Lehman and Merrill

OK – this is old now. I wrote it early this morning, and the world changed egain, but hey! Why should I not post it?

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At the end, it did happen. A “major” financial institution has gone bust. So the FED has sort of “saved the face” with regard to Moral Hazard. Merrill would have probably been next according to market rumors, if BofA didn’t merge with it. This merge probably spared the equity market a 10% drop on Monday. It stopped at -4%. AIG has been able to buy some more time with long term loans at quite high interest rate. Morgan Stanley appears in the middle of the storm right now. The investment banks business models is no longer working, so I wouldn’t be surprised if it ends up being bought by somebody. Goldman plays in Morgan’s same league. No more independent investment banks? Quite possible.

It’s crisis after crisis, and the US financial landscape has dramatically changed in just a weekend. The market is loosing its nerves, and the DOW alternates days of -4% and +2%. It’s getting fairly hot, but not too much hot yet. The crisis hasn’t fully spilled out to the real economy, it has just started, so this might not be the bottom.