The Lehman collapse, the AIG bailout and Merrill buyout!

Over the last week, my favorite TV channel has been CNBC- its almost as if you are following a thriller and you dont want to blink as you will miss something.

Its been an unbelievable week- and I was in Vegas on vacation when I first happened to glance at a news item that Lehman was in trouble. I thought, thats not a big deal as a lot of companies have been reporting losses. Being a 150 year old Wall Street powerhouse, even if Lehman was in trouble, the worst I expected was loss in profits, some more writedowns, potential layoffs and that was it. By Thursday and Friday, it was clear that Lehman needed to sell and Bank of America became a leading contended to buy. That piqued my interest.

Our vacation ended Sunday night and as I turned on my computer, I began to follow the saga more closely. It appeared that talks with Lehman had broken down and Barclays was in play for Lehman, not Bank of America. I continued surfing the net and just past midnight on Sunday, bloomberg reported that Bank of America had agreed to buy Merrill Lynch for 50 billion. That was a bolt from the blue- was Merrill even in trouble? What happened to Lehman? And as I looked over, it seemed that Lehman was going to file for Chapter 11. An institution like Lehman in bankruptcy- absolutely unbelievable and seeing the writing on the wall, Merrill did the wisest thing by selling out. Walking into the Bank Monday morning was an absolute rush- lots of excitement, lots of pride about being part of the biggest financial institution that can make a deal of 50 bn literally over a weekend! It was heady and still is...
But this was not all- news poured in that AIG was in trouble and the government was asking the big banks to pony up 75bn to help save the company. Fears about bank run, whether deposits themselves were safe became more real. Comparisons begun to be made with 1929- on Monday, the stock market had its worst day since September 11, 2001- this wasnt recession anymore, we were well and truly in Depression freefall.
Today, every hour, I kept checking bloomberg on AIG as the stock plummeted to 1.47 at one stage, kept bouncing back to 3-ish and back to the high 1's or low 2's. It was like being in an emergency room watching someone on life support and praying. My wife called me in the afternoon to ask me whether we should take out our insurance in AIG. We discussed it for 10 minutes- the longest money discussion we have had in our marriage! We decided against it- we believed the company as strong and too good to be allowed to go belly up. As a mark of my confidence, I bought a few shares of AIG, and given I just came back from Vegas, I was very willing to take on this gamble- much better odds than the roulette!
This evening, even as we went to bed, news arrived about an 85bn infusion into AIG by the government for an 80% stake in the company! Thank God! Its a relief, but we are clearly not out of the woods yet. As our CEO Ken Lewis pointed out, 2009 is going to a tough year but he can see the clouds lifting in 2010- thats still 5 quarters away!!
I turned off CNBC today and moved over to CNN in the hope to catch some political news or hurricane news, but there was Anderson Cooper interviewing Susie Orman on what the financial crisis meant to the common man, comparisons to the Great Depression and the road ahead.
It was then that I realized that maybe, CNBC is going to stay one of my regular channels for the forseeable future, not just last week. It is an exciting time, and reminds me of the old Dickens phrase- "it was the best of times, it was the worst of times" depending upon how you look at things. From my vantage, I am excited about how all this would shake out and eventually lead to a more stable, less exhuberant financial sector that relies on good old basics to make money. I never thought CNBC would be my favorite channel, but it seems thats the only way to keep up to date with a sector that is changing with dizzying speed with each passing second.
Fasten your seatbelts everyone!!