Nightmare on Wall Street

Despite President Bush's assurances about the state of the economy, two of the country's largest financial institutions, essentially crumbled over the weekend.

Lehman Brothers declared plans to file for bankruptcy on Sunday. And sensing impending doom, Merrill Lynch sold out to Bank of America for about $50 billion.

Also alarming, American International Group (AIG) sought a $40 billion lifeline from the federal reserve. [NYT]

And then there's Goldman Sachs and Morgan Stanley standing unassisted, albeit on shaky ground. Both will report quarterly earnings this week, but were down 12 and 14 percent, respectively, when the DOW closed today, according to The Washington Post.

So what are you to derive? This is some scary shit. Although, I admit, unless you have a job in finance, I don't really know why. Sure it all equates to a weaker dollar, and maybe even issues with your bank (I'm talking to you fellow WaMu customers. Some are projecting it will be the next big bank to fold. Of course you're insured for up to $100,000. But if it does, in fact, fold, claiming your money from the FDIC directly seems like a hassle; as does making a run on the bank, which also seems sorta crazy and rash. What to do?) but the media need to do a better job explaining how all of the hullabaloo affects, you know, normal people.

Bear Stearns is Having a Worse Day Than You

Bear Stearns--the fifth largest Investment bank in the U.S.-- is in the process of selling out to JPMorgan Chase for $236 million--a mere fraction of its market value.

Bear Stearns' alternative: the dire task of declaring bankruptcy.

Yeah, there really is no upside.

To give you a better/tangible idea of how hard things suck for the investment bank, Bear Stearns' market value was determined to be $4 billion on Friday. And just a year ago it was valued at a staggering $19 billion... and then some.

Its shares were priced and set to be sold to JPMorgan Chase for a measly $2 on Sunday; a pittance compared to its record share price of more than $172 last year.

According to Reuters, the deal size is less than the value of Bear Stearns' midtown Manhattan headquarters, which is estimated to be worth $1 billion!

To say that Bearn Stearns is having a sequence of beyond shitty days is an understatement.

The moribund firm is barley clinging to life!

The Wall Street Journal is saying that the collapse of the bank has "shaken American capitalism."

Shawn Tulley, Forbes editor-at-large, is saying that the Bear Stearns meltdown has triggered the "End of Wall Street as we know it."

And economist Paul Krugman, who,thankfully, isn't comparing the current situation to the Great Depression, does say "if the recession started in January 2008, then that would mean July 2010 is the first month we have anything that feels like a recovery." He adds, "but I wouldn't be surprised if it goes longer than that - maybe into 2011" i.e. our economy is taking a circuitous turn for the worse.

Mission accomplished! I'm officially afraid.

I know this is a vague posting, but this is a confusing matter that I don't entirely understand.

That being said, I couldn't find anyone having a worse day than Bear Stearns...not even you.

For more insight into what ultimately toppled Bear Stears, read this CNNMoney article "How subprime killed Bear Stearns." It's the easiest to understand.

This BusinessWeek article is also digestible.

This Wall Street Journal article is wordy and confusing, but it does offer a comprehensive timeline of Bear Stearns' downfall. You won't die if you don't read it.

Image courtesy of REUTERS/Kristina Cooke.

Note. A foreboding look into the future: Lehman Brothers might be having a worse tomorrow than you.