More Lehman Games

Things remain fluid with the Lehman saga. The WSJ has a very negative article out making it sound like things are falling apart.

http://online.wsj.com/article/SB122134089502132567.html

A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street.

The whole article is very good.. I think it is part of the poker game though it does seem that the government may be able to stay out of it.

CNBC has a much different take with a much more optimistic tone.

http://www.cnbc.com/id/26691041

A deal has been drafted to buy Lehman Brothers' bad assets and clear the way for an eventual sale of the troubled firm, CNBC has learned.

Under the terms of the proposal, which could still blow up, all the major Wall Street firms would pitch in $30 billion total to purchase Lehman's bad real estate assets and create what's knows as a "bad bank."

The proposal is being drafted Saturday night and will be discussed Sunday morning, according to sources close to CNBC. If Wall Street agrees on the terms, which would amount to around $3 billion per firm, it would clear the way for the sale of Lehman Brothers itself to one of several suitors, including Bank of America, Barclays Plc and HSBC.

This makes alot more sense then the WSJ article. The article quotes a Wall St. executive as to why.

One Wall Street executive involved in the meetings put it this way: "I'm thinking logically; if they do nothing it's Armageddon. That means they do a deal. It will be announced at 6 p.m. (ET) Sunday."

Questions:
What happens if the deal CNBC is reporting falls apart around 3:00 or 4:00 tomorrow? Does the Fed Blink? I would have given the probability about 90% this morning but now maybe 60%.

The deal has 10 banks putting in $3 billion each for a total of $30 billion. What about Merrill? If your Merrill Lynch you have to be sick. You don't have $3 billion to put into it but if you don't it will be a huge sign that your real trouble and your stock is below 5 by next Friday. Over 40,000 puts with a strike price of 10 with an expiration this Friday were bought this past Friday!!

This deal puts off making marks for the banks but doesn't this whole thing let the cat out of the bag that the marks for all the banks are worthless? Basically doesn't it expose the man behind the curtain that everyone keeps trying to hide?

Unless the Fed steps in last second, I can't see how any of this is good. There is a bad outcome and a really bad outcome or Armageddon outcome.

Once again I remain wary that in the end if the deal falls apart that the FED doesn't buckle. Funny how politics play into play. In some blog comments someone pointed out that: A bailout of Lehman is being resisted not because it is the right thing to do, but because another rescue is politically inconvenient. Whether it is right or not is a up for debate. The fact that it is becoming politically inconvenient can't be denied.