Note: This is a corrected version of an earlier post in which I demonstrated Sunday Afternoon Brain Fog. Thank you to our attentive readers for pointing my error out.
As we feared (and as I tried to overlook) Lehman Brothers has announced they will file for Chapter 11 Bankruptcy protection, probably ending the 158 year history of the corporation. Hopes for a buyout by either Bank of America or Barclay’s collapsed when they were unable to get governmental guarantees to limit their losses.
In theory a Chapter 11 (as opposed to a Chapter 7) is a reorganizational bankruptcy which would allow Lehman to continue operations but it seems unlikely that this will happen. However the filing only includes the parent company (LBHI) and does not include the subsidiary companies.
Bank of America meanwhile has purchased Merrill Lynch for around $ 50 billion, creating a new financial supergiant.
Washington Mutual remains up in the air at this point. The company has lost a breathtaking 92% of its market value in the last year but does currently have a fairly large base of assets and deposits and there is currently hope that it will be able to make it through the current crisis.
As if things were not bad enough, AIG has now reportedly asked for a $ 40 BILLION loan from the government to bridge the gap in assets and avoid a stock downgrade that could cause them to collapse.
This has certainly not been a good summer for the financial markets though it should be pointed out that we are perhaps overcome by the concept of focus on the bad news. Commentators sometimes point out the need to focus on the fact that 94% of people have jobs versus the 6% do not. By the same token we should consider that while these banks do have serious problems, most banks do not.
Indeed Bank Of America has demonstrated strength today and most other leading banks are quite stable. It won’t be a pretty period as the economy adjusts to these collapses but I wouldn’t get out on the ledge just yet.