Wall Street restructures

So, three of the biggest firms on Wall Street are headed for major restructuring in a single weekend – Lehman to liquidation, ML to BoA, and AIG to major asset sales. I’ve been following this on Dealbreaker, Calculated Risk and WSJ.com. The NYT has some pallid coverage of this locally important story. WaPo has the latest dispatch from Wasilla.

I expect the MSM coverage to heat up if they find some backdating or something having to do with crablegs. I'm not sure why they don't think they should invest in having more coverage of Wall Street than Wasilla, and having somebody who can report fairly, accurately, promptly and coherently about what's happening to zillions of dollars of their readers' money. 

Lehman is liquidating because the government didn’t want to bail out yet another financial institution to avoid so-called systemic risk. Although the markets arguably are less vulnerable now than in March, I think we’ll get a glimpse of what would have happened if Bear had been allowed to fail. Apparently Lehman will go into liquidation, but it will be a slow liquidation. Probably not a disaster. It may look something like Drexel’s Chapter 11 many years ago, as summarized by Steve Davidoff last March:

Drexel filed for Chapter 11 and went into a runoff mode with everything put into a liquidating trust run by the distressed credit managers. Highly illiquid securities and equity trades were separately placed into a new vehicle called New Street run by four bankers from Drexel. Separately, the officers of Drexel settled with the Resolution Trust by giving up their partnership interests in Drexel’s private equity funds and some severance and other vested benefits. The Drexel Brokerage unit was sold to permit a Chapter 11 filing. It took a number of years, but the unsecured creditors were made whole.

If things hold together this time, it will probably be a long time before anybody suggests another government bailout of a Wall Street financial firm.