Saturday, September 13, 2008

Treasury Wants To Unload Lehman's Real Estate

CNBC reports that the feds wants investment banks to pony up cash and split up Lehman's bad real-estate purchases. However, the idea has gone over like a lead balloon:
On Friday night, after the government finished out what one person with knowledge of the discussion described as the Fed's 'LTCM Plan,' an executive in the room pointedly asked, 'What happens when there's another one?'

People with knowledge of the matter say the government provided no real answer other than to point out what they've been saying for the past three days as Lehman began to implode and look for buyers: There will be no government bailout of the firm, and if the street doesnt do something to help in the process, such as buying Lehman's bad assets, a deal to sell the good part of Lehman will be difficult to complete.
Indeed, what happens when the next one hits?

It is not a question to be taken lightly. If the Feds can't get Lehman sold, then it will be unwound next week. And what would that look like?
If Lehman is not sold, most analysts conclude it will likely be forced to file bankruptcy possibly as early as the end of this weekend. A bankruptcy filing could be catastrophic for the markets, given the size of Lehman's balance sheet. Billions of dollars in trades would effectively be frozen, something that would almost certainly cause massive selling of stocks.

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