stearns was. There’s been a lot of talk going around the past few months about problems at AIG, Lehman and Merrill, so nothing that’s happened here was completely unexpected. I don’t know if that’s actually reason for optimism, but it’s hard not to call it a good thing.

I love deregulation. The next couple months will see the end of FDIC reserves. Then we print money . The Fed would have to come up with the money. Confidence in the economic system is paramount. It will be hard to keep bailing out the mismanaged and theft crazy financial institutions. But we have no choice. Tomorrow will be ugly.

Squink:

I think that’s kind of an unfair assessment. They did a lot this year to raise capital-including selling their Bloomberg shares. I see this more as a “reading the writing on the wall sale, trying not to screw over shareholders” sale than ML truly being in a crappy financial state. WSJ reporting seems to confirm that.

I didn’t mean to suggest there was anything nefarious about it, and I haven’t been keeping close track on Merrill. It just struck me as something I should have heard about through some route other than a late sunday bit in the homepage.

So, are you guys thinking about pulling out of the market tomorrow? Most of my savings are in mutual funds and I wonder if I should put some in money market accts…

I read somewhere else that the fact that Wall Street firms refused to pony up enough cash to guarantee the sale of Lehman to interested buyers essentially meant that Wall Street was braced for the fallout from Lehman’s bankruptcy, namely that the mark-to-market CDOs (i.e., the real toxic sludge that no one wanted to see actually on the market because if it failed to sell, or sold for pennies on the dollar, it would force a revaluation of everyone else’s toxic sludge that would wipe out trillions) would actually hit the market.

Wow, that was quite a sentence, and written by a well-read economics know-nothing, who doesn’t really understand it. I’ll chunk it out, and the knowledgeable can correct my mistakes:

[ol]
[li]Lehman is/was trying to sell itself.[/li][li]Buying Lehman meant assuming its risk, especially its exposure on a lot of sub-prime mortgage mess.[/li][li]No one (i.e., Barclays and BoA) wanted to buy Lehman without “guarantees from the government or other Wall Street firms to protect against potential losses on Lehman’s assets.” (http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ9MIfH0pHVE&refer=home)[/li][li]Wall Street could have put up the money to satisfy the buyers, but didn’t.[/li][li]Since Lehman couldn’t find a buyer, they have to declare bankruptcy.[/li][li]When they do, their assets will go at auction.[/li][li]Included in those assets are sub-prime and counterparty obligations that are mark-to-market on their asset sheets.[/li][li]“Mark-to-market” means they’re not actually traded, they’re just valued on the books as if they were traded, meaning that their value is basically a polite fiction.[/li][li]Now that no one believes the polite fiction, the sale of them on the market will demonstrate their true (i.e., almost zero) value).[/li][li]This will force everyone else with similar mark-to-market assets to revalue them.[/li][li]When everyone does that, their balance sheets lose hundreds of billions of dollars–the market will crash.[/li][li]From [4], the fact that Wall Street is allowing this to happen means that they’re braced for it–they’re ready to take their medicine, because they think they’ll survive it.[/li][li]In other words, Wall Street allowing Lehman to go bankrupt is a marginally optimistic sign because…[/li][li]If Lehman were going to take them down, they’d have stepped up and guaranteed the sale.[/li][/ol]So, that’s a fairly well order pot of gobbledygook that I’ve assimilated over a night’s frantic reading while cleaning guns and filling the bathtub and every available container with water. Does it make sense? Are there errors? Should I give the cat an extra scoop of kibble tonight to fatten him up for when my canned food runs out?