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Bank of America and Barclays were Lehman Brother's best, and probably last hope for a deal to unload the faltering 158 year old financial firm. According to reports over the weekend, that deal is falling apart.Understandably, Bank of America and Barclays do not want to take on the risks being carried by Lehman Brothers without some form of government guarantee. Those guarantees appear to be in short supply now that the U.S. taxpayer has already signed up to bail out Bear Stearns, Fannie Mae and Freddie Mac.
The bailout of the two GSE's alone are expected to cost more than $200 billion.
Lehman's History
Lehman Brothers got its start about 158 years ago as a cotton trading firm in Alabama, and then grew itself to a financial giant. It was the third largest U.S. brokerage, behind Goldman Sachs and Morgan Stanley. The firm's mortgage business was wildly profitable during the recent housing boom, but proved to be the firm's Achilles' heal in the ensuing credit debacle.
Bankruptcy Filing By Lehman Brothers Expected
With Barclays and Bank of America taking a walk and the apparent absence of any willingness by the government to finance a bail out, it appears increasingly likely that this firm will be forced into bankruptcy. The risk of a forced sale or bankruptcy is that Lehman's bad assets will effect the still performing assets of other firms.
More Financial Firms Likely To Fall
Other potential victims of this credit crunch? Concerns seems to be rising with regard to Washington Mutual.
Also, on Friday, insurer AIG, which may see its rating cut by Standard & Poors, said that it is reviewing its business and that "everything is on the table." The popular theory is that the insurer is looking to sell off portions of its business to raise capital and avoid what would likely be a crippling downgrade.
How To Protect Yourself From This Broadening Debacle
This credit crisis is broadening, boys and girls. If you're in this market without a sound exit strategy you may find yourself joining these troubled financial firms.
Risk management is critical to our success in these markets. Yes, we need to learn about the markets and learn about options and how to use them to effect our plans in the market. Just as important as that foundation, we must also learn how to structure our trading portfolio to avoid being over leveraged and to design our trading plans and systems to adjust or exit our positions when the trade is not working out as we had planned.
Free Trading Videos Reveal Common Mistakes Being Made By Traders
The person who taught me the importance of risk management and how to apply it in the context of a trading system is Bill Poulos, a 30+ trading veteran.
In appreciation for what he taught me and for those who could also benefit from his guidance, I put together a Squidoo lens that provides free video interviews featuring Bill speaking on the subject of risk management.
Tumultuous markets always present trading opportunities. Spotting those opportunities is only part of the solution to prospering in tough times. Another key element is avoiding the mistakes so many others make.
Take the time now to view these five videos, now...
Christopher Smith
TheOptionClub.com
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