Wall Street Casualties

[groovedaddy]

It is oddly reassuring that the Treasury Department and Federal Reserve let Lehman Brothers fail, did not subsidize the distress sale of Merrill Lynch to Bank of America, and tried to line up loans for the American International Group, the troubled insurer, rather than making a loan themselves. Government intervention would have been seen either as a sign of extreme peril in the global financial system or of extreme weakness on the part of federal regulators.

Instead, the dizzying events on Wall Street suggest that the system may be strong enough to absorb the downfall of Lehman and Merrill — though the chaos at A.I.G. seems harder to swallow. However, the stock market’s initial reaction — a brutal drop, but not a Black Monday-style sell-off — offered a ray of hope that the disruptions may be manageable. And, more important, barring the risk of cascading failures, regulators finally seem willing to hold Wall Street accountable for its mistakes.

Lehman’s bankruptcy filing may even provide much-needed transparency to a financial system that has been hamstrung for more than a year by a lack of good information — on who owns what and who owes how much and to whom. Lehman’s creditors and other firms involved in its trades will now have to line up in bankruptcy court, detailing their positions for all to see — and learn from. That did not happen in the spring when the Fed prevented a bankruptcy filing from Bear Stearns to avoid what it said would have been a systemwide failure.

Still, the disappearance in one weekend of two icons of American capitalism has negative repercussions, for taxpayers and for the economy.

http://www.nytimes.com/2008/09/16/opinion/16tue1.html?th&emc=th

[jojo54]

1. I was watching the Bloomberg market channel earlier

It's very confusing as to what to expect because I was hearing speculators say the Fed should drop interest rates and there were others who said it would be catrostophic to do so.

[groovedaddy]

2. Not to mention the report last week that indicated that MOST stocks were

inflated in value by at least 50%. How can that be reported and NOT result in a huge sell off? Telling people to "hold" something that isn't worth its face value is risky business. They're definately walking a tight rope here. I think the Fed is trying to manage perceptions more than anything else.