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Deep Creek Hot Springs

The Moon is Waxing Gibbous (84% of Full)


Re: SC76

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September 14, 2008 02:42PM


[The dominoes are falling fast. Where they will end, who knows, but it's beginning to look an awfully lot like 1929--CB]

Fear and greed are the stuff that Wall Street is made of. But inside the great banking houses, those high temples of capitalism, fear came to the fore this weekend.

As Lehman Brothers, one of oldest names on Wall Street, appeared to unravel on Sunday, anxiety over the bank’s fate — and over what might happen next — gripped the nation’s financial industry. By late afternoon, Merrill Lynch, under mounting pressure, entered into talks to sell itself to Bank of America.

Dinner parties were canceled. Weekend getaways were postponed. All of Wall Street, it seemed, was on high alert.

In skyscrapers across Manhattan, banking executives were holed up inside their headquarters, within cocoons of soft rugs and wood-paneled walls, desperately trying to assess their company’s exposure to the stricken Lehman. It was, by all accounts, a day unlike anything Wall Street had ever seen.

In the financial district, bond traders, anxious about how the markets would react on Monday, sought refuge in ultrasafe Treasury bills. Greenwich, Conn., that leafy realm of hedge fund millionaires and corporate chieftains, felt like a ghost town. Greenwich Avenue, which usually bustles on Sundays, was eerily quiet.

A year into the financial crisis, few dreamed that the situation would spiral down so far, so fast. Only a week ago, the Bush administration took control of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies. Then, before anyone could breathe a sigh of relief after that crisis, Lehman was on the brink.

As details of Lehman’s plight began to trickle out on Sunday, the worries deepened that big financial companies might topple like dominoes. Bank of America began discussions to buy Merrill Lynch, the nation’s largest brokerage and the next firm coming under pressure.

“I spent last weekend watching Fannie and Freddie die. This weekend it was Lehman,” said one longtime Wall Street executive.

The rat-a-tat-tat of bad news has frayed nerves up and down Wall Street. “People are just weary,” said another executive. And even more ill tidings loom. Thousands of employees at Lehman are likely to be laid off, casting them into one of the worst Wall Street job markets in years. Other banks are cutting back, too.

Even employees who manage to hold on are likely to make a lot less money this year. Bonuses are not only going to decrease; for many, they will evaporate completely.

While people were stunned by the near collapse of Bear Stearns in March, they were flabbergasted that Lehman, a respected firm with a 158-year history, could be brought to its knees. Many were equally shocked by the downfall of Richard S. Fuld Jr., Lehman’s chairman and chief executive.

“Everyone thought Bear Stearns was a bunch of cowboys; it made sense what happened,” said another executive. “But this is the great Dick Fuld. This is not supposed to happen to Lehman Brothers.”

Many Wall Street executives struggled to draw parallels to the current crisis. The collapse of the junk bond powerhouse Drexel Burnham Lambert in 1991 seems small by comparison, as does the 1998 failure of the big hedge fund Long Term Capital Management.

On Sunday, as the heads of major Wall Street banks huddled for a third day of emergency meetings at the Federal Reserve Bank of New York, many rank-and-file employees were at work in their offices.

“It’s all hands on deck,” said one senior banker.

At hedge funds, analysts worried that investors would rush to withdraw their money.

As a precaution, Wall Street banks have taken the extraordinary step of hiring advisers to assess the impact of the possible bankruptcies of other big financial institutions.

The mood could darken even further this week as several big Wall Street banks report what are expected to be grim quarterly results.

The problems the industry faces are myriad. Mortgage assets that both commercial and investment banks hold on their balance sheets continue to decline in value as potential buyers wait for prices to fall even further and sellers balk at prices being offered. At the same time, revenues from bread and butter Wall Street businesses like debt and equity underwriting and proprietary trading are sliding in a softening economy at home and abroad...............


Wizard 807September 11, 2008 10:42AM

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