This weekend, we actually have two hurricanes to worry about. The first is the dreaded impact of Ike on the Texas coast. The second is in the form of a financial hurricane, this one about to hit Wall Street.
For the second weekend in a row, the Fed and US Treasury are faced with another financial crisis. A rather weak attempt is being made to put forth the idea that the government (read taxpayers) will not be forced to backstop the latest in a series of catastrophes originating from the blowup of the housing market and related securities. This time the victim is Lehman Brothers. Granted, this should come as no surprise to anyone. The firm has been on the hotseat for some time now. However, its stock price has plummeted this week as investors hit the exits in alarming fashion. Late Thursday and all day Friday, the firm almost frantically searched for a buyer giving the distinct impression that it might not last through the weekend.
The Treasury Secretary’s contention that government funds should not be used in Lehman’s case because the markets had time to react puts on full display his complete misunderstanding of the situation. To be honest, Hank’s golf game will be thankful that the markets didn’t react sooner. If they had, he might be dealing with two or three catastrophes this weekend instead of just one. This toxic debt is quickly taking the form of Kryptonite; anyone or anything that touches it dies.
The contention that this financial crisis is somehow contained is a joke. The notion that it is nearly over is an even bigger one. Folks everywhere had better batten down the hatches; not just those living in Texas.