Friday, September 12, 2008

Lehman Brothers

My bet is that the Fed will announce something by 7:00 PM this coming Sunday night re: Lehman and another large bank (possibly 2 or 3) buying the assets of Lehman. Every crisis, the Fed announced their actions on a Sunday night. If not, trading on Lehman's stock will probably be halted Monday morning.

AIG seems to be taking a hit on the issue of their credit default swaps, or CDS, business. But really at the heart of this matter is the FASB rule that states that level 3 assets must be marked to market. In the current environment, marking to market results in marking level 3 assets to virtually zero. If someone is going to step in and buy all of Lehman's Alt-A, level 3 assets, someone has to assure that their assets are worth more than zero. The current accounting rules do not allow for this, so it's a vicious cycle that ultimately looks like the Fed will again need to step in.