That’s what the Wall Street Journal is predicting for tomorrow. Don’t say I didn’t warn you. Lehman will probably go bankrupt and Merrill will be bought by Bank Of America in a fire sale. The possibility of a massive run on the Shadow Banking System is real.
Credit-default swaps traders were called to work Sunday, the Wall Street Journal reported, for a special trading session that would let Lehman counterparties offset their positions against each other. Equity markets could also be roiled Monday. The crumbling of a major Wall Street institution is likely to shake badly the confidence of investors who had hoped the Street would make it through the credit crisis without yet another large firm being swallowed up. What’s more, the economic backdrop looks dimmer than it did in March when Bear Stearns was pushed into the arms of Jamie Dimon.
Any forced selling of stocks or other securities by hedge funds and other big investors linked to Lehman could further destabilize the markets. Market sentiment has been fragile for months, causing wild gyrations that have given equities little chance to establish momentum in one direction or the other. Investors have skipped in and out of Treasurys and other safe-haven bets and money that was pushed into commodities bets has suffered amid the jarring drop in the price of oil and other raw materials since July.
Barack Obama and Joe Biden must stand up before the American Public and pin this disaster on 30 years of Republican Deregulatory policies and most specifically the Gramm-Leach-Bliley Act written by John McCain’s future Treasury Secretary. It’s that simple. This would have never happened without Phil Gramm and John McCain looking out for the bankers and hedge fund players rather than the American Public.