The US Economy in the crapper starting Monday?

[gerbick]

It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.

Read the rest here...

Emphasis mine, btw.

[hanratty21]

This was coming down the pipeline for a while. I am not totally thrilled with the result, but Merrill jumping the gun with BOA as they saw they were next on the hit list is a good thing. The terms of the Lehman Chapter 11 protection has yet to be detailed, but Neuberger Berman is apparently not part of the filing...we'll see what else pans out.

Incidentally...your thread title sucks.
"A run on the broker dealers"

does not equal this

"The US Economy in the crapper starting Monday?"

[lesli_felix]

"trust me, everything's gonna be fine..."

[MagnusVS]

Lehman Brothers are bankrupt and Merrill Lynch has been bought by Bank of America. The stock exchange in Norway is down 6% just today.

And tomorrow, I'm starting my on the MSc Finance course! I hope it won't be too hard to get a job next year

[TallGuyLittleCar]

Rumor has it a well heeled fellow from Omaha is looking to buy an investment bank..

[hanratty21]

Unless AIG is now considered an investment bank (news to me), then I'd say this claim should probably be wearing a blue fuzzy hat.

[TallGuyLittleCar]

no but lehman is.. or was.

And I really should have said financial firm.

[koolbabs2000]

This is having a cascading effect all across the world.

Pink slips are going to flow.

[PAlexC]

A good friend of mine works in risk analysis for Citi, so he's been privy to the writing on the wall for years. (As well as having his group ignored by the higher ups.)

As he likes to point out every time this news hits: thousands of average, hardworking people supporting their families are going to lose their jobs over something they were not responsible for, and at the rate things are going, are not going to find another one easily any time soon.

It takes 100 years to build a bank, and only 1 to ruin it.

[jAQUAN]

And now the Fed bails out AIG!?
I just can't shake the feeling lately that none of this is accident.
I know Americans have been behind scholastically for a long time but are supposed to believe that all this fubarism is the result of it?
And how is CNN going to use the phrase "government's rescue of AIG "? I thought the FedRes was not a government institution.

It smells bad I tell ya.

[Frets]

It's the accident of no control.
The FDIC is so busy supporting the industry backing that it's running out of money for insuring banks. The FDIC may ask the Treasury Dept for more money if things don't stabalize in very quick order.

Meanwhile Money Market certificates are losing value.

[hanratty21]

Meanwhile Money Market certificates are losing value.

Most are not. There are a few which have gotten involved in various credit derivatives, mostly as a hedge against possible credit losses (like an insurance policy.) From what I am seeing, this is few and far in between and many of these 'money markets' should not have been considered such in the first place.

Invesco, Legg Mason, Schwab, and BlackRock have already issued statement to the contrary -- that none of their money markets have lost any inherent value.

[lefteyewilly]

has this happened before? and if so, how was did it recover?

[Frets]

World War II

http://www.bloomberg.com/apps/news?p...BQs&refer=home

[Loyal Rogue]

has this happened before? and if so, how was did it recover?

Yes.
After a string of Republican Presidents in the 1920's we had the first Republican Great Depression of 1929.
We recovered by electing a Democrat, Franklin Delano Roosevelt "FDR".

We are in the Worst Financial Crisis since Depression, says IMF

The US mortgage crisis has spiralled into "the largest financial shock since the Great Depression" and there is a one-in-four chance that it will cause a full-blown global recession, the International Monetary Fund warned yesterday.

As finance ministers and central bankers arrived in Washington to discuss ways of tackling the crisis, the IMF warned, in its twice-yearly World Economic Outlook, that governments might be forced to step in with more public bailouts of troubled banks and cash-strapped homeowners before the crisis was over.

"The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of the financial system," it said.

http://www.stwr.org/global-financial...-says-imf.html

[hanratty21]

Yes.
After a string of Republican Presidents in the 1920's we had the first Republican Great Depression of 1929.
We recovered by electing a Democrat, Franklin Delano Roosevelt "FDR".

Your flippant attitude toward this situation and even thinking about using the word depression is simply asinine. Using a smiley in the same thought as the word depression is, well, awfully simple of you. If you truly think that electing FDR was the end of those days, then I guess you are entitled to your opinion, but you are making entirely too much light of the economic recovery in the 30's.

@ lefteye's original question. Look back to 1987 and, even moreso to 1990. 1990's bank crash problems ended with the Saudi's putting tons of money into Citibank. It made everyone sick at the time to think that our country was being sold off to the highest bidder, but it really sparked the economic boom of the 1990's (though I am sure Al Gore thinks he 'invented' that too.)

[lefteyewilly]

@ lefteye's original question. Look back to 1987 and, even moreso to 1990. 1990's bank crash problems ended with the Saudi's putting tons of money into Citibank. It made everyone sick at the time to think that our country was being sold off to the highest bidder, but it really sparked the economic boom of the 1990's (though I am sure Al Gore thinks he 'invented' that too.)

that's kinda the answer i was looking for. I was young and oblivous to the 80's and 90's economics and was wondering if it was this bad back then as well...

i'm honestly scared beyond belief at what could come down the pipe in a year.

[hanratty21]

i'm honestly scared beyond belief at what could come down the pipe in a year.

There's some good signs already

• AIG getting some sort of bailout (though the 12% interest on the govt loan is pretty steep)
• Morgan Stanley looking to China for a partner (China has TONS of cash right now, but if US fails, they'll go down too. It'd be good for them to get involved before the dominoes start falling)
• Wells Fargo and Bank of America being rock solid (the entire industry is not f-d)
• SEC limiting naked shorts again (about time)
• The Dollar not getting crushed (this is important to make sure we don't end up with skyrocketing inflation as well)
• Credit rating agencies finally looking to play nice (they played a huge part in the sh*tstorm)
• People finally starting to badmouth Greenspan and his open wallet policies, post 9/11. (yep...I said it)

but before you start fearing what's coming in a year, you better fear what's coming in the next day or week!

[jAQUAN]

WaMu is up for sale now. So glad I closed out with them.
I wish you'd get into more detail HR about how these are good signs. I know you know more about our historic ups and down but it just seems like getting into debt with other countries is like taking out a 5th mortgage. If the US is like a house, wouldn't we rather own it and have equity rather than pay rent and have nothing to show for it?

I just wish I understood more about the trickle down effects on our purchasing power and job market.
Are those movies "Money As Debt" and "Zeitgeist" factual at all?

[hanratty21]

So, as you've no doubt seen if you've followed the story at all over the last few weeks, as the US goes, so goes the world. Russia has closed their stock market for 2 days. China is cash rich, but has plenty to lose, as we are their biggest consumers of arsenic laden toys (or whatever else it is they produce.) It behooves foreign nations to put their money into the country which brings the most money back into their country. Look at the Asian Markets today...they don't trade our stocks there (for the most part) -- they trade their own. So...again, as we go, so do they.

Back to your request for more explanation of good signs...I think they are all pretty self explanatory, so I'll instead talk about the banking and (more importantly) the investment banking industry. We rule the roost in this realm. No one else. All the HSBC's and Barclays of the world, simply put, wish they were a US institution. We are the leaders of the industry and the failure of ours basically means the failure of all the others. Foreign money is welcome money. Look what Citibank became since 1990. They were about to crumble. While they are not the healthiest bank in the US, they most certainly are a tremendous institution. Good signs...all of them. Not for today - not for tomorrow, but soon enough.

Incidentally, why are we comparing the US to a house? This comparison reminds me of a political cartoon from the recent past...