Another weekend another bailout!!

As if Mondays aren't inherently bad already, The New York Federal Reserve board convened a meeting between federal finance officials and executives of major banks, thrifts and investment firms Friday night. Lehman Brothers (LEH), the USA's 4th largest investment firm was the major and most urgent reason for the meeting. On Wednesday, Sept 10, LEH CEO Richard S. Fuld announced a plan to sell the company. He proposed taking the real estate holding which are dragging LEH's stock value down and transferring them to a separately held and traded new company. Then majority shares of the remaining institutional and personal money management units would be sold to raise much needed cash. Bloomberg news reported that LEH received bids for these units for approximately $5 Billion. Fuld proposed the sale after negotiations for a capital investment from the Korea Development Bank stopped without an infusion for LEH.
Apparently this was not good enough or fast enough for the Feds. Timothy Geithner, president of the New York Federal reserve board started the meeting Friday night by advising the executives present to come up with a bailout plan or run the risk of being the next company to face liquidation, bankruptcy or takeover. Meetings continued Saturday and are expected to continue on Sunday as well. LEH share price closed Friday (9/12/08) at $3.65,the trading range on Friday was $3.17 - $4.22, the 52 week range was $3.17-$67.73. This makes Friday's close a loss of over 90% from the 52 week high. No wonder the feds are acting so quickly.
Another reason the Fed is acting quickly is to reassure Foreign Banks that their holdings of LEH and other US financial services companies bonds will not suffer sudden losses. This weekend European Union finance ministers met in Nice, France to discuss the economic downturn started by the decline of the US sub-prime market. German Finance Minister Peer Steinbrueck told reporters that "The news from the United States is bad." He also expressed hope that the LEH situation would be resolved before Monday's Asian Markets opened for trading. How did the US ever get to the point where we have to reassure the world of our ability to withstand market corrections?? Maybe it's time to let LEH fail and spare the US treasury and its financiers, the American taxpayers another expensive bailout. Who knows??
To the government's credit, treasury secretary Henry Paulson is insistent that there will be no cash bailout from the US treasury this time. Most of the banks that are considering buying LEH want the US to inject some cash into the deal a la Bear Sterns in March 2008. Hang in there Hank, we're counting on you.