Lehman expected to file for bankruptcy protection. According to people briefed on the matter, Lehman Brothers will file for bankruptcy protection on Sunday night [US time], in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.

Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, its subsidiaries will remain solvent while the firm liquidates its holdings, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.

But Lehman’s filing is unlikely to resemble those of other companies that seek bankruptcy protection. Because of the harsher treatment that federal bankruptcy law applies to financial-services firm, Lehman cannot hope to reorganize and survive as a going concern. It will instead liquidate its holdings. — NYT Dealbook

Greenspan: Once in a century crisis. The U.S. credit squeeze has brought on a “once-in-a-century” financial crisis that is likely to claim more big firms before it eases, former Federal Reserve chief Alan Greenspan said Sunday.

Greenspan told ABC’s “This Week” that the situation “is in the process of outstripping anything I’ve seen, and it still is not resolved and it still has a way to go … Indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes,” Greenspan said. He predicted that would not happen until early 2009, and said the odds of U.S. recession have gone up in recent months.

“I can’t believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring,” he said. While recent declines in the prices of oil and food may help avert a recession, he said, “I wouldn’t put my money on it.” — CNNMoney

If Lehman liquidates, Wall Street gets set to make a killing. So this is the way it ends. Not with a bang but a whimper–Lehman Brothers looks headed into liquidation. Apparently, you can put dozens of Wall Street’s finest into conference rooms at the Federal Reserve Bank of New York, but they can’t rewrite an immutable law of human nature: people act in their self-interest. And it is in everyone’s narrow interest–except for Lehman’s shareholders, debt holders and employees — to see Lehman in bankruptcy proceedings.

Over the weekend, it has become clear that Lehman is a zero sum game. Slice it and dice it. Ring fence asset manager Neuberger Berman. Put the commercial mortgages into a separate vehicle. But the $53 billion of illiquid assets that Lehman has on its books are still bad assets.

Early on the Treasury Department made it clear the U.S. taxpayer doesn’t want these assets. Barclays and the Bank of America don’t want them either. So the Treasury has tried without success to convince Lehman’s Wall Street brethren to take them on. But why should they? — Mean Street, Wall Street Journal

Let Lehman fail. Those who have a selfish interest hide the truth behind double-speak. Former Wall Street bankers, like Hank Paulson, should have no place in the halls of government, but they are there, doing their best to help their friends, and past and future employers. They do not have the best interest of the nation at heart. There is no reason why a company, like Lehman, cannot unwind properly, using the bankruptcy tools available, rather than being placed upon the backs of innocent taxpayers. Hank Paulson’s company, Goldman Sachs, stands to lose billions on a Lehman collapse. But, the billions will be lost one way or the other. The question – who will pay the bill? Contractual counter parties, like Goldman, or U.S. taxpayers? — Seeking Alpha 

A tragedy of hubris and nemesis. In Greed and Glory on Wall Street, Ken Auletta’s book about the last time Lehman Brothers collapsed, in 1984, Richard Fuld appears as the fierce, proud, introverted head of bond trading. Even at the end, after internal feuding had brought the firm to a halt, he resisted the idea that it had to be sold.

In the end it was sold to American Express and later became its chief executive. He reformed Lehman as an independent bank in 1994 and never appeared to look back, defying the sceptics who said Lehman would always remain in the shadow of Wall Street firms such as Goldman Sachs. Lehman changed because Mr Fuld insisted that it had to. He eliminated the internal arguments by relentlessly pushing the idea of teamwork. He expanded the bank’s operations, building up its asset management and equities operations to balance its powerhouse of bond trading.

But Mr Fuld never changed, not really. He was still the same dark, obstinate Lehman loyalist that he had always been — a man who never wanted his firm to be sold. And, in the end, Mr Fuld’s pride and obstinacy stood in the way of Lehman’s desperate efforts in the past half year to right itself. — John Gapper, Financial Times

Peter Fray

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