Monday, September 15, 2008

Lehman to 'Layman Brothers'

This is not directly related to development economics but is interesting in the sense that how incapable our system is to deal with the economic and psychological consequences of failure of a firm seen earlier as a foster child of liberal financial market. Lehman Brothers is now scrambling to find saviors, but in vain . The only road left to explore now is liquidation (which loosely means termination of a business operation by using its assets to discharge its liabilities). In other words, a slow but certain death! What a tragedy for the liberal financial market system!! Chapter 11 protection in high demand, again!

The NYT reports:

...But that plan fell apart on Sunday, making it likely that Lehman would be forced to liquidate.

What remained unclear was how a liquidation might proceed. One option that was discussed on Saturday would have major banks and brokerage firms continue to do business with Lehman as it unwinds its assets and liquidates over a period of months, according to several people briefed on the discussions. That would buy Lehman time to sell those assets in an orderly way and avoid a fire sale that could depress prices of similar assets held by other banks.

Here is a piece from the BBC News:

...If no new financing is found before Wall Street opens on Monday, Lehman will have to seek so-called Chapter 11 bankruptcy protection.

Here is WSJ on why didn't Lehman use Fed's discount window?

Why wouldn’t Lehman borrow? For one thing, it may not need to. As in the case of Fannie Mae and Freddie Mac, one of its key problems is with capital and not short-term funding. Another possibility: Taking a discount window loan while everyone is watching for it — and expecting it — might create a new set of confidence problems. Because there was no borrowing leading up to this week, Lehman would’ve been tagged as the borrower of any loan taken out. (The Fed does not disclose the identities of the borrowers.) One way around it would be for several other firms — healthier ones — to step up and offer cover, taking loans and somehow signaling publicly that they also had done so. Another would be to wait until the weekly reporting period ended Wednesday and then borrow on Thursday, allowing a week of breathing room before the next report comes out.

Update: see this one as well: Nightmare on Wall Street

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