Bank of America and Merrill Lynch to merge?

What a dramatic day for the Fed and the investment banking community.  Now that both Bank of America and Barclays have bowed out of the running to serve as white knight for Lehman Brothers, which is announcing plans for a Chapter 11, it appears that Bank of America, which recently swallowed Countrywide, is finalizing talks around a potential merger agreement with Merrill Lynch. 

It’s hard to believe that the credit and real estate bubble from 2002-2006 could take down this many old line Wall Street firms (thank you Mr. Greenspan, along with your Greenspan put), but it appears that it’s finally time for the chickens to come home to roost.  For decades, the Fed and the US government have subsidized the risk for countless investors and corporate managers, going back to the S&L crisis and 1987 stock market crash, all the way through the bailout of Fannie Mae and Freddie Mac just last week.  As tough as it is, perhaps we can start encouraging personal and corporate fiscal responsiblity and end the cycle of passing along the costs of poor decision making to someone else, namely taxpayers who are in a position to help out by virtue of their own solvency.

Wow! Lehman Brothers to declare Chapter 11 bankruptcy

I just finished up a post on the UAL false bankruptcy news from last week, and here comes word from CNN that Lehman Brothers (see Lehman Brothers agreements) is going to file for Chapter 11 bankruptcy protection.  This is a very interesting development following weeks of speculation about a potential distressed sale of Lehman, including news today that Bank of America (see thousand of Bank of America agreements here) had the inside track in an acquisition agreement for Lehman Brothers shares.

Reuters is reporting speculation on what Lehman’s debt might go for in a Chapter 11 reorganization.  Here’s hoping that the potential fall of a financial player this big doesn’t have as severe an impact as their shareholders, all of which are hoping for yet another Fed bailout, have warned about.

What happened with my UAL shares last week and who can I sue?

Call me an optimist, but I recently purchased some shares in the major airlines (including American (see their parent company AMR legal agreements here), Southwest, and, of course, United Airlines and their agreementshere) as I saw oil prices falling in the past couple of months, figuring that their nickel and diming, combined with the drop in oil prices, would outweigh the impact of the sagging economy on their share prices.

Needless to say, I was stunned on Monday when I watched UAL share drop 75% only to recover to a paltry $9 share, down from the $12 opening price.  Of course, I was somewhat mollified that the shares largely recovered by the end of the week, but I couldn’t help wonder what might happen to all those who sold on the way down, only to discover it was all a mistake.

For those who aren’t familiar with the background, it appears that the South Florida Sun-Sentinel newspaper posted a story from 2002 on the UAL bankruptcy from 6 years ago on their website as if it had just happened, and then promoted it to their most actively viewed portion of its website.  Google News’ spiders picked it up (see Google legal agreements, followed by a Bloomberg analyst.  From there, the news was broke and chaos followed, and it was probably compounded by all those handy tools like “stop loss” orders which work well in orderly market environments but can horribly accelerate fast moving negative trends.

Karim Bardeesy had a nice discussionabout the potential legal liability for the various parties, including NASDAQ, which refused to reverse trades from that difficult morning.  The author’s conclusion – fat chance.  For me, I was a bit late picking up on the news, but I had faith that the market had fairly priced in UAL’s chances, so that once the news shook out, the UAL price would/should return to the prior levels, absent any other changes.  I think the events of the week largely bore that out.