Thursday, May 17, 2012

Lehman Brothers: The Rise and Fall of Lehman Brothers. A History that Goes Beyond the Great Depression.

Lehman Brothers, an investment bank that dates back to 1850, prior to the Civil War has now filed for bankruptcy. A storied institutions that has survived two World Wars, the Great Depression, and practically every other calamity in its 158-year history is no longer solvent. As of 1am on September 15, 2008 the investment bank announced that it would file for Chapter 11 bankruptcy protection.

This astonishing news comes during a weekend when most of the market on Friday was expecting that someone would surely come to the table to help the firm. Whether it was a private purchase or a government sponsored bailout like what occurred with Bear Stearns and JP Morgan, bankruptcy was not expected by many. Early talks indicated that Bank of American and Barclays were in close talks to take over the troubled investment bank. The Federal Reserve which aided in helping the Bear Stearns deal and the U.S. Treasury which just last weekend entered into the biggest bailout known to humankind by aiding Fannie Mae and Freddie Mac both seemed unwilling to come to the aid of Lehman Brothers. I am sure as time goes on more and more details will emerge as to why this occurred.

Bank of America in an unprecedented move went ahead and managed to get their hands on Merrill Lynch for a stunning $29 a share deal. It is stunning enough that Bank of America went after Merrill Lynch especially given that the Friday close per share value was $17. This is the same Bank of America who recently completed its take over of troubled mortgage lender Countrywide Financial. If you recall the deal, BofA offered a higher share price than the current market price for Countrywide but only months later, implied that they would not be back stopping all the debt of Countrywide. The Federal Home Loan Bank had extended a stunning amount of loans to Countrywide so it is yet to be seen how things playout with the Merrill Lynch purchase since the fate of Merrill was very likely going to precede that of Lehman Brothers. Read more..........

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