MY POINT OF VIEW

 You know the saying "when the going is tough only the tough keep going" ? Oh Yes! What then happened to the 'tough" Lehman Brothers?.

The credit crisis that seemed to have been contained by a few firms after the Subprime  motgage-disaster that also led to a string of financial crisis around the globe has just claim yet another victim.

Lehman Brothers was believed to have survived the March-financial crisis, but little did the public know of its internal health until recently. But when one listens to the insiders who knew the content of Lehman`s shaky deals, you immediately have a  clear understanding of what went wrong.

As Allan and Roddy (writing for the CNN) put it and I quote "to understand what went wrong  at the Lehman Brothers, leave the canyons of wall street and head to the flatlands of Bakersfields, 120 miles northeast of Los Angeles".

There it is believed that the Lehman Brothers got entangled in a couple of bet -deals, most notably that on the McAllister and other real estate plays in Southern California`s inland Empire that costed more than $350 million USD.

With the emergence of the Subprime problems followed by the real estate bubble, it was obvious that any deal of this kind carried enormous risk, amidt the uncertainties still surrounding the financial markets stemming soley from the subprime crisis.

Despite all these, there has been wide spread suspecion of inhouse selling within Lehman Bros, and the active role played by short-sellers who persistently  kept betting that Lehman`s shares price already at very low levels will decline further, and even rumored that the firm will be sold etc. etc.

All these put together were enough catalyst to eject Lehman from its traditional  throne and dump it into the deem light which it finds itself today. There were enough reasons of what became the fate of this firm early Monday morning.

Interestingly, the media is so focused at reporting only on the after shocks of its collapse, without giving enough coverage on the genesis of its troubles.

Until Sunday night, many were still very convinced and some even nursed the believe that the Federal Reserve System (Fed) was going to come to Lehman`s rescue as it had recently done with Fannie Mae and Freddy Mac. But as things turned out, Fed had long signed Lehman`s death Certificate. Fed had carefully worked out a contigency plan for its Bankcruptcy and collapse. Meaning this wasn`t any news to Fed`s inner circle as it was the case with the rest of the world.

However, the chain reaction from Lehman`s collapse seem to have sent out stronger shock waves than  earlier anticipated. The collapse seem to have shaken the base in the sense that , the biggest American Insurance Group (AIG) came close to filing for Bankcruptcy after Lehman`s demise, if a deal to raise $85 Billion USD wasn`t reached within 24 hours starting Tuesday September 16th 2008. I am not saying this came as a direct result of Lehman`s failure.

The danger of AIG collapse was just too threatening fo Fed to contain, given the size and the  complex nature AIG does Business. The spill over effects from its collapsed would have had long damaging consiquencies not only on the US economy, but also the rest of the World.

And then secondly, given the short notice to file for Bankruptcy, the Fed had little time to work out a similar plan as it was the case with Lehman`s Bros. It was a dilema and the only better option from two bad deals was to interven by providing the desparately  needed $85 Billion USD which J.P MOrgan and Goldman Sachs were reluctant to provide as a loan to rescue AIG. Their fear was based on the high risk associated with it.

Another interesting drama that seem to have received little public attention is the smooth and quiet demise of Merrill Lynch. Shortly after Lehman Brothers filed for Bankruptcy, Merrill Lynch complained of suffering from a similar disease, and before the effects could become devastating, it cut a deal with the Bank of America for $50b USD, far below its value.

All these only reafirms how sick the US financial system is. Do not quote me, but what seem to be unfolding in the US financial system is a nightmare, and many more ugly stories are still to unfold. The good news is that  the public will never know how sick any of the remainig "Lizards" are until they are lying flat on their backs with their stomachs facing the sun.

So who will be next to injest this warm? Let us stay put and keep our eyes open while looking out for any symptons of the "Kanka Warm".

For the center to hold, the wall street needs a total restructuring because, business can not and will not go on as usual.