Leverage? What Leverage?!?

I'll spare you some reading and give you the quick summary. Here it goes:

*Dick Fuld over played Lehman's hand and now has to pay the ultimate price...bankruptcy.

*John Thain seeing what can happen now that the Fed and Treasury are done bailing out shareholders decided it was time to cash out. MER sold to BAC for 50B or $29 per share. Which is timely because they were going to get clipped at least 50% this week.

*Then there is AIG who is facing a ratings downgrade if they can't post some more capital. They only need 40B or so......brother can you spare a dime? There are players circling around this one looking for the right deal. More details on their restructuring to come, but they have some "systemic" qualities as well.

*The Fed has decided they will take equities now....which as one writer points out is slightly illegal based upon article 23a of their charter.
http://www.federalreserve.gov/newsevents/press/monetary/20080914a.htm

* 10 banks have decided to pool together 70B in order to mitigate risks from the LEH fall out.

This is just the type of panic we are looking for in order to achieve some capitulation. So look for a huge move down off the open and perhaps a slow grind up to positive levels for the close. If we get that we've capitulated.

I'm suspecting though going forward, after all these levered positions have been puked out by market participants; leverage is going the way of the Do Do Bird. Ratios of even 10:1 are going to become more scarce. What would equity markets look like in a leverage environment of 2:1? I think it would look less volatile, but also less profitable than some are accustomed. Don't get it confused though, 2:1 can still provide plenty of profits if managed properly. Astute lending will be key, but who's credit worthy? Rest assured this mess is not over quite yet, but getting closer for sure.


Some very old footage, but it's just funny how the parody still applies to today's shenanigans. It's 21 minutes in length, so only for those with time and an obsession for market related material.

"Fair Lehman, thy sons fierce with hunger and thirst. At this festive board now have their fill:
And arising with waist bands all ready to burst. Bless thy bounty in sending no bill."