Thread: Lehman Brothers files for Chapter 11 bankruptcy protection

Gov. Paterson announces $20B deal to help save AIG from Lehman fate


BY HELEN KENNEDY
DAILY NEWS STAFF WRITER

Monday, September 15th 2008, 1:19 PM

Wall Street was in panic mode Monday as the shocking crash of investment bank Lehman Brothers sparked fears of a world-wide recession.

Stocks fell 300 points as the credit catastrophe spawned by millions of bad home mortgage loans continued to wreck havoc in the financial sector.Hang those CEOS...and Brogers for kissing their ass.


Global insurance giant AIG led the slide, losing 70% of its value in just three hours.

In a dramatic announcement just after noon, Gov. Paterson announced a $20 billion deal in which New York State would change its regulations to allow AIG to borrow against its subsidiary assets to stay afloat.

It was crucial, he said, to save 8,500 AIG jobs in New York.



"They are a critically important business enterprise. They are a very rich contributor to New York's place in the global financial market," he said.

Paterson insisted no taxpayer dollars were being used in throwing AIG a lifeline.

After Paterson's announcement, AIG's stock price showed some signs of recovery.

Lehman filed for bankruptcy after frantic government maneuvers over the weekend failed to secure a rescue. The fall of the country's fourth-largest investment bank is one of the biggest failures in Wall Street history.



Wall Street veterans said the Street hasn't seen a more dramatic day since 1929.

"You could asked me five years ago, 'would you ever see a day like this?' and I think - not just me, but most people - would say 'that's never going to happen,'" said former Goldman Sachs chairman and New Jersey Gov. Corzine on CNBC.

Lehman collapsed under the weight of $60 billion in soured real estate holdings - opting for Chapter 11 protection that will let it restructure while holding creditors at bay.

Paterson said 30,000 jobs could be lost, a major blow to the city.

Merrill Lynch, afraid it would be next, hurriedly sold itself to Bank of America. The massive $50 billion merger took only 48 hours to complete, so spooked were all the players.

Bank of America now rivals Citigroup Inc. as the biggest U.S. bank in terms of assets.

Of the five giant investment banks that ruled Wall Street - Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs - only the latter two are still standing.

And they are quaking.

The great fear is that Lehman's collapse will trigger a panic run on other financial institutions hard hit by the credit crisis, namely banks like Washington Mutual and insurance companies like AIG.

A consortium of banks from the U.S. and abroad, working with government officials in New York, announced a stunning emergency $70 billion pool of funds to lend to troubled financial companies.

The unprecedented plan aimed to prevent a worldwide panic on stock and other financial exchanges.

Lehman's bankruptcy means "the risk of an immediate tsunami" looms for financial markets worldwide, said Bill Gross, chief investment officer of Pacific Investment Management Co.

Corzine said he worried the frantic weekend dealings to save Lehman and Merrill ignored the nation's larger economic woes - unemployment rising even as home values and consumer confidence crater.

"I think there's a big, big problem that is being ignored by the weekend work sessions, and that is the core problem that we have in the economy," he said.

The Lehman and Merrill woes come just a week after the feds swooped in to save Fannie Mae and Freddie Mac - a taxpayer-funded bailout they made clear they would not repeat.

Powerful Wall Street execs, including Citigroup's Vikram Pandit, JPMorgan Chase's Jamie Dimon, Morgan Stanley's John Mack and Lloyd Blankfein of Goldman Sachs, wrangled all day over how to save Lehman.

Barclays, one of two remaining front-runners to save the beleaguered investment firm, withdrew its bid; Bank of America also refused to rescue Lehman.

Dozens of grim-faced Lehman employees streamed into the beleaguered firm's Manhattan headquarters in search of answers and camaraderie.

Several dejected analysts carried boxes full of their personal items out of the building, fearing they may never be allowed back in.

"I wouldn't describe the atmosphere as grim," said an employee who identified himself as a vice president of equity research. "It's more frustration and resignation. There is some hope that something can be done."

Mayor Bloomberg canceled a trip to California to meet with Gov. Arnold Schwarzenegger to monitor the Wall Street crisis.

The collapse is the newest black eye for the city's investment banking industry, which has suffered $120 billion in losses.

The collapse of Lehman, coupled with big cuts at other firms, is having a massive effect on hundreds of other businesses, from real estate to restaurants.

Thousands are out of work in the financial industry alone - with more expected to follow.

The Lehman talks originally were aimed at selling the troubled investment bank, in whole or parts.

The once-mighty firm is drowning in a sea of red ink from the credit crunch, and its stock had already lost nearly 95% of its value.

When does the panicking start?

The taxpayers always pay, that money could have been used for something else. What happens if they default? Also, what kind of APR are they paying on that loan? Since it is, in essence, taxpayer money, I would assume the taxpayers should be getting something out of this loan, or are they being given one of those oh-so-typical free loans that these companies are famous for giving out to taxpayers?

I moved my money from a 401K to a Roth IRA account.
To heck with that.
What should I do with my 401(k) in a difficult stock market?

THE ASSOCIATED PRESS

Monday, September 15th 2008, 3:43 PM

Q: Should I be considering changes in my 401(k) in response to the rapidly changing financial services sector?



A: If you've been watching your 401(k) you likely know there has been a significant impact on your investments from the bear market, a prolonged drop in stock prices often defined as a 20 percent drop over at least two months. The market reaction to Lehman Brothers' Chapter 11 bankruptcy protection filing should not push you into selling off stocks in a knee-jerk fashion, said Rick Meigs, founder and president of the 401khelpcenter.com, a Portland, Ore.-based company which advises industry professionals. "What's going to happen is at some point in time down road, perhaps six to 12 months, the markets will start climbing and you're going to be out of the market."



You likely will not be able to anticipate the upswing, which may occur quickly. It's a basic truism that the market can never be predicted and you could lose out on an opportunity to recapture some losses.

Underscoring that you shouldn't be reactionary, Meigs said you should look at your asset allocation and rebalance only if you had planned to.



For example, he said, some people may have an overly aggressive investment plan in which all of their money is in the stock market.

If you're 55 and you're 100 percent in stocks, you're probably too aggressive and you should allocate more money in bonds or other safer investments to spread out chances for loss.

He said the decision about whether to reallocate should be guided by your analysis of risk and how close you are to retirement.

Meigs stresses that you should tinker with allocation only as you might in a normal market.

Otherwise, he said leave it alone and ride out the storm.

In response to the Lehman Brothers announcement, Meigs offers two pieces of advice:

*Check to see if your 401(k) plan offers financial advice from a professional. Many do. Take advantage of that and discuss your portfolio balance.

*Ask your 401(k) administrator at your employer — typically someone in the human resources department — whether you have Lehman funds in your 401(k) plan and if so determine your exposure to financial and other sectors which may guide your rebalancing.

Q: Should I consider converting assets to cash or certificates of deposit, or anything that might be safer than stocks?

Having accessible cash or money in CDs is a good part of a balanced financial plan in the event you need money on a short-term basis, said Diahann Lassus, of Lassus Wherley & Associates, a New Jersey fee-based financial planning firm. But transferring significant invested assets as a reaction to the market is not good planning.

Going to cash and CDs now means "you've given up all your gains plus you're going to miss out on any opportunity when the market recovers," she said. It addition, you'd pay additional transaction costs to make the change.

Markets always recover, said Lassus, who is chairwoman of the National Association of Personal Financial Advisers. She said it appears the Lehman Brothers case has been handled in an orderly manner and the invested assets will likely be transferred to another company.

The Securities Investor Protection Corp., a nonprofit membership agency that steps in to make investors whole when money or securities appear to be missing in brokerage bankruptcies, said it's not needed in the Lehman case because no money appears to be missing.

I love it... I have been short selling these financial companies into the ground.

I sold Lehman short at $13. Now they are worthless.

I sold Wachovia short yesterday at $13.90. They ended the day at $10.71

I sold Morgan Stanley short at $33.56 today.

There are lots of great shorts out there. Now it's time to watch them burn and collect the cash.

Originally Posted by min0 lee

Going to cash and CDs now means "you've given up all your gains plus you're going to miss out on any opportunity when the market recovers," she said. It addition, you'd pay additional transaction costs to make the change.

Such a lie...

Yeah it is much better to go down with the ship. In a bear market like this, if you aren't shorting, you should be in cash.

No point riding it all the way down waiting for the day that it will come back. Get out and later buy in when it starts to recover. No point in suffering all the losses.

Holding was what many did in 1929... how did that work out for them?

As recently as March, Fuld was awarded a $22 million bonus for 2007 -- a generous pay package to be sure, but one that also reflected a year in which the bank's net profit had risen 5 percent to a record $4.2 billion.

Link: Lehman CEO Fuld's hubris contributed to meltdown | U.S. | Reuters

This CEO, Fuld, will probably retire to his estate in equanimity.

Two Guys Making Out Enlivens CNN Live Report on Lehman Brother’s Bankruptcy

Originally Posted by min0 lee

Two Guys Making Out Enlivens CNN Live Report on Lehman Brother’s Bankruptcy

"...two guys trying to console each other out there..."

Originally Posted by NeilPearson

Such a lie...

Yeah it is much better to go down with the ship. In a bear market like this, if you aren't shorting, you should be in cash.

No point riding it all the way down waiting for the day that it will come back. Get out and later buy in when it starts to recover. No point in suffering all the losses.

Holding was what many did in 1929... how did that work out for them?

Realy? I thought all of the people trying to pull their money out of banks and investments made everything worse....

Originally Posted by min0 lee

Two Guys Making Out Enlivens CNN Live Report on Lehman Brother’s Bankruptcy

Sal and Richard from the Howard stern show. LOL

Fed nears a deal to take over ailing AIG - U.S. business - MSNBC.com

Sweet, another bailout. Well, we are in a capitalistic society, and this is for the greater good. What a minute, that sounds like socialism...

Well, at least we can look at it from the bright side, at least our Fed is smart enough to invest an obscene amount of money into a company who people in the market aren't willing to spend a sawbuck on.

Originally Posted by Dale Mabry

Fed nears a deal to take over ailing AIG - U.S. business - MSNBC.com

Sweet, another bailout. Well, we are in a capitalistic society, and this is for the greater good. What a minute, that sounds like socialism...

I stated this before but it's worth repeating:

profits are privatized; losses are socialized.


This is the era of Neo-Liberalism.

"Promote democracy around the world, when it benefits corporations, support free trade, and call for less rules and regulations when it affect corporations. Bail out corporations when they take foolish risks and are greedy."

This era will exist for a long time.

Originally Posted by maniclion

Realy? I thought all of the people trying to pull their money out of banks and investments made everything worse....

Well there is no point in pulling it out of a bank but I did short sell stocks which is more than just pulling money out of the stocks, it's selling all your stocks and then selling stocks you don't even own yet.

... and yes it makes everything worse but I don't care. I would rather sell this market short and be part of the problem and make 30% than to try and help the economy and lose 30%.

It's going down anyway, I might as well do my part to make it worse and in the process make some money. When it reverses, me and everyone else doing the same thing will push all that money back into the market and cause it to come right back. We would have made the 30% on the way down and another 30% on the way back up. The people that just hold and wait end up even.

What do you guys suppose are the risks of investing in a CD from a bank that may go under? I just put a few $K into an 8-month CD from WaMu at 4.25% APY. I just read an article this morning that WaMu may be one of the next big financial institutions to go under. I've always been under the impression that CDs are super safe, plus the amount invested is obviously under the amount that is FDIC insured. So, nothing for me to worry about here right? Will I lose the interest if WaMu goes under before my CD's maturity? If not, I am thinking about putting in a few more $K since it's just sitting in my non-interest checking account right now.

Originally Posted by KentDog

What do you guys suppose are the risks of investing in a CD from a bank that may go under? I just put a few $K into an 8-month CD from WaMu at 4.25% APY. I just read an article this morning that WaMu may be one of the next big financial institutions to go under.

There is a strong possibility that WaMu will be purchased.

I've always been under the impression that CDs are super safe, plus the amount invested is obviously under the amount that is FDIC insured. So, nothing for me to worry about here right?

Go into the bank, speak directly to a manager, and get a document in writing that states your CDs are insured under FDIC (if you haven't done so, already.)

Originally Posted by NeilPearson

Well there is no point in pulling it out of a bank but I did short sell stocks which is more than just pulling money out of the stocks, it's selling all your stocks and then selling stocks you don't even own yet.

... and yes it makes everything worse but I don't care. I would rather sell this market short and be part of the problem and make 30% than to try and help the economy and lose 30%.

It's going down anyway, I might as well do my part to make it worse and in the process make some money. When it reverses, me and everyone else doing the same thing will push all that money back into the market and cause it to come right back. We would have made the 30% on the way down and another 30% on the way back up. The people that just hold and wait end up even.

It's guys like you that cause panic in the market, what happens when the economy gets so bad you lose your job and have to spend your savings and sell off all of your stock wiseguy? You think the market is bulletproof it's not we could easily have a crash that could make 1929 look like a day at the park....

The SEC said it is concerned "about the possible unnecessary or artificial price movements based on unfounded rumors regarding the stability of financial institutions and other issuers exacerbated by 'naked' short selling." The agency is also considering a rule that would require hedge funds to disclose their short positions....

Originally Posted by KentDog

What do you guys suppose are the risks of investing in a CD from a bank that may go under? I just put a few $K into an 8-month CD from WaMu at 4.25% APY. I just read an article this morning that WaMu may be one of the next big financial institutions to go under. I've always been under the impression that CDs are super safe, plus the amount invested is obviously under the amount that is FDIC insured. So, nothing for me to worry about here right? Will I lose the interest if WaMu goes under before my CD's maturity? If not, I am thinking about putting in a few more $K since it's just sitting in my non-interest checking account right now.

As long as you don't have over $100,000 in there it is insured, most likely your deposit will be transfered to whom ever buys out the bank....if you had over $100,000 then most likely you'd become a creditor of that bank and you'd have to wait years for the assets to be liquidated to get your money back.....