A few hours ago, we went over the most recent report on the Lehman talks sponsored by the Fed (the Wall Street Journal had a remarkably detailed account), and it seemed as if the obstacles to getting a deal done were considerable. Although there was discussion of forming a “good bank/bad ban” structure, it sounded unlikely to fly. One of the suitors, meaning Barclays or Bank of America, winds up with the good part, and the Wall Street firms (which may include BofA0 pony up some equity to capitalize the bank bank.
One didn’t have to read much into the Journal story to see the idea faces obstacles that may prove insurmountable.
The problem, though, is getting enough banks to back that plan. While teams of bankers are working through structures, it’s clear that only a handful of banks are in a position to provide enough funding. Many banks are inclined to preserve capital ahead of third-quarter and year-end cash preservation moves. Also, banks aren’t keen to see a big rival such as Barclays or Bank of America walk away with valuable assets by only paying a pittance.
Yet that idea is going forward, at least as CNBC tells it. However, this may be a matter of form, to present the assembled bankers with more fleshed-out versions of their options as a preliminary to trying to force a resolution.
From CNBC:
A deal has been drafted to buy Lehman Brothers’ bad assets and clear the way for an eventual sale of the troubled firm….Under the terms of the proposal, which could still blow up, all the major Wall Street firms would pitch in $30 billion total to purchase Lehman’s bad real estate assets and create what’s knows as a “bad bank.”
The proposal is being drafted Saturday night and will be discussed Sunday morning, according to sources close to CNBC. If Wall Street agrees on the terms, which would amount to around $3 billion per firm, it would clear the way for the sale of Lehman Brothers itself to one of several suitors, including Bank of America, Barclays Plc and HSBC.
Executives remained less than pleased with the proposal as they left the New York Federal Reserve around 6 p.m. to convene again Sunday morning….
“Why should we give up capital so Barclays and Bank of America can buy a clean bank,” said one Wall Street executive.
Despite the grumbling, those in the know expect the deal to get done Sunday….
One Wall Street executive involved in the meetings put it this way: “I’m thinking logically; if they do nothing it’s Armageddon. That means they do a deal. It will be announced at 6 p.m. (ET) Sunday.”….
But with firms like Bank of America and Barclays refusing — at least so far — to budge on their position that they will only buy Lehman without the beaten down real estate assets, and the street balking on the government plan, which calls on the big firms to chip in a total of around $3 billion to purchase the Lehman assets, people with direct knowledge of the meeting say a deal may not get done.
The complicating factor here is that the participation of all (presumably ten) banks is crucial. In the LTCM rescue, the number of firms involved was much larger (my recollection is 24), so the defection of one would not greatly increase the burden on the rest. Even so, Bear Stearn’s refusal to participate was widely resented and many believe it contributed to the firm’s failure. Here, one holdout could produce a deadlock.
Jojo 
Posts
Synthetic rescue versus the reality of armageddon?
This race, conditioned on duress, conditioned by a state of chaos, is a race to manipulate some unknown outcome in casinos generally located near Japan. What exactly is being prevented or preserved, and what action has to be forced into another exercise of extortion and blackmail? Is there something the market in japan represents other than it being a symbolic casino that manages speculation for people that make bets? Is Japan just a way to set the clock and buy more time for fraud, or is there a reason that we have weekend panic attacks from our government, which now runs predictably low on adrenaline injections and thus seems to be incapable of sustainable planning for the future. This looks more like attention deficit disease, along with drug addiction, and at the very least, this looks like pathetic gambling addiction and misappropriation of funds and malfeasance (for starters). Is it any wonder that all future value from this mess decreases every time these bafoons make another move?
The most sickening aspect of this destruction is the corporate denial and oblivious nature as to why this is happening or why they are involved in this catastrophe which is based entirely on their greed. This is like watching a bunch of drug addicts pick through the garbage for used needles, while the police drive by and ignore the depravity-like cancer that is beyond their control and so obvious as to be beyond salvation. These meth addicts, called corporate bankers are as self-serving as any drug lord that uses power to abuse law, power to make the next bigger deals — these financial meth dealers have nothing in mind besides the next round of option grants and bonuses which they will kill to get!
This is not a rescue in any realistic form, it is armageddon in motion!