ΒιΆΉΤΌΕΔ

My God, is there an end to all this? Hold on to your hat Robert.

Looks like another blow for the bubble entry book keeping system on which banks have come to rely for their bone usses ,which explains why they seem to get bigger despite the blows to their inflated digits or is it all just virtual banking with virtual money leading to salivation over virtual wealth .

IS anything real about bankers lives , or are they also married to plastic inflatables imported from japan that are programmed to repeat adnauseum"hello my darling ,how about a quick bonus"

And presumably some hedgefunds continue to prosper from this debacle.
How soon before folk realise that Mr Average Joe Public is going to pay for all this?

said it before and I'll say it again - : Lehman won't be the last, not by a long chalk

"But, for the avoidance of doubt, this firm is not bust nor seems in imminent danger of collapse."

Robert, is this a touch of conscience after the disaster your reporting of Northern Rock caused? You said something similar about another institution earlier in the week?

Bit late now for NR, but it's nice you can learn from it!

Day by day it deteriorates and at a faster rate than they can restructure the bad debts.
If this is what it's like at the beginning and we have a long way to go yet what on earth will be left at the end of it all.
I remember the pictures of the soup kitchens in the depression of the thirties. No doubt we will see many more re-runs on TV in the coming months.
Never mind! Hope still runs high because after all things did get better eventually.
Just a shame no one in the financial world took note of history and its awful habit of repeating itself.

Another dying swan

Re 3 - Joe Public is only paying for it because the nominally capitalist governments he voted in are capitalist on the profits and socialist on the losses. If the governments left banks to fail, the bankers take the pain. If they bail them out with tax-payers' money, the pain is spread around everyone. Blame the government before the banks - the banks were just stupid; the governments are doing a reverse Robin Hood.

Robert - Lehmans are toast... Bear Stearns was worth $80/share all the way until it was suddenly worth $9/share. With horrible assets and a dismal reputation, there's no hope - they're already selling off most of the business (or planning to...)! Sooner the better, but unfortunately, as has already been posted, this is a slow-motion train crash.

A bit off topic, but I heard some of A Darlings TUC speech and one thing that stood out was his call for public service workers to accept a 2pc pay rise as it was β€œin line with the governments inflation target”. As we are now running at (depending on the source you use), conservatively, double this target at 4pc, what would the incentive be to deliberately take a pay cut for those involved? The government cant force a return to 2pc inflation, or they would never have exceeded their target in the first place? Obvious I know!

If the β€œordinary” worker is already running with a 2pc deficit, then they will always ask for a 4pc increase to match inflation, it’s only human. Especially in the light of MPs own rises.

That inflation will rise to 6pc when 4pc rises are agreed won’t occur to the staff β€œat the coalface” who are already feeling the pain in their pockets!

Darling needs to stop telling people they shouldn’t ask for more because it has anything to do with a government target and more because the country can’t afford it!

UK plc is already massively over extended, with or without the credit crunch!

Why do we bother with anything Peston writes, bear in mind he is on big bucks so has to write something every few days.
No point in replying to this as America does not seem to know what Lehman is all about so why are we and Peston bothering.
Sort out our own mess Peston not just write for write sake just to justify you fat salary.

I think there seems to be an expectation abroard that the credit crunch is some sort of one night stand: it happens, it is regretted and we all move on.

There will be no moving on until all the skeletons, nasties, ghoulies and ghosties have been washed out of the balance sheets. Since it took over ten years to build the bubble we have a long way to go before normal business can be resumed; always assuming that it can resume. So confidence will continue to wobble and the weaker institutions go to the wall.

The issue to me seems to be how inflated are the markets? In my view they remain too high, expectations continue to turn optimistic at the slightest good news. I don't think the financial market insiders understand where they are and how they got there. Nothing will change until lessons are learned and sentiment adjusts.

From where I sit in the real economy the horizon looks distinctly gloomy for at least the next eighteen months. I cannot see further than that which is worrying.

The deflation of a 30+year bubble in housing, and it will not be pretty.

But, we will survive, hopefully with some lessons learned.

Back in the troglodyte days, before the MBA's and JD's from the Ivy League took over our financial system(with the collusion of Congress), this is how home ownership worked:

An individual or family worked very hard, lived frugally, and built a trustworthy relationship with a local bank. They saved for a down payment(or perhaps family helped out), and went to the local bank for the mortgage. The local banker, investing the capital of the shareholders(also local) and the cash of the depositors, reviewed the property, and the applicants, and decided whether this was a good idea for all parties.

When the mortgage was approved, the family moved into the house, continued to live frugally, etc., and raised children in the house. At some point, with retirement, or job move, or death, the house would sell(usually at a modest profit, adjusted for inflation), and the process repeated.

Mortgages lasted seven years, fifteen at the outside. This kept housing prices down, and risk low, for everyone.

The cash flowed locally, and the equity of the bank and the homeowner remained high.

I know a gentleman(call him Jim-Bob) who is a bank president, and his little bank operates that way--always has. He knows that equity trumps income in this business, and keeps the employees paid, a bit of a dividend for the owners, and cash reserves aplenty.

He sleeps like a baby at night, and his stockholders, depositors, customers, and employees do as well. Black ink in all directions for everyone. His little county has grown steadily over the years.

He has a high school education, and fifty years experience as a banker, all at the same bank.

Now, tell me--who should we trust to run our banking system?

I vote for Jim-Bob!

Dear Robert
Lehmans HAD it, its finished, it is the bank the US Treasury is talking about.and it will not be saved because of Freddie mack and co being nationalised.

"...a giant bank - such as Bank of America, HSBC, or Nomura"

When did Nomura qualify as giant??

If Lehman does manage to spin off the majority of its real estate assets into a new, separate public company. I would expect it to become a target for the likes of HSBC, perhaps they will strike before Lehman sells a chunk of its fund management business.

The whole sorry episode demonstrates, yet again, the banking system is still coping with the liquidity crisis: next year will be the solvency side of the credit crunch.

Plus ca change plus ca mem chose.

Sic Transit Gloria Lehman Brothers.

Robert,

Your last paragraph sums up, perfectly, the real predicament confronting the financial markets and the people working there and the way they operate.

The executives and traders working in all the finacial institutions have a grossly over inflated opinion of what they are worth and that means their assessment of the value of these banks (just like the current house prices) are still being grossly overvalued.

Goodbye bank.
Bet the boys at the top will still get a fat handout at the end then get shifted sideways into other gold plated jobs whilst us proles will be waiting in line for soup.

Spinning off the garbage to another vehicle only clears the air in as much as we can see more clearly what they have sought to hide for so long.

Unless said garbage is priced at zero what bank would entertain it. All Lehman can do is keep it all together price the garbage at zero anyway and go to the market for fresh funds.

That way everyone would be prepared to buy the new stock and it will be premium rated

Why? Because they will have done what everty other bank should also be doing but continues to run away from, that being to come clean!

We sit and watch as banks continue to be in denial on everything from off balance sheet liabilities, special investment vehicles market prices and liquidity, Overdraft charges, and now the sheer horror of the non-cover provided to the 1.3 million policy holders who the banks were all to happy to sell to them.

I understand banks are the largest group sector that advertise in newspapers and magazines who are obviously scarred of cutting off their noses to spite their faces by puttting out bad editorial on the banks.

Perhaps some lawyers might argue that makes them accessories I don't know but what it all shows is that teh days of teh large players are now dead in the water they cant cut the mustard, and certainly do not do as the FSA is expecting with Treating Customers Fairly, no wonder the Ombudsman has had enough.

My advice to fellow readers is look for small to meduim sized firms, they all compete on price and know how to look after customers, certainly for insurance go to the British Insurance Brokers Association and check out local brokers, they will look after you well and make you question how you ever fell for the large company's spin and bull.

ΒιΆΉΤΌΕΔ is really going downhill. More toxic reporting?

deep recession in those markets is still spilling over in poisonous ways all over the place.

Did you get an o level in English? or was it in tabloid journalism?

I keep telling you all and Peston you all know nothing just like Mauel. Lehman shares are up today.

Lehman shares were up now they are down just like a barmaids draws up and down all the time.

I for one appreciate Mr Peston's commentary on the unfolding train wreck that is the banking system. I also enjoy a lot of the comments here. I don't appreciate the asinine attacks on Mr Peston.

Obviously the bonus this year will be canceled ........wont it?

Gold was made for times like these.

Er...wasn't the action by the Feds supposed of restored normality to the market, and led us back to the way things used to be in the good old days of yore?

This is just another symptom of an economy that is falling apart at the seams. For sure, governments will continue to talk things up and come up with an ever more bizarre array of strategies in a desperate, but forlorn attempt to stop the inevitable collapse of our economic system, but rather like someone with a congenital heart defect, there will come a point when it will stop dead in its tracks.

The fact remains that the credit boom merely exacerbated the crisis we are now in by a few decades, but this would have happened eventually. The economic system we have become accustomed to cannot cope with the rapid technological advances, which have done away with the need for many jobs; the aging population and ever expanding population.

Pretty soon, the world stock markets will enter free fall, unemployment will snowball, many individuals and businesses will go bankrupt, the property market will collapse when millions, especially buy to let are forced into repossession thereby flooding the market.

This is the simply the first stage of change - denial. When the penny finally drops we will enter stage 2 - anger, then stage 3 despair, followed eventually by stage 4 acceptance. Unfortunately, there will be many years of pain to come, which will change the very nature of the world we have come to expect.

However, on the bright side there will be a great opportunity to help shape the new world order.

# 24
train wreck another American expression.
Defend the indefensible Peston the pest

Hopefully British Bankers will count their fingers in future when trading with American Merchant Banks !

When will the Ratings Agencies be made to account for their evaluations of these junk bonds?

They passed them with a clean bill of health, when they were quite dodgy!

The Public sector should get at least the average pay rise (4 percent).

They should not be penalised for the mistakes of politicians and bankers!

#12, OldSouth, it will be interesting to see what
our banking system will look like after this
episode is over.

In an age of globalization and turbulence, we
can only hope that more folks with common
sense like Jim-Bob will spring up.

Lehmans will most likely survive. Bears demise was a different ball game altogether and should not be cited as a similar example. People would be wise not to forget that Lehman Bros is not in a unique position. The right downs soon to emerge in other houses will eclipse those of Lehmans. Therefore we should all hope that Lehmans survives and refrain from getting too excited. We will be through it by the summer of 2010 when normal business will be resumed even though the power will have shifted east.

To OldSouth:
Thank you for lesson in banking.
The only problem that not eveybody likes to work hard while everybody likes money.

Current problems about law and people not MBS, CMO or other instruments.
Somebody allowed to mix 'good' and 'bad' mortgages in CMO tranches.
Somebody assigned AAA rating to mixed CMO tranches.

Why are banks CEO getting enormous bonuses ofter their bank loosing billions?

Most of banks use bogus valuations to price MBSes and CMOs assets since virtually no market exists for them for at least 1 yr. I would call it fraud. Still CEOs getting bonuses rather than jail term.

When will our leaders realise. The US has a vast pot of money to waste, we the UK are skint we have given and wasted it all all away. We have little or no exports to generate wealth, we are just a nation of service suppliers namely food joints circulating money between ourselves.
RS MK

#30, and #32--You both are exactly on point.

It's true, there are bank execs who should be preparing for prison.

In the 80's, we went through a major bank scandal in Tennessee, courtesy of a hustler named Jake Butcher(who almost won the governor's chair in an election, heaven help us!).

He and his pumped and dumped millions, really cut a swath through the state. He ended up in federal prison, and rightfully so.

So, what DO we do with these people who make Jake Butcher look like a redneck amateur? And how do we begin to unravel it all?

I don't know--I'm too busy trying to pay off the house just as quickly as possible, to stay ahead of the descent if possible.

Gunsandreligion is right--what emerges will not look remotely like what we now have in place.

If we could just clone Jim-Bob...

I wondered if anyone could explain this to me, as I didn’t really follow the logic?! If Fannie Mae and Freddie Mac own or guarantee mortgages of Β£3,100bn and, along with another 12 institutions, will possibly cost the U.S. Β£200bn to get them out of this mess, why did Northern Rock, with mortgage assets of Β£100bn, cost the Treasury Β£30bn? If they were 31x smaller, why did they need 6.5x the funding? Should they not have been able to sort themselves with Β£6.5bn? It doesn’t add up to me. Unless they were in a much worse position that these two financial giants, with half the mortgages of the worlds richest economy?

Could anyone help?

Apollo,

The GBP30bn for NR was an actual sum; the USD200bn for F and F is a guess by the US govt. They have no vested interest in guessing high. NR is also a bank, so needs liquidity to allow it to perform the usual functions of a bank, whereas F and F are glorified mortgage pools. The problem for F and F is that they hold USD6tn of mortgage assets, and the current delinquency rate is above 6 percent (and going higher month by month). So that alone comes to USD360bn of losses, straight up. Then there's the mark-to-market risk on the rest of the portfolio (as house prices fall, so the value of the rest of the mortgages will fall and lead to further write-downs). The F and F bail-out will almost certainly cost the US way more than the NR bail-out will cost us. At any rate, the USD200bn is a made-up number, representing the initial guesses at cash injections for each entity (USD100bn each for Fannie and Freddie).

From within a bank in the UK not hit by the crunch in any meaningful way yet, this all seems like its a case of people pannicking and predicting grim things. Trust me, nothing will change long term, this trend will continue until all write downs etc are expunged and people start feeling less jittery again. Those bankers still employed will get their bonuses (as they should do, they work extremely hard for them) I also don't think the redkneck, slightly calvinist philosophy of Jim-Bob is the the archetype we should be aiming for. It might work in hicksville America which is sparsely populated but it hardly applies to large cities where the property value outstrips the earnings potential of virtually everybody several times over. Except Bankers ahaha

They should change their name to the Lemon brothers and providing that they are in alignment after their latest spin the shareholders can expect a good payout

The Koreans looking for a won ARM bandit that paid out in dollars couldnt find where the arm was [PROBABLY SECURITIZED ] so decided nought to invest after being told by their financial authorities that their won would probably be lost

I always post to soon

I should have added that the Lemon brothers may not have wished to be won over by the yellow peril

only to be squeezed over a wok cake on shrove tuesday