For those of us who are financial news junkies, Sunday we watch fascinated as employees of Lehman Brothers Holdings Inc emerged from their downtown Manhattan building carrying personal possessions in anticipation of the company filing Chapter 11 bankruptcy in the morning. One of the oldest and largest brokerage firms on Wall Street, Lehman Brothers is the latest victim of the subprime mortgage and real estate crisis.
At the same time, it was announced Sunday that Merrill Lynch will be selling itself to Bank of America for a reported $44 billion dollars. That $50 billion figure is half of the companies estimated worth earlier this year. The reported figure on the Bank of America offer is $29 per share, considerably less than the $78 a share Merrill Lynch was selling for earlier in the year, but above the current market share value of $17.
Both institutions had been in closed session with the Federal Reserve and the United States Treasury Secretary in the hopes of obtaining a government bailout similar to the one for Bear Stearns earlier this year. The government, which has just begun a plan to underwrite the cash strapped Fannie Mae and Freddie Mac, was reluctant to put any more loan guarantees into Wall Street.
In June, Treasury Secretary Paulson said, "We must limit the perception that some institutions are either too big or too interconnected to fail. If we are to do that credibly, we must address the reality that some are."
The Dow Jones is expected to take a nosedive when trading begins Monday morning, and trading stops have been put into place.
That will send a shockwave of prudence through the market, and eventually things will settle out.
Stopping the march of government interference and ownership of the economy matters more than who wins the election in November.