Good evening folks!
Just a quick update tonight. There is much to digest tonight so I don't want to get ahead of myself.
Anyone wanna play the card game 52 pickup? This is what Wall St. is essentially doing tonight as it tries to clean up this disaster. I am afraid Humpty Dumpty just had a great fall and we all know how that ended.
Here is what we know.
WSJ just confirmed to CNBC that Bank of America has agreed to purchase of Merrill Lynch at $29/share. Lehman looks to be headed into some type of bankruptcy. The details on this are still not out yet. Here is the most recent Bloomberg update. Please note that according to the Wall St. Journal, the Merrill deal is done.
A great question raised tonight by the CNBC panel is why did Bank of America pay such a high price for Merrill? They refused to buy Lehman at $1 but then they turn around and cough up a $29/share offer to Merrill?
This makes no sense. You know both of their balance sheets are a mess. All of these banks had Level 3 assets that if stacked in a pile would be taller than the Empire State Building. I don't see how Goldman makes it out of this mess when its all said and done.
I need a lot of time to see how this all goes down. The futures are now down over 300 points on the DOW. I expect a drop of 3-5% in the stock markets tomorrow.
Folks, I am stunned at how fast all of this is happening. The ramifications in the CDS market are my biggest concern. This is why AIG went down the toilet on Friday. They were the big CDS insurer on Wall St. Their exposure is $500 billion to financial derivatives. They need capital and they need it fast.
Guys, if this triggers a major explosion in the derivatives market, the financial system might be toast. The pigmen really did a number on themselves with this crisis. The ball is starting to gain steam rolling downhill and I don't see how these pigs can stop it. This is what happens when you create financial crisis and then constantly get bailed out by the Fed.
You keep pushing and pushing until you go too far. This is why the line of "moral hazard" must not be crossed. We are in uncharted territory folks. I have no idea what happens from here. The one thing I am sure of is you will see total chaos in the markets this week.
Hunker down in your financial bunker and ride out the storm. I will have much more on this tomorrow as I try to get my hands around it.
Major intervention and reforms will be needed because they aren't going to be able to put Humpty Dumpty back together again.