Qtrade and STI:

Thanks for the reply. I don't like Cramer either, but I started drooling when he covered this commodity crush and the possible depth of the declines. I am tired of oil changing everything, but great point in not jumping right in. I appreciate both of your feedback and expect zigzagman to agree with both of you.

I agree on the market's overall bearish direction. However I'd try to avoid basic materials or at least wait for a spike and short them on reversal. Materials have fallen pretty hard already, and are now much more sensitive to oil's gains than to loses. For shorting, I'd pick some previous gainers except the 'too obvious' losers as commodities/oil have been recently.

DECK - Yes, that sort of stocks.

U.S. Stock Futures Tumble on Lehman Bankruptcy Speculation

By Allen Wan

Sept. 15 (Bloomberg) -- U.S. stock-index futures tumbled on concern a potential Lehman Brothers Holdings Inc. bankruptcy will add to banks' $514 billion of subprime-related losses.

Federal Reserve and U.S. Treasury officials met in an emergency session as Barclays PLC abandoned talks to acquire Lehman, the fourth-largest U.S. securities firm until last week. Bank of America Corp. also ended takeover discussions, according to a person with knowledge of the matter.

Standard & Poor's 500 Index futures expiring in December retreated 38.90, or 3.1 percent, to 1,219.60 at 6:07 p.m. in New York. The benchmark index for U.S. equities declined 15 percent this year, led by a 28 percent plunge in financial companies.

``The collapse of this deal casts a dark cloud over Wall Street,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``It also sends a message that the government is getting out of the bailout business and makes financial institutions like AIG and WaMu look even more vulnerable.''

American International Group Inc., the largest U.S. insurer, plunged 46 percent last week and Washington Mutual Inc., the country's biggest savings and loan, dropped 36 percent on concern about their financial health.

Barclays, the U.K.'s third-largest bank, and Bank of America, the biggest U.S. consumer bank, were among the leading candidates to acquire all or parts of New York-based Lehman.

Lehman has lost 94 percent of its market value this year, closing last week at $3.65, after record losses from investments tied to mortgages.

The dollar fell 0.6 percent to $1.4302 per euro at 6:53 a.m. in Tokyo, from $1.4224 in New York late last week.

Merrill Lynch

Bank of America is in merger discussions with Merrill Lynch & Co., people with knowledge of the negotiations said. Bank of America spokesman Scott Silvestri declined to comment on Merrill.

AIG will announce a restructuring plan tomorrow that may include the sale of assets, the Wall Street Journal said without citing anyone.

As the prospect of a Lehman bankruptcy loomed, banks and brokers held a special trading session for netting derivatives transactions with Lehman, or canceling trades that offset each other. The trades would be canceled if Lehman doesn't file bankruptcy by midnight in New York.

Lehman lost three-quarters of its value last week amid signs that the U.S. government may not provide the funding that enabled Bear Stearns Cos. to sell itself and avoid bankruptcy.

``I could see Lehman's shares fall into the Fannie Mae and Freddie Mac range,'' said Dickson. Fannie Mae and Freddie Mac dropped below 75 cents a share after the government announced plans to put the two largest mortgage finance companies under conservatorship.

WaMu Report

Washington Mutual may cost taxpayers as much as $24 billion in the event of a U.S. government bailout, Richard Bove, an analyst at Ladenburg Thalmann & Co., said. The federal government may have to provide that much in mortgage guarantees in order to attract a buyer for the Seattle-based bank, Bove said.

``You may get an assisted merger with a limit on how much the private buyer would pay for the bank with the government giving a guarantee for the rest,'' Bove said in an interview with Bloomberg Radio.

Former Federal Reserve Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime- mortgage market last year ``is probably a once in a century event'' that will lead to the failure of more firms.

The S&P 500 Index rose 0.8 percent to 1,251.70 last week for the first advance since the week ended Aug. 15.

Companies:Morgan Stanley | JPMorgan Chase and Co | Lehman Brothers Holdings Inc
By CNBC.com With Wires | 14 Sep 2008 | 10:32 PM ET
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The U.S. financial system was badly shaken Sunday by the expected failure of Lehman Brothers , the surprise takeover of Merrill Lynch and big asset sales by major insurer American International Group.
AP

The developments indicate that chief executives on Wall Street and regulators in Washington are accepting that massive triage is necessary in the face of the 13-month old credit crisis and destructive U.S. housing bust.

"The U.S. financial system is finding the tectonic plates underneath its foundation are shifting like they have never shifted before," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey."It's a new financial world on the verge of a complete reorganization."

Growing expectations that Lehman will become Wall Street's most high profile bankruptcy since junk bond specialist Drexel Burnham Lambert collapsed in 1990 sparked a sell-off in U.S. asset prices.

Both US stock futures and the dollar plunged in reaction to the turmoil on Wall Street.

"It appears that Lehman [LEH Loading... () ] will file for bankruptcy and the risk of an immediate tsunami is related to the unwind of derivative and swap-related positions worldwide in the dealer, hedge fund, and buying universe," said Bill Gross, chief investment officer at Pacific Investment Management Co (Pimco).


Sunday's events signalled a transformation in the power structure on Wall Street with major banking groups like Bank of America [BAC 33.74 0.68 (+2.06%) ], which has agreed to buy Merrill [MER Loading... () ] for $43.5 billion, and JPMorgan Chase [JPM 41.17 -0.48 (-1.15%) ] becoming more dominant.

If Lehman and Merrill disappear, then three of the top five U.S. investment banks would have dissolved or been bought inside six months. Bear Stearns was acquired in a fire sale by JPMorgan in March.

The focus early Sunday was on whether talks between regulators and Wall Street's top bankers would lead to the sale of Lehman, until recently the No. 4 U.S. investment bank.

Those talks faltered when Britain's Barclays, which had appeared to be front-runner to take over Lehman -- excluding its toxic mortgage-related assets -- said it had pulled out of the bidding.

That triggered expectations the investment bank was heading into bankruptcy and prompted a rare emergency trading session to allow Wall Street dealers in the $455 trillion derivatives market to reduce their exposure to the firm.

Within hours of Barclays withdrawal, Merrill agreed to be sold to Bank of America. And AIG [AIG 12.14 -5.41 (-30.83%) ], until recently the world's largest insurer by market value, was expected to sell off assets, including a profitable aircraft leasing arm.There were signs of attempts by banks and regulators to try to prop up market confidence.

To help provide liquidity, the Federal Reserve said it would accept a wider array of securities as collateral at its key borrowing windows.

"The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets," Fed Chairman Ben Bernanke said in a statement.

Banks Set up $70 Billion Borrowing Facility

Ten Wall Street banks have also agreed to set up a collateralized borrowing facility, and committed to fund for $7 billion each.

The banks are Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS. These banks have said they are committed to fund $7 billion each for a $70 billion collateralized borrowing facility.

The banks add that they are working together to assist in maximizing market liquidity through ongoing trading relationships, dealer credit terms and capital committed to markets. This will also facilitate the orderly resolution of OTC derivatives exposures between Lehman and its counterparties.

All ten banks say they all intend to use expanded federal reserve primary dealers credit facility this week. The banks say their actions reflect "extraordinary market environment".

Merrill, AIG and Washington Mutual [WAMU Unavailable () ], the biggest savings and loan institution -- which was the subject of conflicting reports Friday about whether it was in advanced talks for a sale to JPMorgan -- all face similar problems.

They have all held large amounts of real-estate related assets that have fallen sharply in value. Shares of all three lost more than one-third of their value last week.

The perception is that the losses they have disclosed are far from enough, and that they will have difficulty in raising new capital.

One of the catalysts for this weekend's events was the stance of U.S. Treasury Secretary Henry Paulson. He was strongly opposed to using government money in any deal aimed at resolving the Lehman crisis.

The lack of such government guarantees was the main reason Barclays decided to exit the negotiations to buy Lehman, according to a person familiar with the matter.

Emergency Sunday Trading Session

An emergency trading session was set between dealers with Lehman Brothers counterparty risk involved credit, equity, rates, foreign exchange and commodity derivatives, the International Swaps and Derivatives Association said.

"This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in today's highly disrupted financial markets, the unthinkable is thinkable," said Mohamed El-Erian, CEO of Pimco, the world's biggest bond fund.

Market sources said the special session was initiated by the Federal Reserve, with the aim of reducing risk associated with a potential bankruptcy filing by Lehman Brothers.

"Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time Sunday," said the statement. "If there is no filing, the trades cease to exist."

The special session "is a way to offset the risk between the remaining large banks and insurance companies and fund managers prior to the markets opening in Asia," said Mark Grant, managing director of structured finance at Southwest Securities, based in Dallas.

Grant is expecting a turbulent session when the U.S. markets reopen for business on Monday.

"The market is going to be spooked. People will be fearful and no one outside a very small group of people knows what Lehman going into liquidation will mean."

Lehman has been collapsing under the weight of toxic assets, mainly related to real-estate, that are now worth only a fraction of their original prices.

The crisis at Lehman presented a delicate balancing act for Paulson and the Federal Reserve, who have urged Wall Street chiefs to come up with their own solution. So far this year, the government has sponsored rescues of Bear Stearns and mortgage lenders Freddie Mac and Fannie Mae.

The authorities don't want to be accused of encouraging excessive risk-taking by bailing out another yet another investment bank.

The Fall of Lehman Brothers

Current DateTime: 08:18:02 14 Sep 2008
LinksList Documentid: 26709876



But they also cannot afford to let a blow-up of Lehman paralyze the financial system and deepen the credit crisis.

"Anyone else who has these toxic assets, if they haven't made a full confession, they better do it now," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati, Ohio, which has $2.9 billion of assets under management. "These assets may be hard to unwind, but they can unwind your firm. Lehman tried to deny reality until the bitter end."

Bankruptcy would mark an ignominious end to a once-proud firm, founded by cotton-trading German immigrants 158 years ago. It would also badly tarnish the reputation of CEO Dick Fuld, who has insisted that his firm could work through its problems to survive as an independent entity.

Former Federal Reserve Chairman Alan Greenspan said Sunday he suspected "we will see other major financial firms fail," but added that this did not need to be a problem. "It depends on how it is handled and how the liquidations take place," Greenspan told the ABC program "This Week." "And indeed we shouldn't try to protect every single institution.

The ordinary course of financial change has winners and losers." Hundreds of Lehman employees went into the office on Sunday to clear desks and pack personal belongings, according to an employee.

Many even opted to say their farewells with one last office soiree. "We are having pizza and beer," said one Lehman employee, who declined to be identified.

The news on Sunday was a huge hit to an already wounded financial jobs market, and a dent to New York's claim to be the pre-eminent world financial center.

Headhunters and consultants said the talent-flush U.S. market -- which has shed more than 100,000 financial-sector jobs this year -- must now brace for up to 50,000 more.

— Reuters contributed to this story

Zigzagman:

Do you think the market is going lower from here and if you do, any idea on the timing?