Asian markets are now open, and nary a Lehman bailout in site. (Nikkei Dow is closed)

Before you start congratulating the powers that be over their restraint, understand why there is no such rescue plan in place. My comments earlier this week in Slate:

To be eligible for a bailout, firms must also demonstrate a particular
genius for screwing up. Before it went bust, Bear Stearns had a
monstrous $33 of debt for every dollar of capital, and hedge funds it
owned destroyed hundreds of millions of dollars of clients’ cash. It
got a bailout. Lehman Brothers, which has taken painful measures to
reduce its risk, is perversely less likely to get direct government
help. "The worst Lehman can do is destroy the firm," said Barry
Ritholtz, CEO of Wall Street research firm FusionIQ and author of the
forthcoming Bailout Nation.
"Bear Stearns, on the other hand, set up the firm so that if they
screwed up, they could threaten the entire financial system."
That may
explain why Treasury Secretary Paulson has thus far resisted providing
federal succor to Lehman.

We will have more on this tomorrow, but that is the unfortunate takeaway, and precisely what Moral Hazard means.

IN a strange way, Lehman Brother is being punished for not being more reckless. (Although its probably why Barclays is kicking the tires).

More later this week…


Lemons, But No Lehman Aid
Daniel Gross
Slare,  Friday, Sept. 12, 2008, at 3:46 PM ET

Barclays May Bid for Lehman as Fed Seeks Solution   
Ben Livesey and Yalman Onaran
Bloomberg Sept. 14   2008

Category: Bailouts, Corporate Management, Credit, Media, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “A Sunday Without a Bailout? How Novel !”

  1. km4 says:

    Once again this quote is spot on…

    “This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this” Jim Rogers on Squawk Box Europe

  2. awtiger says:

    I’m pretty sure none of the Asian markets are open yet – so there’s still a chance ‘ol Hank blinks.

  3. leftback says:

    Too medium sized to not fail…

  4. Red Baron says:


    I am no expert, but I think a bankruptcy filing Monday is the most likely outcome. I doubt the banks will do a deal without government support. I also doubt the government will provide support because it has been so adamant about not doing so and because it does not want to create even more moral hazard than it has already.

  5. Kid Dynamite says:

    unfortunately, barry, i think Lehman is also TBTF (too big to fail) – their CDS counterparty alone would be disasterous.

    The real point of this whole deal to buy/save/bury lehman is that i don’t think they’re alone… MER is next

  6. a guy called john says:

    Posted by: Li is the logarithmic integral | Sep 14, 2008 1:14:58 PM
    Posted by: Matt4 | Sep 14, 2008 1:17:03 PM

    ^ Barry, please block this dipshit and his bogus links.

  7. john east says:

    The BBC just announced Barclays have walked away from Lehman. I wonder if anyone else has got a few tens of billions spare to flush down the toilet?

  8. leftback says:

    Look, I know it is Sunday but can’t we have people post on here without posting stupid equations or ranting about fractals? There are other outlets – you could teach high school math, for example.

    Please stay on topic, or at least be funny?

    Barry, this Sunday has a long way to go before you can safely state there is no bailout, they might all have gone for lunch. Surely the real deadline for another fix is the 8pm opening in Tokyo?

  9. Broken-back mountain says:


    Still only half past two in the morning in Tokyo. There is still time…

  10. Periwinkle says:

    I don’t agree. I think Fuld demonstrated a go-for-broke behavior in the past couple months that is inexcusable and should be criminal. In my prefession, (nurse) we have legal responsiblities to the greater good. Why should we expect less from a banker?

  11. John(2) says:

    The day is young. Look none of the suitors (BoA, Barclays or HSBC) is going to buy LM without the bad stuff being covered either by being taken away or without guarantees. The issue then becomes who provides the recourse: the US govt or a group of Wall Street players who either are short of the greenstuff themselves or have not much to gain by LM staying in business. Anyone who thinks the consequences of LM default are going to be minor is in dreamland. If Barclays are walking and it looks like BoA have already walked then it looks like Paulson is staring down a default.

  12. Andy G says:

    Paulson will blink and provide a backstop, there is absolutely zero chance they will allow LEH to file BK, not in a million years.

  13. Jim Haygood says:

    “IN a strange way, Lehman Brother is being punished for not being more reckless.”

    Well, there’s still time to put on a Nick Leeson “Hail Mary” trade.

    Couple of trillion worth of far-OOM index puts, and Lehman could be the best-capitalized firm on Wall Street tomorrow.

    Oops … Ben’s telling me, “Hands off; that’s MY trade, pal.”

  14. Escafane says:

    Nikkei closed tomorrow. Respect-for-the-Aged Day.

  15. John(2) says:

    Andy G | Sep 14, 2008 1:46:56 PM

    While I don’t think there’s no chance of Paulson letting LM go down the odds have to be against him letting it happen. It would probably be a watershed event and cause the dominoes to start falling in such a way that he would completely lose control of the situation. I know they are scrambling but at the moment he’s still in control. If LM defaults then the situ changes completely. Today is the first time since this all started in the middle of last year when I’m keeping an eye on the news every half hour.

  16. the says:

    I can’t help but casually wonder about discrepancies (if any) between the psychological effects on traders when news is released during trading hours and when the market is closed. Surely this has been studied in great detail and, provided that there are significant differneces, may even be utilized as an advantage by parties who are ahead of the game.

  17. Ben says:

    Hong Kong is going to close due to the “Mid Autumn Festival” holiday! So, we still have around 10 to 12 hours to go!

  18. leftback says:

    Slightly off-topic media observations.

    Krugman has a post today re: how hilarious is the WSJ coverage of the LEH talks.

    What is less hilarious is PK’s acquiescence with the whole concept of government interference with free markets, his lack of appreciation for the way speculators can influence markets, and his inability to see what is in front of us, as apart from behind us. I agree with his politics but he seems to have left his brain in park lately when it comes to economics and markets. Princeton is just too comfortable.

    Even less hilarious has been the sad decline of the NYT from a once-proud and independent voice into a pale shadow of its former self. The lack of criticism of the Bush government, the Iraq war and the “easy money” policy of the Fed have been astonishing – above all the complacency has been unforgivable. Only Maureen Dowd has any courage.

    The Times is finished. The writing is awful, the management are collaborators with the regime. Thank goodness that we have a new medium in which to read truth.

  19. John(2) says:

    leftback | Sep 14, 2008 2:24:48 PM

    Yep what does Krugman know. Govt acquiesence in free markets. Hello, it happens every day of the week all around the world whether it’s the Chinese managing their currency, Berlusconi writing new laws every day to bailout Alitalia, or Paulson and co scrambling to save LM.

  20. spam 2.0 says:

    Seems to me that you’re victim of the new new spam here Barry, or what I call spam 2.0.

    See posts by:

    Li is the logarithmic integral
    Hypergeometric PQF

    They all fit the same pattern. (1) Cut and paste of seemingly financial-sounding text that is completely out of context. (2) Link via tinyurl. (3) URL points to big public site (apple/google)

    These aren’t even as sophisticated as the best spam 2.0 you find on craigslist nowadays. But quite clearly they are spam. I am surprised anyone here is engaging them as if they’re legit.


    BR: Yeah, its this little-dicked pinhead named “I am Ned.” (I launched a special present for him this week. What fun!)

  21. Alex says:

    I do not think Paulson & Co. will commit federal money to a Lehman bailout. One of the major risks in the Bear Steans situation was a “run” on the global financial system. This is what happened at Bear: within about two days depositors at Bear liquidated tens of billions, leaving the firm unable to meet it’s short terms obligations without a lender of last resort.

    That situation has to some extent been alleviated because the Fed lends to investment banks from the discount window now, and has set up other programs to provide liquidity to financial markets when needed.

    That said, there is not nearly the motive to use tax-payer dollars to bail out Lehman like there was with Bear Stearns. The liquidity risk to the financial system is not present this time around. Still, apparently Lehman’s assets are perceived to be worth next to nothing. Paulson & Co. ought to let the interested parties figure out what they’re worth. Unfortunately, no one seems to have a clue how to value these types of assets.

    In short, Lehman is not too big to fail, and the Feds won’t keep it from happening.

  22. Eric Davis says:

    I hope there is a chapter in “Bail-out nation”, about how if wall street wants to pull the risk out of everything, by having the government bail them out all the time. It has the Net effect of taking the Reward out of the market.

    Without Risk, there is no Reward.

    besides the RealEstate “footprint” Leh has to have some value as a business. Yes Levered up like a 17 year old with their first credit card. But they do have clients, and ongoing business.

  23. Groty says:

    If LEH files, what is the probability they declare a state of emergency and don’t open equities tomorrow?

  24. Greenspan: Tough Decisions Await In Lehman Case

    Former Federal Reserve Chairman Alan Greenspan says the government may face a difficult choice as it

  25. maspablo says:

    can anyone say what inning we are in ?
    I thought the game went to 9?

  26. philipat says:

    As in the old adage:

    If the Bank owes the financial system 5 Billion dollars, the Bank has a problem.
    If the Bank owes the financial system 250 Billion dollars, the financial system has a problem?!!

    Knowing this truly is the moral hazard. Also, one of the guys who created this mess lives opposite me in Bali, retired at 38. And he doesn’t appear to be hurting too much. Knowing BOTH of these things is why it WILL happen again.