Lehman Brothers nears collapse. Merrill Lynch is sold. And the nation’s largest insurer appeals to the government for a financial lifeline.
The day that shook Wall Street — and triggered the Great Recession — begins with banking chiefs and government finance officials meeting at Manhattan’s Federal Reserve Bank of New York. Lehman needs a cash infusion or it will collapse by Monday under the weight of $6 billion in losses in six months from trades gone bad and greater losses to come from souring mortgage-related securities.
One by one, potential buyers of the 158-year-old investment bank drop out.
First, Bank of America confirms it’s not interested. Then, Britain’s Barclays. It backs out after the government refuses to provide any financial support.
By late afternoon, talks shift from saving Lehman to figuring how to let it die without destroying the financial system. Other banks around the world race to figure their connections to Lehman and how to untangle them quickly if Lehman collapses.
If Lehman goes, who’s next? The most likely candidate: Merrill Lynch. Its stock fell 37 percent in the previous week. It, like Lehman, has toxic mortgage-related assets on its books. Just before midnight, news crosses the wires: Bank of America is buying Merrill Lynch in a $50 billion deal.
American International Group, the world’s largest insurer, asks New York Fed President Timothy Geithner for an emergency bridge loan that will help it survive until it can sell off assets. It is preparing for when it will have to make good on insurance policies that protect Lehman investors in case of a bankruptcy. Geithner doesn’t promise anything.
