Lehman on the brink?

Sort of crazy that it's trading at under $9 right now

That's because it's worth about $2, I don't know when, people are going to realize, that the situation is dire. Just about every bank has been cooking the books for years. Accounting is much like statistics, you can make your point anyway that fits your position. Lehman's not the only one and housing will take years to bottom.

dco, the problem is much more complex than that, and in some instances today's problems are overstated, and in some instances they're understated.

One reason is mark-to-market accounting. There is no market now for MBS's, so therefore all banks have had to mark their value to zero. Of course their real value is not zero, so in the future there will be huge write-ups, once a market is made. And one of the primary purposes of Treasury's takeover of Freddie and Fannie was specifically to make a market in those securities.

Another reason is that Tier-3 assets have no market, so their value is estimated based on performance models. Well, I can design a performance model to give any result I want, until reality proves me wrong. Buffett called it "mark-to-myth."

Lehman will probably not make it through this mess; I predicted that in February. Housing prices will continue to fall, which is a good thing for the economy as a whole. An entire mindset has to change - that owner-occupied housing is a way to generate wealth, which it is not. It creates no value unto itself; it is merely a substitute for rental housing.

Treasury's actions will help slow foreclosures, but not the fall in housing prices. That in turn will stabilize the MBS market. Much of the world market is acting irrationally; hence the volatility. Right now stock markets should be going up, not down or sideways: the global slowdown is focused, and manageable, and will lead to deflation. Remember all that talk that if oil and commodities prices go down, it would be good for stocks? Well it should be, but isn't.

I look at BRIC, which still should be performing well, but isn't - investors are looking at them as commodity plays, which they never were. Brazil is down 33% since May, yet it's still growing at 7%, and its stock market has a p/e of about 12, and the country has implemented all the right economic policies. China is still growing at 11%, and inflation is cooling. Oil prices are down, but only down to where we were in December - does that warrant the fall in Russia's stock market? No.

This is irrational exuberance in reverse - utter fear of risk after a long period of no fear of risk. Some of it is real, that is, economic. Some of it is false, that is, accounting. We can only hope that the actions taken in recent days will help stabilize things, lest the fear should drive us into another Great Depression.

dco, Lehman's value may be negative. The problem is investment banks create "structured products" with little or no oversight or regulation which is something Buffet did not approve of. For every $1 of mortgage issued banks can create $100, $1000 of structured product. So even if you have to sell or cover (buy the underlying product the structure is built around) there is no way to do it because there isn't enough supply to meet the demand the bank magically created. Maybe this is why the Fed took over Fannie and Freddie, to help the bank unwind their large and impossibly illiquid structures. Amarath had the same problem with Natural Gas futures structured products a few years back and they went belly up losing $9 billion.

Houston, we have an deflationary asset spiral in the works. Firms and individuals with a highly leveraged balance sheets with a need access to additional capital are going to have a very difficult time weathering this storm which IMO, has a ways to go in terms of time.

I agree that many are underestimating the full impact of this credit bust as well as its duration. As I've mentioned several times, there is nothing worse for an economy than a credit bubble bust specially after coming from a boom fueled by a historic credit expansion.

Let's hope we don't have another weekend surprise in the making.

"Right now stock markets should be going up, not down or sideways"

Running into the buzzsaw called higher unemployment, credit deleveraging and awful upcoming Q3 and YE numbers (that have not been baked into the market yet) I see no reason why the stock market should be going up....

And of course, the biggest one of them all - housing prices continuing to go down - will keep from the stockmarket going up...

Maybe not down (although I think we will test July lows), but definetly sideways until we get more clarity on 2009

I also would make the case that Accounting contributed as much to the irrational exuberance as it does to the financial armageddon we are seeing....

i know i'm stating the obvious here, but the sheer wealth destruction from deferred comp/options as a result of falling stock prices across the financial services industry is just astounding. there is simply no asset class to hide in...gold, commodities, int'l equities, domestic equities, housing, alternative assets, etc. maybe its time to buy a shotgun and stuff the mattress...

Special_K, good point. This is the major reason US Treasury bond yields are so low, (negative returns across the yield curve adjusted for inflation). There is no other place for investors to hide. One sure as heck can't invest over $100K in CDs of any one financial institution.

As you stated, all other asset classes across the planet are simply being pummeled.

Cash is the safest play, you might lose to inflation, however it's better then gambling on this mess. Make no mistake, buying RE or stocks at this point in time, is a 100% gamble.

"Running into the buzzsaw called higher unemployment"

Look at where the unemployment is happening.

"credit deleveraging"

True.

"and awful upcoming Q3 and YE numbers (that have not been baked into the market yet)"

Federal Express just guided up. The contagion is limited to housing and financials.

"I see no reason why the stock market should be going up...."

And of course, the biggest one of them all - housing prices continuing to go down - will keep from the stockmarket going up

BTW the Fast Money traders just agreed with me - there has been no fundamental change anywhere. What's driving this is fear. Don't jump in now, just don't exit with a loss if you don't need to.

Fedex benefited from a lower forecast and cheaper oil. I would like to know, how much of the stimulus checks, were used for purchases, on the net. I'm sure they saw some type of bump from those deliveries.

"What's driving this is fear."

So why not jump in now? sounds like a good time.

stevejhx "BTW the Fast Money traders just agreed with me - there has been no fundamental change anywhere"

Please clarify, I see a huge fundamental changes. Until housing stops falling, the stock markets will continue to fall.

"BTW the Fast Money traders just agreed with me - there has been no fundamental change anywhere"

Exactly...there has been no fundamental change for the positive so the trend is downwards...they have been saying this for the past few months and we're completely cynical on yesterday's rally...go to yesterday's show and you'll see...

Unemployment will be spreading to the other industries as the banks take a toll on everyone...just take a look at the credit numbers that came out yesteday...without income expansion, you need available credit and because of this they are pulling in credit lines everywhere...next up, Commerical Credit...

FedEx guided up after guiding down 2 months ago...the problem with the YE numbers is what will happen after the Auditors get done with the books...not good....next up Tech....take a look at the Naz and see what all the big boys have been saying....exports are basically done with the $ appreciation

All comes down to housing as thats what alot of these Securities are based on...and since this will continue to go down we will not see a rebound anytime soon...

"they have been saying this for the past few months"

No, actually, they were talking about basic materials and commodities (other than oil). They said that the volatility probably represented a market bottom, and growth in the world - and to some extent in the US - is unchanged. There is some inflation problem, but the recent decline in oil will significantly affect that, as will the decline in housing.

Housing is an economic issue, but one with limited effect. You do not draw wealth from housing. You cannot get rich by borrowing too much money on housing and expecting it to increase in value - it does not. It is an illiquid asset; the only people who will lose money are the ones forced to sell. The government takeover of Freddie and Fannie will limit foreclosures, but no one who doesn't have to sell will lose a dime (I've been saying this forever) and most people stay in their homes at least 7 years.

Apparently, the recent decline in the markets is due to retail withdrawals from mutual funds and hedge funds. Massive mutual fund withdrawals are almost always a strong signal that the market is bottoming. Panic.

stevejhx- The consumer makes is responsible, for 2/3 the economy. How is it that you think, declining housing prices, will have no affect on consumer spending. The housing crisis has clearly spilled in to discretionary spending. Most of which, in the past, was fueled by revolving debt. Now that the banks, have shut off the faucet, people can't tap a HELOC or Credit Cards, like they have for years, just to pay the bills and spend stupidly. Actually when you think of it logically, a very large portion of growth was fueled by people spending money, they never had and worst of all, money that will never be repaid. That's what I mean when I say an "artificial market" the last few years has been supported by money spent that will never be collected. All because of housing.

Show me a person behind on their mortgage for two months and I'll bet 100% they are using a HELOC or Credit Cards to get by. Now multipy that by millions, reduce that from 2009 GDP and earnings and lets see how low we go.

dco, which are you? Short stocks or a renter looking to score a good price on a manhattan apt?

> > "BTW the Fast Money traders just agreed with me - there has been no fundamental change anywhere"
> Exactly...there has been no fundamental change for the positive so the trend is downwards...

No, not exactly. You sorta have it backward. Finance 101, if no new information needs to be factored it, prices AOTBE would stay flat. If the information was already known, it would have already been factored in.

> Make no mistake, buying RE or stocks at this point in time, is a 100% gamble.

Statistically, stocks are generally less of a gamble in panic times (clearly now) than almost any other time. So, if you think now is a gamble, you might never want to buy stocks.

nyc10022- I think you know what I was saying. Do I think the market will never recover, absolutely not. I think the stock market is a great investment, just not today. Just because there is panic, doesn't mean I'm about to buy. For me to do that in the morning, I would have to disregard, all my own analysis, which has positioned me so well during this crisis.

When I get long, I'll be sure to let everyone know. I'm quite certain I will long stocks way before I'd be long RE.

Personally, I think this is vaguely the time (the 10800-11000). I've been through some panics before, and I think we have a whole lot of capitulation. And one thing I remember from the past is at the bottom, there was always a "hey, wait, its going to get worse" feeling, and some valid arguments. Just about the amount we have now. I'm not going by any fundamental analysis (mainly because that would be based on numbers we just don't have). This is my gut based on experience with how folks react in markets.

nyc10022- Logically speaking, how can this be the bottom. This is the worst housing collapse since the great depression. Not to mention it's still going on. We are in a global recession, banks are closing, terrible liquidity problem, consumer is dead, rising unemployment...... and I'm suppose to believe that a 25% decline, off the highs, in July was the bottom. How is that even possible. Almost every Bear market since the great depression showed an almost 30% decline, non of which remotely resembles this mess.

Housing is still falling, it's impossible for the decline in stocks to ignore the problem. Oh and while we're at it, how are banks going to make such large profits in the future? Way to many obstacles.

I'll be a buyer at DOW 9800 (30%) off the highs. And housing will take years before a recovery is even possible.

dco, you mean this is the worst ever?

This could be second to the worst... ever.

I didn't think so until I started reading roubini's blog a few years ago.

I have a question to those interested. Is it possible, that Lehman not being able to find a buyer, is because those who have looked, got scared at what was on the books. I would venture to say, that once potential firms actually got a look, they got scared.

I have been saying it for almost a year, it's worse then anyone can imagine. Read between the lines. Lehman, as an example, is selling for $8. It still can't find a buyer. Do you think they are the only ones. Just wait for WaMu, lets see what happens when, they have a run on the Bank. The FDIC doesn't even have enough to cover that one bank. Open your eyes people, how many times do you need to be lied to.

> nyc10022- Logically speaking, how can this be the bottom. This is the worst
> housing collapse since the great depression. Not to mention it's still going on. We are in a global > recession, banks are closing, terrible liquidity problem, consumer is dead, rising unemployment......

Simple... because there are few folks who don't know that. IMHO it is priced into the market, basic efficient markets hypothesis. Lehman isn't news, the rumours are months old. News of the worst housing collapse is also old news.

> and I'm suppose to believe that a 25% decline, off the highs, in July was the bottom. How is that
> even possible. Almost every Bear market since the great depression showed an almost 30% decline, non
> of which remotely resembles this mess.

I'm not going off relative declines, but if you ask... don't forget that the period before wasn't particularly rosy in terms of historical returns. The post 2000 move took us fairly far down such that the subsequent rise didn't really take us that far. I saw a period by period breakdown from UBS a few months back that really pointed this out. I don't think we were as far ahead as it felt. And 25% is nothing to sneeze at. But I definitely don't think comparing assumed %s makes sense.

As I inferred earlier, if there weren't folks who thought it had more to go, then it would be up already. even bottoms have pesimists.

Actually, here is another way to think about it. If you really think downside is 10%, I think that risk is a small price to pay for "traditional" upside. Most folks 6 months ago would have given an arm and a leg for a portfolio guaranteed to not lose more than 10%.

"No, not exactly. You sorta have it backward. Finance 101, if no new information needs to be factored it, prices AOTBE would stay flat. If the information was already known, it would have already been factored in."

Actually, Im right because if you look at the Q4 Analyst projections they are way out of wack and the market has not adjusted to these numbers that are going to be coming down yet

The market not reacted to the severe restriction in credit coming as the banks will be hogging capital over the next year just to say solvent

It has not reacted to the massive write downs that will be required due to YE audits that you can bet the Big 4 will be requiring massive haircuts

It has not reacted to the rise of $$$ and what that will do to the only thing that has been working...exporting goods...this will in return kill the Tech sector

It has not reacted to the death of the consumer...both personal credit restrictions as well as lack of income increases...

And lastly it has not reacted to the possibility of a Obama/Biden ticket winning...

Downside might only be 10%, but it will be a long drawn out process as we will visit that time and time again probably till the end of 2009...

Then again, what is the option i guess as all asset classes are screwed

And after the "all is well at FRE/FAN" 2 weeks ago and now its not and seeing these equities taking to the woodshed I would be skeptical as all hell....

Will ANYONE believe what Lehman says at 7:30 AM tommorrow?

Hey guys, the world (except Europe) is growing. China is at breakneck speed, inflation has slowed. Brazil has all the fundamentals, and pushing 200 million people, starving to be rich. Russia has most of the natural resources in the world. India has 1 billion people.

Nobody disputes that residential real estate sucks in the US. Nobody disputes that. But if you drive a rickshaw or drive a Mazda to WalMart, who has the most incentive? I say the rickshaw driver.

It's not that bad. Outside of owner-occupied residential real estate in the US and (some of) Western Europe. I keep on getting translations jobs at 14 cents PER WORD. Sneaky says I'm a typist. Sneaky also claims that software can violate trademark protection. You decide.

steve, who cares how much money you make? That's not an intellectual discussion. It's not provable. And even it if was, it doesn't prove anything nor does it have any predictive power. Edgar Allen Poe got 5 cents a word. With inflation over the past 150 years I would think 14 cents a word is slave wages. Anyway, you're starting to adopt the Sneaky Petr Your Landlord Fitz approach to communication. If you know yourself, be yourself. Not someone else.

Russia just cut it's growth forcast.

"China is at breakneck speed, inflation has slowed. Brazil has all the fundamentals, and pushing 200 million people, starving to be rich. Russia has most of the natural resources in the world. India has 1 billion people."

You might want to recheck your facts on the BRIC countries as they have all been cutting their forecasts and their stock markets are in free fall reflecting that...im not trying to be negative, but I do get annoyed at all the false information that things are OK...if we just let the "clean happen" we can all get back to business sooner...

Its that simple

garelj - I do get annoyed at all the false information that things are OK...if we just let the "clean happen" we can all get back to business sooner...

Amen

garelj, well said. :)

There are few areas that seem to be working in this environment and emerging markets is certainly not one of them, exception being shorting the ETFs.

T-Bills/Notes,
Consumer non-discretionary,
Defense contractors,
Short Euro, Sterling, Canadian & Australian dollar versus the USD and
Puts.

There is simply a total lack of confidence out there and until it returns, these are shark infested waters.

So I guess it's out. Lehman to sell a majority stake in neuberger berman and spin out commercial real estate assets, and cut dividend 93%. Consensus estimate (which probably is out of date) was for $3.45 loss and they came in at a $5.92 loss. Seems to me like the sale process did not go well...

"it doesn't prove anything nor does it have any predictive power"

Actually it does - every time in the past that there has been a serious economic downturn my business died for several months: the Tequila Effect, the dot.com bust, 9/11. This year that hasn't happened, not even close. Everyone I work for is overwhelmed with work and hiring.

"With inflation over the past 150 years I would think 14 cents a word is slave wages."

80sMan, Poe was paid to write stories, and he sold his copyright with them: it was a vast amount of money back then, but he made it just once. I don't own copyrights because translations are considered derivative works and can't be copyrighted. My work is ongoing - 14 cents a word is about $40 per double-spaced page, which takes about 10 minutes to do. The agencies get about 25 cents per word, or $75 per double-spaced page. That is an extremely large amount of money - what I have typed to here would cost $25 to my clients, $40 to the end client.

That's why it's the first thing to go - it's really pricey.

Of course the world has cut its growth forecast, the US, too. Because of inflation, that was necessary. But growth is not dead, not even here. So China cuts its growth rate from 11% to 9%. So what? So the US's growth rate slows to 2% from 4%. Not great, but not a tragedy, either.

This is something different: fear of the unknown. Lehman's non-announcement today won't be of any help.

"their stock markets are in free fall reflecting that"

It is because of redemptions from US mutual funds and hedge funds, no change in fundamentals. Slightly reduced growth doesn't warrant that fall. There are relatively healthy banks that didn't take on these types of risks - JPMorgan, BofA, Wells Fargo, US Bank. All are being punished because of the actions of a very few: Merrill, Bear, Lehman, Wachovia, Countrywide, and myriad now-defunct mortgage companies.

I have to agree with Cramer on this as well: LEH blew their chance by not selling the firm when someone would buy it, because they think it's worth more than people will pay. Sounds to me a lot like today's homeowners who won't sell at a price people will pay, so the market stalls. For Lehman, it may have been the death knell.

And we may fall into a deflationary spiral.

Or as Cramer said today:

"So what’s it going to take to stop this? The world’s central banks – U.S., Europe, even China – have to cut interest rates. Industry consolidation would help, too. A rate cut in China might revive that country’s appetite for commodities, and that would mean investors would be getting a great discount on all these stocks right now.

"If China doesn’t come back, Cramer said, “the commodity collapse has the potential to bring down the whole market.”

The entire economy, in fact.

Steve, Cramer can be confusing a times. While anyone can readily see that commodities are currently in a free fall, approx. six weeks ago he was pounding the table on natural gas producers. An entire week of his show was dedicated to this particular sector. I suspect his very bullish views has caused serious pain for some of his followers.

However, certain of the blue chip commodity based companies should become interesting once the young WS guns wrap up their liquidations, no doubt caused by their need to meet investor redemptions.

serge07, I agree with what you say. He's a trader, not an investor, and that was the right trade six weeks ago.

An interesting article: "Oil Investors Pulled $39 Billion in Futures, Triggering Decline"

http://www.bloomberg.com/apps/news?pid=20601087&sid=ax6CtUUtg4EI&refer=home

No doubt some of oil and commodities were bubbles. Oil at $80-$100 isn't, however. Oil at $140 is. I'm not discussing that per se, but the new 52-week lows seen on world markets, and the Dow 10,000 scenario. Serious deflationary pressures, which I think will cool based on "China's CPI falls to 4.9% on softer consumption"

http://www.marketwatch.com/news/story/chinas-cpi-dips-49-rate/story.aspx?guid={B98ED418-47EE-456E-B701-80D172723A71}

I'm not a trader, and in my retirement fund I switched to like 30% cash because I'm more conservative with it and didn't know what to invest in. I got mostly out of China, still hold Brazil but am about where I was a year ago - no real loss but a tax loss since I hold a mutual fund that distributed profits last year, so it's a wash were I to sell today. I'm in for the long-term, but I do think that there is deflation in the air, and it's beyond home-price deflation, which is necessary. It'd deflation of everything.

"There are relatively healthy banks that didn't take on these types of risks - JPMorgan, BofA, Wells Fargo, US Bank."

Yes I agree with this....but you do have to remember they are counterparties in derivatives transactions with these "bad banks" that you mentioned...once the "bad banks" go down, everyone gets infected who touched it....if Bear went down, it would have been curtains for Leh, Merril and Morgan Stanley would have been severily impacted

And we havent even talked about the spread onto the general economy....with out lending and credit in the conceivable future its going to be a zombie year for 2009

garelj, I fully agree - the system is a mess. Deregulation didn't work, re-regulation will happen. That's why the Fannie Freddie takeover - had they failed, it would have brought the world down.

It's also why Manhattan real estate - getting back onto topic - can't survive at these levels: all the banks that took all those risks and paid all those bonuses are now either gone or teetering. Incomes in Manhattan are way down, there is no credit, no appetite for risk, and with re-regulation and deleveraging there won't be all that money in the future. If LEH is taken over by a bank, there won't be huge bonuses because commercial banks are (or should be) very conservative, and don't like to pay them. But the market isn't allocating a risk premium to where there is one: my point.

stevejhx -

Couldn't have said it better myself....

What's disturbing about what's happening right now is that a modest slowing in growth to avoid inflation should cause stocks to go up, not down. So should the decline in oil and commodity prices. This isn't like the Argentina default, the dot.com bust, or anything else that should cause markets to tank. Fundamentally, slightly slower growth should be a good thing - it's exactly what the world was clamoring for.

The media are claiming that the fall in commodity prices - and hence stock prices - is due to a slowdown in China. From 11% growth to 9% growth is a slowdown? Have they stopped building infrastructure? A drop in US housing prices will not stop India from gaining outsourcing business. A recession in Europe is like inflation in Argentina - an ongoing condition. It makes no sense.

But if it continues, Manhattan real estate will sink far below where I thought it would correct to (50% decline) because not only will banks be affected, but so will our other cottage industry, hedge funds. I think very few have shorted the commodities players.

Like US Steel down 50% in a month. Has there been a 50% reduction in the demand for steel?

"No, not exactly. You sorta have it backward. Finance 101, if no new information needs to be factored it, prices AOTBE would stay flat. If the information was already known, it would have already been factored in."

> The market not reacted to the severe restriction in credit coming as the banks will be hogging
> capital over the next year just to say solvent
> It has not reacted to the massive write downs that will be required due to YE audits that you can
> bet the Big 4 will be requiring massive haircuts
> It has not reacted to the rise of $$$ and what that will do to the only thing that has been
> working...exporting goods...this will in return kill the Tech sector
> It has not reacted to the death of the consumer...both personal credit restrictions as well as lack
> of income increases...
> And lastly it has not reacted to the possibility of a Obama/Biden ticket winning...

Sure it has. It wasn't the weather that knocked 22% off the market. You might think they underestimated it, but the market thinks you overestimated it.

"It's also why Manhattan real estate - getting back onto topic - can't survive at these levels... the market isn't allocating a risk premium to where there is one: my point."

Well said Steve, particularly the last point.

cramer is an idiot. he told viewers lehman is a screaming buy on friday and after it went down over 50% in less than a week he goes online saying it's a sell, "good speculative play for people who are willing to loose everything or make a little something"

geewiz, thanks captain obvious

if you're gonna quote him, your credibility is also at risk

"he told viewers lehman is a screaming buy on friday"

I believe he said it would be speculative.

http://www.google.com/search?hl=en&rlz=1G1GGLQ_ENUS242&q=jim+cramer+lehman+%22screaming+buy%22&btnG=Search

that's screaming buy, in quotes.

the speculative disclaimer was an addendum from yesterday, after it tanked.

wasn't there some study done on cramer's picks where if you went opposite his recommendation a few days after he gave them and then covered your trade sometime later that you would actually outperform the market?

yes, there's actually a website that tracks the would be performance of a portfolio entirely created from his picks.

btw cramer also went on record less than a week before bear stearns fell apart to not sell it.
http://www.businessandmedia.org/printer/2008/20080317110946.aspx

"“Dear Jim: Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? --Peter

Cramer says: “No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.”"

he's purely for entertainment... but a joke on wall st.

Honestly I only took his advice once on Japan, which tanked shortly thereafter and I lost a small amount of money, so I never follow his advice. However, sometimes I do think he's right - and I think he's right about this.

He was also right about the Fed: "They know nothing!"

"Sure it has. It wasn't the weather that knocked 22% off the market. You might think they underestimated it, but the market thinks you overestimated it."

It was a lot of other things that contributed to the 22% drop....the next 10-15% will be based on what I said and they have definitely not being accounted for...how can the market anticipate a Obama/Biden ticket? The Capital Gain as well as Dividend tax increase alone they propose will send the market down a few % if its seen they are likely to win...

Lastly, its all about the VIX and until it shows its cards down we continue to go....Dow 10,500-10,750 will be the number to use to start building long positions and average down as necessary

"“Dear Jim: Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? --Peter

Cramer says: “No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.”"

- While I hate Cramer he was talking about a Client who had money in their Private Client Division (and ultmately it was/is safe) not an Investor in the company stock....

> how can the market anticipate a Obama/Biden ticket?

It doesn't, it anticipates the *odds* of an Obama/Biden ticket. If it factored that in 100%, then it would be making a mistake, given that there is a chance at another ticket as well. That would be like a bookie trying to collect from you on the Patriots because they were supposed to win... or the payout for betting on any favorite equal to the wager if they win.

And hence the market has not reacted to this news if it comes through (which you seemed to imply from above that the market has priced this in)

"> And lastly it has not reacted to the possibility of a Obama/Biden ticket winning...

Sure it has. It wasn't the weather that knocked 22% off the market. You might think they underestimated it, but the market thinks you overestimated it. "

it is hilarious that obviously republican posters are trying to push their politics on this board by stating that an Obama presidency will effect the market negatively. These people make no mention that their own party has been in power over the last 8 years and it is their policies that nave created the worst economy since the Great Depression. Their is no historical basis or fact that they can base their "beleif" that an Obama Presidency would hurt the economy.

history actually states the opposite, the market and Americans have done significantly better with a democrat in the white house. The data is there is a fact.

Economy is different than the market, but you wouldn't know that....

Market has done better under a Democrat because it tanks right before the inauguration when the market prices it in, thus it starts from a lower basis to "improve" and show a better %

Can we have one thread where you do not post!

Reality is there are a lot of people making decent corporate wages who are out of a job or will be soon. And, as stated above, there's a lot of wealth that disappeared in holders of LEH, Bear, MER, etc. Lehman layed off 1500 people yesterday, GS is planning on 10-15% before xmas, Bear/JPM at least 7,000, Citi did 20,000 earlier this year (don't know how many in nyc). I was hiring a couple months ago, and couldn't believe the resumes coming across my desk. Forget the rising USD, even taking that out of the equation, this is all bad news for nyc real estate. People will be happy to have jobs over the next 6-12? months. They're not about to fork over their life savings to buy a place that has flipped twice and is asking double the market px from a few years ago.

LP1- "People will be happy to have jobs over the next 6-12? months. They're not about to fork over their life savings to buy a place that has flipped twice and is asking double the market px from a few years ago"

Couldn't agree with you more. Id like to add, losing your job, is not the only deterrent to buying RE, job uncertainty is just as bad. I'm quite certain, that even the ones, that make the cut, will not be buying RE in the near future. Just as devastating to the NYV RE market.

Lehman trading at $4 pre-market...

Next up WaMu. This will be the worst, mainly because it will lead to lines of people, trying to get their money out. Because of its size, it will have huge psychological affect and drive markets down much further. Most people have no idea what's going on, however that will all change when they see lines at every WaMu across the country.

And it won't be the last.

WM @ $1.76 in pre-market, down 24%

dco, spot on. wamu will be the one that will be the one that turns heads and brings psychology down yet another leg. few outside of nyc have even heard of an ibank. and thinking of how difficult getting a mortgage will be if wamu falls is scary. anyone who has an interest in nyc real estate that is not closely following these stories clearly does not know what time it is.

IMHO, regulators need to step in right now and force WaMu to accept JPM's offer to buy it. LEH must be told to accept an offer at whatever price. No one is going to capitalize these companies after Freddie / Fannie because they're afraid the government will step in and wipe out any capital they invest. They are in a no-win situation in the short- to medium-term. That will leave Merrill vulnerable, but probably with more access to capital and the ability to sell Blackrock if necessary. Goldman and Morgan Stanley seem to have avoided most of this, as with JPM and BAC. Citi is the one I'd be most worried about.

The (unenforced) naked shorting rule must be enforced, as with the uptick rule because this credit crunch is spreading far beyond what the actual damage is. Today's unemployment data weren't that bad. OPEC will allow oil prices to fall. If the volatility is not controlled, it will cause massive dislocations and loss of wealth, and global depression will become a reality. Brazil grew by 6.1% last year, inflation is under control, it has massive offshore oil reserves, yet its stock market has fallen 40% since May. Taiwan is growing at 6.1%, its stock market is down 27% this year. In the US we're back to market levels from 1998 - ten years of gains wiped out. China is growing at 9% and its inflation rate is 4.9% - low for it, especially considering the appreciation of the yuan.

A depression will become a self-fulling prophesy if normalcy isn't returned to the market. This has been handled MISERABLY by the do-nothing "lazy fair" Bush Administration. In all my years I've never seen a market like this - not even the dot.com boom, which was relatively contained. The fundamentals in the world economy have not changed, yet markets are acting like it's the end of the world.

Manhattan real estate is in for a big kick in the teeth if this doesn't stop.

"This has been handled MISERABLY by the do-nothing "lazy fair" Bush Administration"

Well, I'm not going to defend Bush here, but Hank and Ben have been very busy doing just about everything they can. Were they a little slow on the trigger? Debatable. But they have pulled out just about every trick in the book to try and calm things down and get normalcy back. The problem is that there is only so much even they can do. And it wasn't the administration that caused all these issues, it was the banks that just went crazy with lending, the investors/banks that bought all this debt pricing in zero risk, and all the home buyers who bought way beyond their means.

You can't backstop every single ibank when they get in trouble, especially since it's been 6 mos since bear and that has been ample time (with the fed window open) for them to get their houses in order. Fuld made a bet that things would recover and not to overcapitalize because he thought it was too dilutive to raise more than $6bn in equity/convert at $26 a few months ago. And now, I think you're right that no one will put in more equity into a black hole. The best we can hope for is a take-under, but if he keeps holding out for an unrealistic price, even that may be gone.

"And it wasn't the administration that caused all these issues, it was the banks that just went crazy with lending, the investors/banks that bought all this debt pricing in zero risk, and all the home buyers who bought way beyond their means. "

Total BS - the Bush administration deregulated lending practices and watched while all the predatory lending artificially boosted home values, then the Administration encourage people to "spend" to support the war on terrorism. They created a real estate bubble to mask theie diasaterous economic policies and make the "economy" look strong.

Keep justifying and excusing anyway you like but it is a fact that the Republican policies created this disaster and devastated millions of Americans.

"But they have pulled out just about every trick in the book to try and calm things down and get normalcy back."

But they were too late. Remember, "They know nothing!"

"The problem is that there is only so much even they can do."

And they're not doing it. Enforce the prohibition against naked shorting, restore the uptick rule. Volatility - which is destroying wealth - will fall dramatically.

"And it wasn't the administration that caused all these issues, it was the banks that just went crazy with lending, the investors/banks that bought all this debt pricing in zero risk, and all the home buyers who bought way beyond their means."

Where have the regulators been for the past 8 years when all of this happened? It started in 2003 - when Greenspan was encouraging people to take out ARM's. Who wasn't there to tell the ratings agencies that you can't conceivable rate a security backed by subprime loans AAA - by definition?

And Hank Paulsen has the nerve to say that Freddie and Fannie's management WEREN'T responsible for what went on at the firm! Please! When will people take responsibility for what they do in this country? Fannie has been around since the Depression, worked fine until 2003. Freddie since 1968 - worked fine until 2003.

No, Special - now it's time for regulators to come in an re-regulate, force financials to do what they need to do - recognize reality - instead of what they want to do: hold onto their big fat paychecks.

"Ignoring comment by petrfitz"

if you give some one the tools to rob a bank, then watch him while he robs the bank, and you do nothing to stop him, while encouraging him to do it again and again, are you complicit?

First off, the Fed as everyone knows is not a part of any administration. Did 1% interest rates add steroids to the mortgage market? Absolutely. But I didn't see anyone complain in this board or any other about the equity or housing markets when rate cuts were going on. Instead, you saw banks go way beyond into excess on credit. They were only able to do that because they offered ridiculous leverage to investors of that credit in a massive house of cards. Rather than rehash all that here, we all know how the story ends. This is why the banks are choking on the same paper they bought as part of that craze. And why, as we all know, they are suffering as they are forced to de-leverage.

Sure, the Bush administration was at the helm when this was going on - that's a fact. But to imply that they were the primary cause of the credit bubble is no more right than saying the Clinton administration was responsible for the dot com bubble. My objection here is by doing something like that, you detract from other real causes. I am not saying the administration has no blame, clearly they do. But do I also blame FRE/FNM for giving loans too cheaply - yes. And then there are the the commercial/ibanks for setting up CLOs/CDOs with untenable leverage, crazy speculators that drove up prices to levels that primary home families couldn't afford, fraudulent/ridiculous underwriting that offered exotic mortgages far too cheaply to non-qualified home buyers, primary home buyers who went beyond their means to buy because home prices only go up, greedy real estate brokers who fueled anxiety on families to put down their life savings and buy now or forever be priced out. I could go on and on.

My bet, GS takes over for a miserabel stock swap, equiv of a couple bucks per LEH share. Everyone right now is assessing their counterparty exposure wrt Lehman. GS will honor the counterparties, take the LEH systems and real estate, and rid itself of the vast majority of staff.

Who will be the first to call a recovery after Lehman. It's actually comical, how many people keep embarrassing themselves time and time again. The DOW still has a 15-20% slide before it bottoms. WaMu will follow Lehman, then it's all eyes on Thain again. Like I said before Thain getting rid of that paper last month was an indicator of just how bad things really are.

Steve I agree with you, Citi is by far the most troubling.

I also agree with Citi being a potential problem in the works.. The stock remains in the cellar and that can be indicative of an issue down the road.

Now they seem to be raiding Merill as well. The stock has been totally hammered in the past two days to a new muti-year low of $19 & change.

Keep those helmets on!

"the Fed as everyone knows is not a part of any administration."

Didn't George W. reappoint him?

The dot.com boom was an unregulated affair - a key difference from what we're seeing now.

And when will they start enforcing that naked shorting rule, and reintroduce the uptick rule?

Whose side are the regulators on - the short-sellers'?

"Didn't George W. reappoint him?"
Correct but Greenspan's served under 4 presidents, republican and democrat. Anyways, clearly he's not a part of the administration in the same sense that Bush's cabinet is.

it is not Bush's fault or even the Republican policies fault for anything that happen while they had control over all branches of government.

It is clearly known that anything bad that happened under the party of accountability is due to Clinton, the government itself (not in their control), gays, or illegals.

If you say he has no responsibility for this mess when he was staring it in the face, then you're wrong. If no one in the Bush Administration warned him that this might happen, then they were amiss, as well.

What you're saying is like what Paulsen said about management at Freddie and Fannie: they had nothing to do with this, despite cooking the books for year.

Lehman is officially dead, and WaMu is next. WaMu will be picked up by JPM for a song, and the Fed will waive the 10% deposit cap limit to get the job done. The only good thing to come of that will be coast-to-coast competition for BofA in terms of branches.

Who will buy LEH? GS? Doubt it - too much culture clash. BofA? Doubt it. They're waiting for Merrill to go (they may be next) to pick up the brokerage network. Barclays, maybe?

WSJ reporting Lehman in talks with BofA

http://online.wsj.com/article/SB122116292232524671.html?mod=hps_us_whats_news

I'd love to know the terms of the deal.

LP1, imagine the Bear Stearns deal but with Lehman not having as much leverage (pun intended). B of A fires 75% of Lehman staff maybe keeps the brain trust at Neuberger. With Bear and Lehman gone (is Merrill or Citigroup next?) this is going to be the year without a Santa Claus for Wall Street, law firms, accounting, consulting...but hey, real estate is doing well!

petrfitz, both sides had full knowledge of the GSE problems this & both sides were warned for years. As usual, greed played a huge role in all this. RE prices kept escalating thanks to super cheap money. As RE prices rose, so did property tax revenues for just about every state in the country. This empowered politicians on both sides to fund their petty projects and gain political influence.

Fact of the matter is, that the GSE problems began to emerge a decade or so ago and no politician had the guts to step in and put an end to the party. Today, with RE prices plummeting and property tax revenues following the same path, many states find their budgets swimming in red ink. This is an ugly story that does not receive the coverage it deserves.

BTW, a very similar RE and financial ugly mess is in place in the UK, EU & non-EU member countries as we speak. Our politicians had nothing to do with the chaos of their financial or RE markets and unlike the USA, they have been painfully slow to address the issues. Wonder why the USD is rocketing against the Euro & Sterling? Perhaps you should post similar irrational comments in forums that are targeted to an EU & UK audience.

BofA seems unlikely with the purchase of Countrywide & LaSalle, but if the gov't wants to keep Lehman in US hands, that's the only option.

BofA is better for Lehman employees than GS would have been. A BofA purchase could keep more of those Leh folks employed. Less synergies b/w the business lines.

serge - are you saying that the Bush Administration and the REpublican party who had control over all houses of congress at the time counldn't have done anything about all the predatory lending and the false driving up of home valuation?

Are you saying that even though it was obvious to EVERYONE on the planet that a false real estate bubble was being created, the those in charge of our government had no pwer to do anythign about it?

Or are you saying that the other people were responsible and the Bushie's and the Republicans knew about it and decided not to do anything about it?

Any bank that buys Lehman, will see itself, in the same position in 6 months. Every bank should be operating with a WAR like mentality. Triage is a term they should all learn. If the street doesn't stop trying to save everybody, they will send us directly into a depression.

What ever happens with Lehman, will certainly be accompanied, with help from the gov't. Very similar to the Bear deal. When this happens, if the market reacts negatively, the fed will cut rates, by the end of the day. This will be the beginning of the end. This will have devastating consequences in the future. WaMu.....

You think gov't would be willing to provide a backstop facility as part of the acquisition to a foreign company? My thinking is that they would do it for just about anyone at this point.

Special_K hit it right on the money (no pun intended). The Fed governor is appointed by the Prez but works independently.

It's easy to blame the president or claim too much/too little regulation, but the fact is that there were many reasons for the current mess we're in.

uptowngirl - does the President and the Congress have any ability to fight predatory lending?

petr, you either don't listen or you are too dense to understand. I guess you missed the posting about Barney Frank and how the democrats have always been the biggest supporters of FNMA and FRE. Lots of people are to blame, but you trying to blame everything on Republicans is just dumb.

i believe I was clear in stating that both parties were well aware of this problem and both parties had full knowledge of the developing snow ball. I am also saying that neither party had an interest in curtailing the problem and this includes government officials at the state level.

I am also saying the UK & EU have an equivalent financial mess as we speak and getting worse. Their financial system is in the tank and their central banks are doing little to rectify the problem. Bush, Pelosi, Reid and no other US official had anything to do with this. Let's not sit here and bash the American system when it's obvious other countries have similar banking & RE problems.

petr, i'm a little confused. aren't you a long time owner of 4 apartment buildings in the LES? if so, aren't you a primary beneficiary of the housing bubble that you believe the Bush administration created?

The latest is that a consortium of private firms will buy LEH. That has huge regulatory problems. But there's a lot of put activity surrounding Merrill. Merrill fits BofA's retail strategy a lot better than LEH, and Stan O'Neal shopped it to Ken Lewis at one point.

This is not over. Getting there, but not over.

I thought BSC was the bottom - I was wrong. But maybe we're getting closer to the consolidation of the financial sector, and finally putting an end to this.

Fed and Treasury to engineer sale according to Washington Post:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/11/AR2008091102580.html?hpid=topnews

The funny thing is that Lehman probably would have tanked sooner - but the Fed. action with Bear just had to draw everything out. Now we get to see if we stop at two banks or whether Merrill makes it three.

So is it that no one wants to buy Lehman Bros? Or is it that no other financial institutions are in any better position, so that it would be like asking the guys in the front of the Titanic to help out bailing water in the back of the Titanic?

I have to laugh, there is still no deal yet and people are already saying that, this should be the bottom. This crazy, people 2 IB's gone within 6 months is not normal.

A co-worker of mine, went to WaMu today and closed his account. And no I didn't convince him. Just wait until the lines around the block, then you will see real panic.

WaMu will cause main stream panic. It will make Bear and Lehman look like a walk in the park.

dco, you are right to laugh. It's crazy. You have no idea how crazy. A bank like Lehman has all kinds of risk like swaps which aren't even on the books, they're not an asset not a debt. Tons of "off balance sheet" transactions that have been outside regulatory coverage for years. Now, whatcha gonna do? Bad boys, bad boys. When they come for you? Bear is one thing. they were known for being dirty, especially during the dot-cm bust. But Lehman, Lehman is the first domino.