Watching the OTHER big storm - LEH, MER, WM, etc...

Went out last night and saw Chris Onstad, author of Achewood, at a signing event at The Isotope. Man, parking in the city is a fucking pain, but it was cool to rub elbows with other Achewood fans, and see the guy in person. Got a little sketch of Vlad out of him in our copy of The Great Outdoor Fight.

This morning, Jena and I up pretty early; Jena cooked up a hearty eggs and bacon spread with homemade hashed browns, rar! Now lounging around the house a bit, catching up on the financial news, which ain't too good.

So from what I can understand, Lehman Bros is circling the bowl, and if they go down there could be a pretty massive domino effect to other major investment banks. The gist is that IF they go bankrupt, that means all their muddy-value holdings will be auctioned off at firesale prices, just like what happens in any bankruptcy. The rub is that all the other IBs have similar holdings, the value of which is used largely to calculate their company value and overall solvency. So if Lehman suddenly has to sell off all THEIR stuff for pennies on the dollar, that makes the value of everyone else's similar stuff go way down... and with a bunch of these guys just on the brink of assets vs. liabilities insolvency, then... well.

Yesterday and into the wee hours of this morning, Lehman was in talks, arranged by the U.S. Treasury and the Federal Reserve, with Bank of America and Barclays (huge bank over in the U.K.). This was kind of a rush-job hail-mary attempt to arrange a buy-out, to avoid the scenario above (LEH bankruptcy). Sounds like as of 1pm Pacific time, both of these potential buyers have pulled out of a potential deal, and the only folks left in the room are Lehman Bros and the bankruptcy lawyers.

So, if Lehman goes bankrupt, which looks pretty likely sometime today, then we can expect some major winds to blow on Wall Street next week. The last hope for Lehman would be if Hank Paulson, Secretary of the U.S. Treasury, steps up with taxpayer dollars to arrange a bailout or "backstop", similar to what was done recently with Fannie Mae and Freddie Mac. Hey, you want to buy a big massively overleveraged insolvent bank? You already own a bunch of shitty upside-down mortages! Why not! Our kids and grandkids can pay it off down the line.

But, if Paulson tightens the pursestrings on additional taxpayer money, that is, if it's bankruptcy instead of a bailout, then Lehman won't be the last.

Is that a bad thing? It will probably be a HUGE financial meltdown, and things are going to get scary for a while. But my take on this is that it needs to happen, and the sooner the better. I think we've seen the results of massive leveraging and poor (non-existent?) regulation in these big banks and the lending standards which led up to this catastrophe. I don't think adding more money to these institutions is going to get them to clean up their acts, even if we once again enjoyed a huge national budget surplus.

And longer term, housing prices really need to get down to 3x median income - anything more is unsustainable (especially with rapidly rising energy and basic materials costs). And until we stop the bailout plans and "one more hit" addictive behavior on this - until we clean up and finally flush all the shit out of the system - we're just lining ourselves up for an even BIGGER headache.

Anyhow, it's too nice a day to dwell too much on this. The garden needs watering and the compost needs turning. Hope your garden is well, tambien.