AIG Bail Out, Lehmans Remains, WaMu's Last Days, And You Prospering From It All...

Everyone who can, seems to be making a deal.

Insurance Carrier AIG Rescued By The Fed

Somehow, AIG was able to negotiate a federal bail out on the heels of the government turning it's back on Lehman Brothers. Apparently, AIG is just too big to let fail.

The Fed is extending an $85 billion dollar loan to AIG, but it ain't cheap. The loan is for just two years and carries a rate of 8.5% over LIBOR, plus the U.S. Government takes a 79.9% stake in the company.

AIG's CEO, Robert Willumstad is being shown the door, and will be replaced by former Allstate CEO, Edward Liddy.

Barclays Feeds On Lehman Carrion

Like a vulture swooping in on a dying prey animal, Barclays is gorging itself on the vitals of dying Lehman Brothers. In exchange for $1.75 billion, Barclays will purchase Lehman's assets, including its North American investment banking operations as well its New York headquarters and two data centers.

Washington Mutual May Be Next

It is being reported that JPMorgan Chase is a potential buyer for the ailing thrift. WaMu has seen its stock price battered as it slumps under the weight of a deteriorating loan portfolio. It's best bet to avoid liquidation is to find a merger partner.

Turbulent Markets...And Opportunity, Ahead!

If you spend any time in the office break room, you're likely to hear co-workers lamenting these difficult economic times, languishing investment portfolios, and an uncertain future. Get your coffee and move on because you do not want to fall into that mindset.

Tough times bring opportunity for those courageous enough and savvy enough to avoid despair and panic, and take advantage of the opportunities that present themselves. There are people making money in this market right now.

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TheOptionClub.com

Merrill Lynch Sold, Lehman Brothers Bankrupt, While AIG And WaMu Totter

The financials are falling! The financials are falling!

We awoke this morning to the cry of Chicken Little, only this time our poultry little friend is not over reacting.

Lehman Brothers tried to avoid bankruptcy over the weekend by negotiating a buy out with Bank of America and Barclays. Henry Paulson, Secretary of the Treasury, had told the market not to expect the tax payers to bail out Lehman Brothers and there was none.

With no government guarantee to protect them against losses, Barclays and Bank of America walked away from a potential sale, prompting Lehman Brothers to file for Chapter 11 Bankruptcy protection earlier this morning.

When Bank of America walked away from Lehman Brothers, they walked over to Merrill Lynch and negotiated a price to acquire the firm.

AIG is scrambling to raise capital to avoid what would be a devastating downgrade of its credit rating. The company rejected a couple of deals that would have injected needed capital, but at the price of control shifting to those capital investors.

An AIG deal may require Fed participation and it is presently unclear whether the government is willing to take on more now that they have a $200 billion bail out to finance off the tax payers' back following the take-over of Fannie and Freddie.

Washington Mutual is now seeing as much as 45% of their Payment Option ARM loans, which were written by the thrift from 2004 to 2007, heading into default.

Today's market open is going to be rough. Minutes prior to the open the DJIA futures are down 370+ points, the S&P 500 futures off more than 45 points, and the Russell 2000 showing 23 points to the downside.

We could talk about how you could have made a small fortune playing these falling financials to the downside. While that is true, it feeds into the sort of greed and lack of risk management that has lead Lehman, Merrill, and perhaps AIG and WaMu to their demise.

Risk management is an absolute necessity, if you hope to survive and even prosper during what will be remembered as the worse financial crisis to hit Wall Street since the market crash of 1929.

Christopher Smith
TheOptionClub.com

Lehman Heading For Bankruptcy

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

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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.

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Christopher Smith
TheOptionClub.com