Lehman Chatter This Weekend

So much going on. This has become the most dramatic soap opera in the financial world or day time television in decades. I have never been a more nervous bear and bulls I talk to have never been more nervous bulls. At some point I may do a post on the various dynamics of that weird aspect.

For now it looks like the world's biggest poker game is occurring on Wall St this weekend.

http://online.wsj.com/article/SB122132019771832253.html

At an emergency meeting Friday night called by the Federal Reserve Bank of New York, New York Fed President Timothy Geithner, described two potential scenarios: either a liquidation of Lehman or an industry-driven solution in which Wall Street firms would possibly providing financing to remove some of Lehman's real estate assets, one person briefed on the matter said.

Most of the Wall Street executives present at the meeting listened and asked questions, "but didn't show their hands" as to what they thought, this person said.

The problem is despite the absurd lack of common sense and responsibility by the Wall St warlords (head of the investment banks) and the ones ultimately responsible for creating this debacle, they are the better and smarter poker players sitting at the table. It is what they do and know how to do it. If they smell the slightest sense of blood they will pounce. The smallest crack in the window they will take it. These are trained negotiators, deal makers, and poker players.

On the other side of the table, you have government bureaucrats who besides Hank Paulson are ideologues, academics, and pretty helpless. The likes of Fed chief Ben Bernanke and New York Fed President Timothy Geithner don't have a chance against the likes of Jamie Dimon of JP Morgan, John Mack of Morgan Stanley, or John Thain of Merrill Lynch. It is a sad fact. These banks will play up financial catastrophe in the ears of the Fed official, dropping hints of the ruin of their political careers if the financial system falls apart, stonewall, wine, and to a certain extent collaborate behind the scenes to get every inch plus a little that the Fed is willing to give. Maybe the Fed doesn't buckle but I wouldn't bet on it.

There is also so much politics in all of this. Paulson speaks in front of Congress next week. Remember it is thought that Bear Stearns collapsed in March partly because of the long memories of them disrupting the process in 1998 with Long Term Capital Management. So you have politics in the actual political arena and then you have politics, posturing, and egos in the investment banking area where wives are part of the same social clubs and kids go the same schools. At the end of the day I bet the investment banks get the biggest pound of flesh out of this whole deal.

A few rumors were a liquidation of Lehman on Monday. I don't think that is going to happen and the Fed just trying to grasp for some card to play in the poker hand but if it did I can't imagine being Dick Fuld watching the carnivorous wolves on Wall St. salivate ripping the firm you have been CEO over for a decade into pieces.

To finish up with the soap opera of this whole deal. This was stuck in the middle of the article:

At the New York Fed's fortress-like stone and iron headquarters in lower Manhattan, Mr. Black and Steve Cutler, J.P. Morgan's general counsel, left the building early Saturday afternoon in a black sedan.

Mr. Cutler was carrying a manila envelope thick with papers. He exited through the heavily guarded garage entrance at the corner of William Street and Maiden Lane, declining to comment on the talks.

No speculation on that actually meaning anything besides the fact the Days of Our Lives camera saw them exiting and so in true drama fashion it must mean something. J.P. Morgan has a bear by the tail with Bear Stearns so they wouldn't be that tied up with this process anyway.