Monday, September 15, 2008


It is 7:49 AM with 10 min before the markets open, and it certainly feels like a dangerous time.
WaPost: The U.S. financial system this weekend faced its gravest crisis in modern times, as regulators resorted to triage on Wall Street to contain the spreading damage from a meltdown in the housing and mortgage market.
NYT: But even as the fates of Lehman and Merrill hung in the balance, another crisis loomed as the insurance giant American International Group appeared to teeter. Staggered by losses stemming from the credit crisis, A.I.G. sought a $40 billion lifeline from the Federal Reserve, without which the company may have only days to survive.
Angry Bear: Had Bear [Stearns] gone out of business, about 30% of the hedge funds in the country would not have been able to execute virtually any transaction for the following thirty days. Not a payment. Not a redemption. Not a trade on a listed exchange. Not a receipt. Not a de-leveraging. Not a swap payment, not a CDS payment, not fulfilling an option exercised against them.

There's not just a "maybe" about financial collapse in such a scenario; [statistical] probably well in excess of 0.9944. $30 billion is a "bargain" in such a situation.

Yikes. Black monday in 1987 saw the Dow drop 22.6% and was largely based on electronic markets going out of control, not some of the worlds largest institutional banks failing. To compare, a redux would have the Dow dropping 2,580 points today, down to 8,840. Keep your hats on!

UPDATE: The Lehman Brothers bankruptcy is mind boggling in size:
The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.
.6 Trillion dollars?  Thats 4% of the entire GDP of the United States. WorldCom's 2002 bankruptcy, who today is bumped down to the second largest in history,  was a paltry $41 billion..

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