OT: Lehman Brothers Collapse

[BellsonFan]

Wow-I had no idea how lucky I was to move my retirement funds! I literally dumped everything I had through Lehman about three months ago and moved to TIAA-CREF.

Did anyone get hit by this? I sure hope not...

 

[LizH]

I'm so uneducated about my 401k, I have no idea. I have it with vanguard though, so I guess not?

But, how many more banks and financial institutions are going to collapse before something is done? This is getting absolutely obnoxious.

 

[dave11772]

And Merrill Lynch got bought by Bank of America (won't DON'T those guys own?) and AIG is hanging on by a thread. In the long run, "they" say it can be good thing cleaning out wall Street (like the occasional forest fire). Meanwhile, hold onto your hats. Of course, all the politicians are saying "SEE?? I TOLD you we needed more regulation for these big financials!". But, of course, nobody could ever agree on HOW or HOW MUCH to regulate. The price of a "free market", I suppose.

 

[Black Beat]

And Merrill Lynch got bought by Bank of America (won't DON'T those guys own?) and AIG is hanging on by a thread. In the long run, "they" say it can be good thing cleaning out wall Street (like the occasional forest fire). Meanwhile, hold onto your hats. Of course, all the politicians are saying "SEE?? I TOLD you we needed more regulation for these big financials!". But, of course, nobody could ever agree on HOW or HOW MUCH to regulate. The price of a "free market", I suppose.

Here is an idea.How about not letting the government back those corrupt institutions?

It sure would make those greedy people handle money a little more honestly and save the taxpayer a whole lot of cash.

Just an idea.

 

[Hemant]

Merrill, like many other Wall Street houses, was in way too deep on mortgage backed securities. The buy-out by Bank of America was a no-brainer as the Federal Governement was not going to intervene. Lehman has not been able to find a buyer, the Fed was not going to provide a Bear Sterns like bailout and it is entirtely possible the the Chapter 11 will turn into a full on liquidation. Following Bear, Fannie & Freddie I think some of these banks simply figured the Fed would step in and prop them up. AIG is looking for $40B loan from the Federal Reserve today. I have a lot of friends in the Financial Services sector, some who work for the aforementioned companies, and all are deeply concerned or in the case of Lehman - will be losing their jobs. My portfolio contains some funds and stocks in these banks.

Watching all of these banks fail - I am very curious about the pending fortunes of the Big 3 automakers. Given the political climate in Michigan, its importance in the electoral map and with polls in the state razor thin - I am wondering how each presidential campaign is going to address potential questions about a taxpayer funded bailout of any of the three if the need arises. You have to figure whoever says no -- loses Michagin -- which means both of them may commit to a "yes" answer.

 

[greggp]

I'm so uneducated about my 401k, I have no idea. I have it with vanguard though, so I guess not?

But, how many more banks and financial institutions are going to collapse before something is done? This is getting absolutely obnoxious.

I hate to be the bearer of bad news:

http://www.bloomberg...efer=govt_bonds

 

[dead_head]

This is scary... I remember the recession of the 70's well and thought that was bad.

This is getting down right ugly.

We yanked everything about 6 months ago and it sits in a freakin' multiple savings accounts that earn more than most investment places were offering without locking it up forever.

Besides, I never trusted them... if they are so good, why aren't they on a beach somewhere in a tax free haven?

Gold should be going up and it's going down.... Bizarro world...

Taxes will have to be raised.. coupled with major spending changes. Like Congress... you can't spend more than you take in. Everyone of them needs a remedial course in economics, better yet, kicked out and have common sense people in there.

 

[greggp]

So Governor Paterson of New York says AIG can tap its subsidiaries for up to $20 billion in order to gain liquidity. Hmmmmmm.

Each time we've had one of these collapses, those driving the bus into the ditch, and those experts watching the bus go into the ditch have said that the problem is "liquidity." They said it with Bear Stearns; they said it with Countrywide; they said it with IndyMac Bank; and they said it with Lehman.

Liquidity my a$$; the problem is debt. They went into debt to buy exotic debt instruments that were valued at "mark to market," or in other words, what "someone" thought they were worth the day they bought them. There are a few problems with mark to market valuations, such as: first, there is no way to determine whether that mark to market value has any connection to reality; and second, if the values go up with the market, they can go down with it. That's what's happening now: those "investments" that were booked at price X don't look so good on the balance sheet when they drop to .2X on the market.

All the mutual funds bought this stuff from the investment banks (in varying degree) because they were making huge paper profits a few years ago. Now they willl see the downside from these investments.

So, AIG will tap its subsidiaries. That bugs me. I have had my auto insurance with 21st Century since it was called 20th Century. Through no fault of mine, I'm now insured with AIG, which recently bought 21st Century. I am not yet sure whether AIG will be "tapping" 21st Century for liquidity, and so far I have not received satisfactory answers as to what will happen from the company or the California Departmen of Insurance. I am not happy. About 20 years ago, my auto insurer went bankrupt, and I got moved into the "assigned risk" pool.

I guess it may be time to go insurance shopping. Yuk.

 

[Bonzoholic]

How will this affect those whose mortgages are through Lehman & WaMu?

 

[LizH]

Awesome. And folks said I was dumb for withdrawing a good chunk of my 401k a few weeks back to help with my house closing. Looks like I got it out just in time.

I'm diversified, but I did have quite a bit in bonds which are apparently with Lehman.

I think we all need to go back and learn how to live off the land, because we'll all be there soon enough the way things are going!!!

 

[Luddite]

The ripple affect from this and other potential financial majors going down will affect pretty much everyone whether they are vested in those particular companies, the market, or not. It will only be a difference of degree. And, we are in the fairly early stages of an economic contraction that was predicted nearly 20 years ago. The baby boom generation was the gas that fueled the ongoing economic boom as they bought homes, put their kids through school and consumed, consumed, consumed. As this generation enters retirement and downsizes, there will be a corresponding drop in spending. Consumption is 70% of our economy, and with rising fuel costs, ongoing job loss to overseas competiton and the credit crisis, consumption will take an ongoing hit. There are just too many "chickens" coming home to roost similtaneously. As tax revenues continue to plummet, local, state and federal governments will be forced to raise taxes to make up the growing shortfall. Or, they will continue to run up foreign debt as they have been doing---until, that is, foreign investors decide to pull the plug. All in all, some pretty grim times are here. Irrational behavior has produced an irrational market---as Ed observed, even gold is dropping in value.

 

[Black Beat]

Awesome. And folks said I was dumb for withdrawing a good chunk of my 401k a few weeks back to help with my house closing. Looks like I got it out just in time.

I'm diversified, but I did have quite a bit in bonds which are apparently with Lehman.

I think we all need to go back and learn how to live off the land, because we'll all be there soon enough the way things are going!!!

I wouldn't put any money ever again in a 401k.It's not worth it.

 

[mgy*cqd]

So, AIG will tap its subsidiaries. That bugs me. I have had my auto insurance with 21st Century since it was called 20th Century. Through no fault of mine, I'm now insured with AIG, which recently bought 21st Century. I am not yet sure whether AIG will be "tapping" 21st Century for liquidity, and so far I have not received satisfactory answers as to what will happen from the company or the California Departmen of Insurance. I am not happy. About 20 years ago, my auto insurer went bankrupt, and I got moved into the "assigned risk" pool.

I guess it may be time to go insurance shopping. Yuk.

You may not need to shop for insurance just yet. Whatever Governor Patterson meant when he said that AIG could "tap its subsidiaries", I doubt that would apply to the insurance companies that are part of the AIG Group. Those companies are regulated by the states where they are chartered and each state in which they are admitted do insurance business (except surplus lines insurance). Part of the insurance regulation that each state imposes includes mandatory financial reserves to meet anticipated losses by admitted companies. I may be wrong here, but my guess is that the reserves currently posted by these companies probably is already at the minimum acceptable level, so I doubt that there's much there to "tap" even if the state regulators were to permit this at all.

 

[greggp]

How will this affect those whose mortgages are through Lehman & WaMu?

If those mortgages are not in default, then likely nothing. Someone else will become the mortgagee (holder), and the mortgagor (borrower) will pay the payment to the new holder. There may be some measure of discomfort as the borrower tries to figure out who to pay, and the payments get lost or improperly applied.

As to those in default, there may actually be a silver lining or two. With more of the lenders collapsing, there may be so many delinquencies that the holders may not be able to forclose on them very quickly, and the borrower may be abe to stay in his or her home during that time.

Also, if the Countrywide fiasco is any indication, there may be some accounting problems that will bite the mortgage holders. They are supposed to be able to provide proof of the debt in the form of the original promissory note. There was a lot of slipshod accounting going on in the mortgage market in the last couple of years, and the new holders may not have the notes. If there was an improper assignment, there may actually be no one who is a secured note holder, and the promissory note becomes an unsecured debt. In that instance, a debtor may be able to BK and homestead the house free of the mortgage, depending on the debtor's state of domicile [cough Florida].

 

[PJD]

gregp, thanks for the great posts.

Would you mind helping me, I'm trying to understand all this and just heard about it today.

Is the 'mark to market' problem the similar to what Enron was doing with overvaluing their worth by declaring the estimated future date of their holdings on the current ledger?

Many thanks


And if anybody has good links, I love to learn.

 

[Rogersoholic]

These buisnesses deserve whats happening to them. My freind just sold a house and got financing for a woman who "get this" earns 10 bux an hours and is buying a 200k house. How can she afford it? I just bought a condo a year ago and got financing for it and "get this": DIDNT HAVE A JOB! AND They were quick to lend me 10k more than the purchase price as well! I have great credit, but... NO JOB??? and was approved the next day. Look at these car commercials. no credit?, no problem, bad credit?, still no problem. BUT no job and lent me 90k? I do have a job {now} and always pay my bills.

 

[dcrigger]

Wow-I had no idea how lucky I was to move my retirement funds! I literally dumped everything I had through Lehman about three months ago and moved to TIAA-CREF.

Did anyone get hit by this? I sure hope not...

I don't believe anybody's Lehman Bros. retirement account funds got hit by this today - so had you not moved your retirement funds they would still be there today.

Not to belittle what happened today, but things will have to get a lot worse before individual accounts like 401k's are even touched, let alone start defaulting.

But certainly any individual holding LEH (Lehman stock) in their retirement accounts it's a different story, because that holding has devalued dramatically. Lehman stock was worth about $60 a share at the first of the year and as of today was trading for 21 CENTS a share.

Plus most stock holdings were effected by the DOW's 500 point today. But that's the nature of owning stocks - they go up , they go down - but luckily over the long haul they go up more than down.

dc

 

[Kevin OConnor]

Sadly there's a financial bail out for the suits, but not the civilians

 

[skinsman]

This is where our forefathers would stand up and shoot these bastards.

 

[SteveB]

AIG covers my "liability" policy..what's wrong with that picture? I guess Goldman is pretty solid; that's because they are shysters of the first order. Wanna buy some land in Montana?