Saturday, September 13, 2008

Lehman Brothers Next Bank To Fail?

After the spectacular near-collapses and bailouts of Bear Stearns and Freddie Mac and Fannie Mae, the next bank that appears to be on the verge of collapse is Lehman Brothers. Lehman Brothers has suffered hugh losses related to the bursted housing bubble, and appears likely to collapse if it isn't re-capitalized.

Apparently, Treasury secretary Henry Paulson opposes bailing out Lehman in a similar way that Fannie & Freddie were bailed out so the New York Fed is now trying to arrange a different way of re-capitalizing. And although Lehman can cover some of its liquidity problems by selling off assets, that won't do anything to improve solvency. Most likely this will be done in a manner more similar to the Bear Stearns bailout, with some other institution buying Lehman for a symbolic price with some form of backing by the Fed. It remains to be seen exactly who and under what conditions this will happen, and since I am not involved in these discussions I obviously can't give any specifics now. However, it should be noted that speculation is growing that some sovereign wealth fund will be involved. If that is the case, then that could be seen as returning the favor they received when the U.S. government bailed out Fannie & Freddie and thereby also the Fannie & Freddie bonds held by the sovereign wealth fund.


Anonymous Anonymous said...

Yes, what the Sovereign Wealth Funds saved in losses on their FNM bonds must be enormous compared to the cost of buying Lehman.

About the Dollar: My guess is that it´s strenght will continue until the spring og 2009. But just now I do believe a short correction is coming.


1:05 PM  
Blogger Red Eyes said...

Some of us think the bang is a good thing, some sort of paradigm shift or emerging trend, could this be so? What should we expect?

12:08 PM  

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