Friday, September 12, 2008

Yo! Hadrian! Lehman Bros is toast!

The conventional wisdom said that it was simply impossible for an investment house to go bankrupt. They were designed to last the test of time and were supposed to be indestructable from an economic standpoint; much as Hadrian's Wall was from a military one. Well, the latter was picked off stone by stone after the wall's usefulness no longer existed and it took personal and government intervention to save what was left about 170 years ago. Now, the giants of Wall Street are set to tumble with the rise of sovereign wealth funds and proven just as useless as a military wall and it looks like nothing will put them back together.

First it was Bear Stearns. Now it's Lehman Brothers, the venerable brokerage firm that was once part of the American Express empire, that's teetering on the brink of collapse over liquidity issues unless it can find a willing buyer and its employees are already updating their c.v's. That after suffering a huge collapse year over year on the stock market from about $87 a year ago to just $4 yesterday. The pink slips are already being handed out, and as many as half could lose their jobs if they manage to find a buyer, as the case when JPMorgan picked up Bear.

When pillars of the trading community fall by the wayside, people have a right to know why. After all, the investors are real people and while their trading accounts may be affected based on what is in their portfolios, their savings accounts are indeed altered by the fates of the investment decisions of the management team. Those accounts are not guaranteed as a bank account at an insured institution would be.

And in an election year people look to the candidates for decisive leadership on what needs to be done to restore confidence in Wall Street. I really don't see that other than messages of "hope" or "stability" which may be fine to the power brokers but is totally irrelevant to the masses.

Bread and butter issues certainly do matter but it's seed money from the big guys (which is in tight supply these days) that gives people what they need to start things going. One wonders what the next shoe to drop will be. This isn't looking good at all.

Who's going to go next or to suffer a big crisis? Not an outright collapse but just a need to restructure big time Hmm, not too sure. They said Bear was too big to fall. So how about Merrill Lynch? They've love billions too.

I would have gone with Smith Barney (remember, "We make money the old fashioned way, we earn it"?) but they're owned by Citibank. Which is relatively safe. For now. We think.

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