This is going to be the focus tomorrow…buckle your seat belts! Trying to get it right in my head over the weekend wasn’t easy, until Sunday night came and there was no announcement to be made out of the Treasury Dept…here’s my take:
I picked up a couple of different scenarios that sounded possible, but the theme throughout seemed to be that the banking community had to come together and each eat a piece of Lehman’s worst ABS…apparently an altruistic streak runs through all great bankers…wow…What I’m worrying about is that the market has been trading w/ the impression that the treasury will consume the bad deals and coordinate like they did with Bear Sterns. Moral hazard is front and center, since Merrill bit the bullet and sold it’s distressed holdings for 30 cents on the dollar, there hasn’t been another one of these cleansings that has made news since then. The fact that Merrill could find buyers for what it had to get off of its books, means that Lehman can find a market once they decide to stop playing games…all I read is that ABS (CMO, CMBS, CDO, etc) are too complex to compare the holdings of one firm to another…this is a bad argument to use against the government or short sellers who are demanding that the firm mark those assets to market. Once Merrill was able to move its distressed debt to others in the market, the music stopped…no more ragtime
Posted by Al Swearengen in Al Swearengen, Economics