Sunday, September 14, 2008
Lehman Trades Netting
My take on this is very simple - I don't believe that these firms have the capital to support all this themselves. The day of reckoning is nigh. My guess is that Lehman will end up filing and parts of it will be sold as part of bankruptcy proceedings, but we'll see.
I don't think the Fed will cut rates soon, but many disagree. I think the Fed will do everything but cut rates, because they know they need to conserve some ammunition for later in the downturn. I also don't think the Fed is going to guarantee assets for buyers.
FDIC reserves (post-IndyMac) are about $45 billion, if I recall correctly. A WaMu seizure would wipe most of that out.
I don't think WaMu can hold on. It will have to sell itself piecemeal to try to pull in capital, but once your flagship business line (mortgages) is gone, what do you sell? Retail branches, which has been discussed. But that is cutting off the way you access new capital.
It's got to merge.
A thought also occurred to me tonight: We've never seen a debit-card bank run, and if things go to a full-blown panic, we will. The process of a bank run may be a lot faster than we expect. The FDIC had best be prepared to move very quickly indeed.
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