The most powerful financial decision makers in the World gathered at the New York Federal Reserve Bank in New York over the weekend and could not reach a deal to save Lehman Brothers.
Here are some key points of the deal that almost was:
(1) A consortium of Major Financial Institutions throw in $3 Billion Dollars each to help absorb the losses of the $85 Billion Real Estate portfolio of Lehman Brothers, to help stabilize the market is those securities.
(2) For $5 Billion Dollars some one could buy just the Investment Bank and Asset Management Business.
(3) No Federal Funding or assistance of any kind is available.
The Banks could not agree on who was going to get the "Good" Lehman Assets, and who would be responsible for losses on the toxic mortgage assets.
Financial firms have started ``netting'' Lehman trades on credit, equity, interest-rate, foreign exchange, and commodity derivatives, according to a statement from the International Swaps and Derivatives Association e-mailed to Bloomberg News.
``ISDA confirms a netting trading session will take place between 2 p.m. and 4 p.m. New York time for over-the-counter derivatives,'' the ISDA said. ``Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time, Sunday, Sept. 14, 2008. If there is no filing, the trades cease to exist.''
Barclays Plc, the U.K.'s third- biggest bank, said it abandoned talks to buy Lehman, contending it couldn't obtain guarantees to protect against potential losses at the U.S. securities firm.
Lehman may be the First Big Well Known Investment Bank that is actually allowed to fail. If the Brokers and Banks can work together to essentially take the other sides of the Over the counter trades they had with Lehman, the damage can be mitigated as much as possible. This is not going to be a pretty solution, however it is practical, necessary, and the only viable option to prevent a serious market meltdown.
Expect Monday to be an interesting day in the markets.
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