As Lehman talks falter, BofA suddenly eyes Merrill Lynch

Wildness on Wall Street on a Sunday afternoon: Amid reports Barclays had walked away from eleventh-hour talks to buy faltering Lehman Brothers, traders prepared for the possibility of a possible bankruptcy filing by Lehman Brothers, according to numerous reports Sunday. To complicate matters, and potentially calm roiled markets, there were also reports that Bank of America had entered into talks to buy Merrill Lynch.

Links, headlines, and highlights:

Barclays walks away from Lehman talks, making liquidation of Lehman likely, from the Wall Street Journal: "The fate of Lehman Brothers darkened early Sunday afternoon with Barclays PLC, the sole remaining bidder for the 158-year-old Wall Street firm, telling federal regulators that it is walking away from a transaction, people familiar with the matter say.

Why did Barclays walk away? Here's a big part of the reason: The Bush administration wouldn't budge on its no-bailout-this-time pledge. Barclays wanted some federal help; the Bush administration wouldn't give it. From Tom Petruno's Money & Co. blog:

Barclays abandoned its bid after the government refused to financially guarantee any of Lehman’s troubled assets, according to a person familiar with the matter

Wall Street braced for a possible Lehman bankruptcy filing, from Bloomberg: "Wall Street readied for a potential Lehman Brothers bankruptcy after Bank of America and Barclays PLC pulled out of talks to buy it and the government indicated it wouldn't provide funds to prevent a collapse."

Bank of America eyes Merrill Lynch, from The New York Times: "Bank of America is in advanced talks to buy Merrill Lynch for at least $38.25 billion in stock, people briefed on the negotiations said on Sunday, as a means to preserve that investment bank while Lehman Brothers looks likely to collapse.

What's the connection to housing? The bursting of the housing bubble exposed the bad loans that have rocked Lehman Brothers and weakened the numerous banks that otherwise would be in a position to save Lehman tonight. It's all connected, folks. And until housing prices find a bottom, it's going to be difficult to measure the losses these big firms are holding on their books.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles

Comments

[Mike P.]

So... in the space of a few days, we have Fannie and Freddie "nationalized" (what a joke), Lehman going under, Merrill possibly 'merging' into BoA, WaMu getting taken over by JPMorgan Chase, and AIG calling an emergency Monday conference to raise capital, somehow.

Oh, and Greenspan basically called what's occurring a "once-in-a-century' event... which I think means he's basically calling it worse than the Great Depression. Would that make it the Next Depression? The Maestro is such a kidder!

Plus, the Alt-A tsunami is just starting, and it will hit California, hard.

[Crash and Burn]

OK,

Since the "Great" depression is already taken I have taken the liberty to come up with some possible names for the one pressed on to us:

1. Bush II
2. Tropical Depression George
3. I wonder what would happen if you put George Bush and the Republicans in charge for eight years?
4. Georgepression
5. No Regulation Depression Blues
6. Shift Losses from One Giant Failing Company to Another and Hope No One Notices
7. “Rep”pression“uplican” II (how come they never take their due credit for the Great Depression?)
8. The Bush Depression

[Crash and Burn]

Who would have thought that something so modest as a real estate blog would go on to chronicle the fall of American Financial dominance and the rise of Oligarchy in America? I guess that's the power of the Internet.

Maybe Europe can have another war so we can catch up again. Any takers (I’m looking at you Russia, Finland is looking pretty good right now I bet)? China, I heard India said your olympics sucked and “chick” medals don’t count.

[bananas]

The sky is falling! Run for the hills!

In all of this, it's easy to forget that the reason all this Wall St meltdown madness is happening is PRECISELY because of that $35k/yr. guy who bought the house next door in 2002 with exactly nothing in his bank account and no money down, who gussied it up and sold it for $750k when the market had it at $550k, because the same bank that lent him the money was lending the buyer even more. The lenders destroyed the value of THEIR OWN assets!

At the end of all this, lenders will be reverting to tried and tested lending standards that worked for decades, and we should be back to where we started - with a reasonable mortgage being considered as about 2.5 times your annual income, and with 20% down needed.. Which should put the average house back into the half-million dollar territory. It's not like salaries have increased in the past six years....

[Bryan Morris]

It would be nice to believe that in the wake of this, the mother of all speculative bubble burstings, that people will remember the who, why, and how of it and finally demand an end to allowing a few people at the top from putting the rest of us through these increasingly disastrous boom and bust economic cycles. But I doubt it. Every single one of these things can be laid at the feet of the "Chicago School", deregulation uber alles, laissez-faire, libertarian/objectivist morons who have controlled our banking, investment, and fiscal policy ever since Reagan took office. Someone really should dig Ayn Rand up and put a wooden stake through her heart.

[fezco]

Pete,
Thanks for putting in the weekend hours to bring us this information.
Fez

[RichW]

Which bank will get run on first, Washington Mutual or Downey S&L ? A week ago I would have said Downey however WaMu went from bad to worse over the last couple days... Opinions anybody ?

[jake d.]

I am thinking that shopping may be passe as a national pastime in a little while. Also, keeping a job may become as prestigious as buying a house was a year ago, even if you have to declare bancruptcy. Maybe this turns the nation more to manufacturing, but then again it all depends on the owners of the place, maybe they will need us to go to another war that will look useles to us as the last one, yet it's vital to their grip of world power. it is starting to look more and more like a hurricane, so if you can't prevent it, take it easy and enjoy it. There is little mention so far of the pension funds and how they are being affected by all this destruction of paper wealth. My biggest concer, though, is that all these housing units will end up being owned by corporations and then be leased to us at an inflated price. THAT would be a real coup de grace. Nothing to do but enjoy the weather. Imagine all this happening to us in Minnesnowta!

[Mike P.]

The Fed's loan window (aka Pawnshop of Last Resort) will now takes any 'investment-grade' equities as collateral, while AIG is making a last-ditch desperate plea for federal assistance (which I suppose it will get). Plus, banks have put some money aside ($70B) to help with 'liquidity'... It's amazing that these Wall Street 'experts' still haven't figured out this has never been about liquidity, otherwise the fed's windows would've solved everything. It's always been about solvency. And speaking of solvency, WaMu is looking pretty bad these days...

As far as naming things, people only called it the Great War until the second one occurred, when they were renamed WWI and WWII.

[cane]

Peter, you're blog as devolved into a caricature of The Fountainhead. Ellsworth Toohey ... Peter Viles "One Small Voice". Once the presses stop, where will you go?

[Laker]

RichW wrote: "...Which bank will get run on first, Washington Mutual or Downey S&L ? ..."

RichW,
It does not matter. They are both gone. I was sure it will happen this week, but the fed and Wall Street have agreed that evey weekend will be devoted to one problem.
Two weeks ago, there was some nevada bank. Last week Fannie and Freddie bailout. This weekend it is the Lehman bro. So, i guess next weekend will belong to WAMU...or DSL....

[mbob]

Pete, I hope you are crafting a book out of all this.
+1 on gracias for the horas de trabajo on a Sunday, no less.

Bets on what kind of voodoo incantations, snake handling and blustering will go on Monday to allay all our (irrationally exuberant) fears?

[E]

Perhaps it is time for people to *significantly* lower their prices in the 1MM+ range. Better to walk with something rather than nothing.

[The original RZ]

Anyone else worried that BofA is going to become the banking monopoly of the U.S.?

[ray]

Lehman exec's made out like bandits, $9.5 Billion in bonuses. That's Billion with a "B".

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajI8xAslBPLc&refer=home

The Bush's Fasict Republican Croonies made out like bandits too.

http://www.reuters.com/article/fundsFundsNews/idUSN3046902620070830

Hey, so long as the Republican wolves in sheeps clothing is talking about "family values" while they rape and pillage, everything is okay.

[Nelcisco]

original RZ asks if there's anyone worried that BofA will be the banking monopoly in the U.S.

RZ I thought the same thing for a minute but immediately shifted my thinking when I thought, better BofA which is headquatered out of Charlotte, NC than some bank in Peking, China in Arabia

[The original RZ]

Nelcisco, I agree, but I'm shuddering just thinking of all the high unnecessary fees BofA will be charging just because they'll have little or no competition.