Some good news!

[Tulpen]

Right now the markets are tanking, Lehman filed for bankruptcy, AIG is down over 50%, it all looks very bad. But I think there is actually some good news here. The good news is that Lehman was let to fail. This failure will immediately set a new marker for banks and other financial institutions: get your financials in order right now or fail.

Up to now no financial institution wanted to really make any significant moves because they relied on bailouts from the Fed or the theasury, with the result that nothing changed between last year and now.

Now times are changing, just look at the Bank of America and Merrill Lynch merger. At first I thought it was a red herring to divert attention from Lehman's bankruptcy but in retrospect it is seems a good move. Merrill is realizing it has got act now before it will go the Lehman way.

The market is likely going to tank hard in the next few weeks but once the failures are out and the mergers are in I think we are out of the woods with regard to the instability of the financial system. It doesn't mean our economic problems are solved, but the financial crisis is.

[Spartacus]

IMHO it still looks, with the new initiatives announced over the weekend, as if the FED is trying to surgically remove marked to model assets so the financial system looks healthier than it is

This will allow the toxic credit products to float around in the supply longer

Just because some paperwork has been filed with the bankruptcy court does not mean the mess will be brought out into the open.

[Tulpen]

This time they got it right, the line has been drawn in the sand:

""Moral hazard is something I don't take lightly," Paulson said, referring to the belief that when the government steps in to rescue a private company it encourages other companies to engage in risky behavior."

http://biz.yahoo.com/ap/080915/paulson_markets.html

[vcif]

Anyone have any idea why Lehman, specifically, was allowed to fail?

[grapejelly]

Fannie and Freddie were allowed to fail too. If you were a common shareholder you were wiped out, were you not?

Do you think that Lehman's guarantees to counter-parties are going to be allowed to sink those same counter-parties? I don't.

This is just window dressing. Sure, the shareholders will be sacrificed, big deal. Everyone else will be rescued by the helicoptors. Or am I viewing this in the wrong way?

[vcif]

Fannie and Freddie were allowed to fail too. If you were a common shareholder you were wiped out, were you not?

Do you think that Lehman's guarantees to counter-parties are going to be allowed to sink those same counter-parties? I don't.

This is just window dressing. Sure, the shareholders will be sacrificed, big deal. Everyone else will be rescued by the helicoptors. Or am I viewing this in the wrong way?

that's why I was asking. What about the counter party risk? Is that going to be dealt with through some other mechanism/deal?

[Tulpen]

This time they got it right, the line has been drawn in the sand:

""Moral hazard is something I don't take lightly," Paulson said, referring to the belief that when the government steps in to rescue a private company it encourages other companies to engage in risky behavior."

http://biz.yahoo.com/ap/080915/paulson_markets.html
The Fed decided not to cut, while stunning and surprising it does indicate that the line has definitely been drawn.

Financial institutions had approximately one year to get their act together with ample help from the Fed. That did not help for some at least, so now the only way to get this problem behind us is to let die what is going to die and let live what survives.