Friday, September 12, 2008

Lehman Brothers: Another Government Bailout?

Many from the world of business are concerned over the situation at Lehman Brothers and for good reason. It was announced this week that the finance giant has gone from being interested in an appropriate suitor to looking dangerously close to needing a fire sale. No worries though, Uncle Sam appears poised to bail them out. Yes, the government is getting ever deeper in the finance industry, with the latest news that Lehman Brothers is in crisis mode and the company's stock continues to shrink in value (over forty percent in the past week). The mortgage situation that has pounded so many companies is now hitting another financial giant.

Lehman Brothers' situation was centerpiece of a discussion on Fox Business this week. Here are some comments from Dick Bove, analyst with Landenburg Thalmann, on the finance company (for more see the video above):

The possibilities of a deal for Lehman:

“I think that there will be a deal and I think that the Treasury’s very interested in seeing that a deal occurs because if there is no deal and if Lehman has to come back to the market on Monday and Tuesday…then Lehman will be in deep trouble and the Treasury will have to step in.”

The type of "deal" we are talking about:

“I actually think that one big bank will do it and I do believe that you change the whole economics of running Lehman if a big bank acquires it.”

WaMu vs. Lehman Brothers

“I have a different opinion on Washington Mutual. I actually think that Lehman is a very good company and I think it has a lot of quality assets. WaMu does not. This is one that I think the U.S. Treasury is going to have to get involved in. I think there’s going to have to be an assisted merger, and I think the Treasury is going to have to come up with money on this one.”

I personally think Bove is only half right. WaMu is a mess as is Lehman Brothers. Lehman is suffering from the continued fall out from the sub prime mortgage crisis and has lost a record $2.8 billion in the second quarter of this year alone. The only way Lehman survives is with government intervention and, with what we have seen from Washington as of late, we can expect it.

However, this is the kind of corporate welfare that average Americans should be alarmed about. Such acts on the behalf of the government were "precedents" a short time ago and are evolving into common practice. Unless there are consequences for such behavior, the "moral hazard" only grows for those on Wall Street and leads those on Main Street to simply scratch their heads.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

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Blogger Chus said...

This is what I think: Lehman Brothers Bankruptcy

1:48 AM  

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