Oh No!: Lehman Brothers 158-Year run is at a close likely

I wanted to write about Carlos Zambrano’s no-hitter today. But with Hurricane IKE, my region’s rainfall of 7-9 inches in two days, and now, Lehman Brothers going under, I suppose the financial crisis is most important.

 

It should have come as no surprise. The investment bank, by some metrics, the 4th largest in the USA, has been on the ropes for months. According to Deal Book:

Lehman made its bankruptcy filing late Sunday in New York, reporting $639 billion in assets and $613 billion in debt. In legal documents, Ian Lowitt, Lehman’s chief financial officer, blamed the bankruptcy on a loss of liquidity that caused a ” chain reaction of adverse economic
consequences.”

Wow. More than a 1/2 trillion of debt. Nice Debt-to-Equity ratio. It is a wonder it lasted this long. But it should not have surprised. This market is filled with bad paper passed by big players around the world.

What is sad is a Maryland professor of economics are all ready discounting this news stating this morning on NPR, “well, in 2 weeks, this news won’t be remembered.” Really Doctor? People won’t remember that 3 big hitters are in a financial freefall?

I think people will trace a path through Northern Rock, Countrywide, MBIA, Ambac, Bear Stearnes, Fannie Mae, Freddie Mac, IndyMac, Lehman Brothers, AIG, Merrill Lynch and whomever is next up in “The Price is Wrong” Financial Meltdown of such epic proportions not seen since 1929-1933. Yet, why worry?

The FED has got their back. Wrong. (At least Lehman found that out.)

For an interesting and thorough Wikipedia read, go to this link about the subprime crisis. Good Show!

Write downs by banks:

Company	Business Type	Loss (Billion $)
UBS AG	bank	$37.7 bln [1] [2][3]
Citigroup	bank	$39.1 bln [4] [5] [6][7]
Merrill Lynch	investment bank	$29.1 bln [8] [9][10]
Morgan Stanley	investment bank	$11.5 bln [11] [12][13]
Crédit Agricole	bank	$4.8 bln [14]
HSBC	bank	$20.4 bln [15][16][17]
Bank of America	bank	$7.95 bln [18][19][20]
CIBC	bank	$3.2 bln [21]
Deutsche Bank	bank	$7.7 bln [22] [23][24][25][26]
Mizuho Financial Group	bank	$5.5 bln [27]
Barclays Capital	investment bank	$3.1 bln [28]
Bear Stearns	investment bank	$2.6 bln [29] [30]
Royal Bank of Scotland	bank	$15.2 bln [31][32][33][34][35]
Washington Mutual	savings and loan	$2.4 bln [36] [37]
Swiss Re	re-insurance	$2.04 bln [38][39]
Lehman Brothers	investment bank	$3.93 bln [40][41]
LBBW	bank	$1.1 bln [42]
JP Morgan Chase	bank	$5.5 bln [43] [12][44]
Goldman Sachs	investment bank	$1.5 bln [45] [11]
Freddie Mac	mortgage GSE	$4.3 bln [46]
Credit Suisse	bank	$9.0 bln [47][48]
Wells Fargo	bank	$2.9 bln [49][50]
Wachovia	bank	$11.1 bln [51][52][53][54]
RBC	bank	$1.2 bln [55] [56][57]
Fannie Mae	mortgage GSE	$0.896 bln [58]
MBIA	bond insurance	$3.3 bln [59]
Hypo Real Estate	bank	$0.580 bln [60]
Ambac Financial Group	bond insurance	$3.5 bln [61] [62] [63]
Commerzbank	bank	$1.1 bln [64]
Société Générale	bank	$3.0 bln [65] [66]
BNP Paribas	bank	$0.870 bln [67] [68]
WestLB	bank	$2.74 bln [69][70]
American International Group	insurance	$11.1 bln [71][72]
BayernLB	bank	$6.7 bln [73]
Natixis	bank	$1.75 bln [74]
Countrywide	mortgage bank	$4.0 bln [75][76]
DZ Bank	bank	$2.1 bln [77]
Fortis	bank	$2.3 bln [78]
ICICI Bank	bank	$0.264 bln [79]
IKB Deutsche Industriebank	bank	$3.45 bln [80]
Aozora Bank	bank	$0.397 bln [81]
Dresdner Bank	bank	$3.49 bln[82][83]
HBOS	bank	$7.06 bln [84][85][86]
Lloyds TSB	bank	$1.32 bln [87]
Bank of China	bank	$2.0 bln [26]
ICBC	bank	$0.448 bln [88]

 

Lehman didn’t even take huge writedowns. Meaning: how much are these guys lying about their losses? Do they even know their losses? Are they going to fess up to the multi-trillion dollar nature of this?

The Perfect Storm has reach a Category 5 stage. It is still off the coast of this nation. But I have a sense it is going to hit rather soon…

The Perfect Storm (part 1): The Recent Failures of the U.S. Economy

The Perfect Storm

In the perfect storm, several mutually supportive events must occur before what started as a batch of thunderstorms coming off the coast of Africa turns into an enormous energy pit capable of expenditure of 10,000 nuclear bombs in its 2-week existence.

Our U.S. Economy has reach the eye of what is a perfect storm of a credit crisis cum mortgage foreclosures, faltering manufacturers (GM, Ford, their tier 1 suppliers and major airlines bankrupt), energy prices soaring (oil & natural gas), embedded inflation in consumer staples (corn-based products) and long-term foreign and domestic policies mistakes coming home to roost.

No one is totally to blame. It takes years upon years of mismanagement, fingerpointing and apathy to get to this critical landfall.  Liberals blaming Conservatives. Conservatives blaming Liberals. Independents blaming both. Blame, blame and more blame. The thunderstorms swirl into a tropical depression.

The outer bands of storm hit

Friday, So Cal’s IndyMac Bank was the latest causality as it became the 2nd largest bank failure in FDIC’s 75-year history.  Bear Stearnes, a respected investment bank, considered the 5th largest in America, was taken under by competitor JPMorganChase back in March. It is reported CitiGroup, once known as Citibank, which was bailed out less than 2 decades ago by ‘fuzzy definition’ of the word ‘default’, is expected to post losses for the 3rd straight quarter. CitiGroup is the largest bank by assets in the United States.  Lehman Brothers has been in line to be the next take under candidate by the remaining giants of the likes of Goldman Sachs, the gold standard of investment banking.

The Federal Reserve has thrown out ‘free market’ Capitalism to save these entities, as it now is backstopping Fannie Mae and Freddie Mac, the largest quasi-governmental entities on Earth. 50% of Americans pay mortgages (in some way) to these two colussus of their industries. It has opened lines of credit to major investment banks because they are too big to fail.

The eyewall is well-formed.

Countrywide Financial was also a major contributor (largest non-bank lender in the nation) to this current cat 5 hurricane spreading out ominously at wildfire rate around Wall Street.

But why is this all happening at once?  Why is the storm swirling in our backyards?

In the next post (or two) I will try to reason out the predicaments that have put us behind the eight ball of a tornatic-spinning monster.

It goes back historically around 65 years (no crap) and the decisions made and shifts in America’s design, ideology and focus, has likely put us in a less-than-ideal future standing. If we refuse to make hard choices, sacrifices and turn around the way we are going, then the U.S. will make Rome seem like a model for stability. The destruction is real.

Stay tuned…