It's a Wild Wild World: Unfolding US financial system crisis

Over the last weekend, many bankers, regulators, accountants, analysts etc etc could not sleep especially in New York where history was being created. This weekend along side the last one will be noted when America started slowing down (Last weekend Fannie Mae and Freddie Mac were nationalized in the US with the US taxpayers paying estimated USD 500billion to support the 2 failing mortgage finance entities) .

I do not believe US financial system will fall down but its decline - slow and gradual - has been in the making for the past several years. There are many reasons which we shall get to some other time but today we must note what happened to the venerable 158 year old company named Lehman brothers and the 98 year old company named Merrill Lynch over this weekend.

It is interesting to note the timelines: a meeting initiated by the Federal Reserve and US Treasury on Friday September 12, 2008 at 6pm went late night, went on all day Saturday AND Sunday!

Ultimately, at 1am ET, Monday September 15, 2008, a day to be noted in history, a press release was issued announcing that Lehman Brothers (except for its subsidiaries) will file for bankruptcy in the US state of New York today, Monday, September 15, 2008.

The unfolding saga at the 3 day marathon meeting amongst the federal regulators, Government authorities and the top 10-12 largest global banks does not end there.

Since Lehman could not be bought by competitors due to its USD 612 billion of debt obligations, large derivative & bad real estate exposure etc under a subsidy plan similar to Bear Stearns bail out by the Federal Reserve, hence, eventually, Lehman was forced to declare bankruptcy.

Interestingly, the next investment bank on the line was Merrill Lynch (Mother Merrill) which was bought out by Bank of America (one of the strong banks during this credit crisis) for USD 50 billion in stock.

Today's Headlines:

Bloomberg: `Tectonic' Shift on Wall Street as Lehman Fails, Merrill Sold

New York Times: 5 Days of Pressure, Fear and Ultimately, Failure

The Guardian, UK: Q&A: The collapse of Lehman Brothers

The BBC: The downturn in facts and figures

The end of Bear Stearns, Lehman, Freddie Mac, Fannie Mae, Merrill is just the beginning. It is expected that AIG and Washington Mutual may be next (as close as next weekend) and some others may follow. This list does not include the 81 hedge funds that have closed over the last 1 year and 283 mortgage lenders that have closed over the last 2 years nor the monthly foreclosures on US homes exceeding 50,000 per month (both May and June 2008 had over 70,000 home foreclosures in the US).

Stay tuned...