Shakeout In The Financial Sector
Sep 15th, 2008 @ 4:59 PM by Alden Smith
It is appropriate tonight to report on the fall of Lehman Brothers, who I posted on Friday night. The evening news was conducted from CNBC headquarters tonight to discuss the fall of Leham and others. Wall Street took a tremendous hit today, falling over 504 points, and the biggest fall in history. All this bloodletting is due to the financial news on LB, Merrill Lynch and AIG.
Last night just after midnight, LB filed for bankruptcy in Federal court. Shares of LB were down 93% today off its January peak. According to The Associated Press today, they had waited too long to seek financial help from the government. The Fed made it clear that there will be no bailouts that tax the already huge tax burden on the public after the Fannie & Freddie upset.
Daniel Alpert, managing director of Westwood Capital LLC, had this to say: “The first losses in a crisis are usually easier to take. It’s the last losses that become debilitating because the well starts to run dry. There just isn’t a lot of cushion left.”
Lehman posted a $4.2 billion profit in its fiscal 2007 and opened the first quarter of this year with earnings of $489 million. Its health looked good. What we didn’t see was the company put out millions of home loans to people who either had bad credit ratings or lacked adequate income to qualify for the money under traditional underwriting standards. They had invested heavily in a country-club community in Bakersfield, Calif. That development is in limbo to this day. When the faulty loans begin to reset, and people started to lose their homes, the trouble begin.
Lehman posted $7 billion in losses in the past six months alone.
The fall of LB and others means that investors have lost billions in the marketplace. Jobs lost will run in the tens of thousands. Consumer confidence? There isn’t any. The incoming President is going to have his hands full with this one.