Financial Roulette

Yesterday, Lehman Brothers declared bankruptcy. If you haven’t been in the securities business, it will be hard for you to understand the significance of this action.

Lehman, along with just a few other investment banking firms, has ruled Wall Street for decades. Lehman has always been seen as a blue blood, filled with more intellectual capital and refinement than many of its “boorish” counterparts. They have been able to snub their nose at lesser firms, and walk along Wall Street with its head held high. No more.

The Federal Reserve refused to bail out Lehman, as it has Bear Stearns, Fannie Mae and Freddie Mac. I am sure this sent shivers through the investment community. AIG and Merrill Lynch stood next in line with their hands out. Sorry fellas. This is bleak.

When Merrill realized that the Federal pockets were empty, they quickly sought a new partner, Bank of America, selling for a total price that would have been laughable just one year ago. I’m not sure what will happen to AIG. I was trying to ferret out their financials during the past couple of weeks, and I came to the conclusion that they have so much hidden that it is impossible to predict what will happen. But it would not surprise me if the world’s largest insurance company is the next to fall.

Bank of America has become the quintessential “value investor,” picking up gems like Countrywide and Merrill Lynch at the bargain table. It may well emerge as a global financial behemoth before this all shakes out, provided they have not bitten off more than even they can chew.

Getting your hands around the “dark matter” of mortgage backed securities is like trying to catch fog. You know it is there, but, damn, it is hard to hold. For the country’s sake, I hope BOA thrives. If they don’t, we are in for some very rough sledding.

As of this date, I see a world sitting on the brink of global collapse. No one really knows how close the financial dominoes lie. Will the $150 billion that Lehman owes cause other institutions to collapse? Will the $1 trillion in treasuries that they own be dumped upon a market that no longer wants them?

The U.S. government has emptied the bank of all of its cash. It has taken on trillions of dollars in new liabilities, and it can’t produce more without seriously undermining world faith in our nation’s financial strength. We are perilously close to that point.

So, who is going to pay for all this? You are. Look at your shrinking 401(k) balance and give thanks to Wall Street greed. Big homes were built in Westport and Greenwich on your dime. Lavish parties were thrown at your expense.

Don’t get me wrong. We need a strong Wall Street. But there has always been a sense of entitlement in the financial district, the feeling that the spoils of success were due, even if earned by slight of hand. You will never convince me that no one knew what was really going on for the past half decade or so. Why shoot the golden goose? Just sock away a personal nest full of golden eggs and let the peons pay the bill. The days of living like the 1920s have got to stop. Wall Street should not be the home of Robber Barons. Hopefully, this weekend’s Fed actions will bring this toga party to a close for good.

Greed on Wall Street is not necessarily a bad thing. Greed begets motivation, which gets things done. Without big financial incentives, no one will take the big financial risks that are to create wealth for us all.

But the days of taking unconscionable risks with the little guy’s money do have to stop. Maybe today is the day.

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