September 15, 2008 – 8:23 am

The paths of two big banks teetering on the verge of disaster diverged today, as  Merrill Lynch took the low road to disaster while Lehman Brothers took the hard road out.

In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, hurtled toward liquidation after it failed to find a buyer.

The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of hundreds of billions of dollars in losses because of bad mortgage finance and real estate investments.

Humbling, ironic and perhaps justified.  If you can remember, the crisis for both banks arose from defaulting debt which they expected to transfer from their own balance sheet to someone else’s.  Thinking that they could poison others, they gorged themselves on their own toxic dessert.

Now one bank is dead and another has gone the way of countrywide: force fed to Bank of America. Butthe savvy mind may be asking what’s in it for Bank of America?  Nothing really. That’s why they call it a shot gun wedding. Lehman Brothers was a sacrificial lamb, but they only sacrificed one lamb over the weekend:

Without this buyout announcement Merrill Lynch would have gotten absolutely crushed tomorrow. That is absolutely certain. The closing price of Merrill Lynch was $17.05 on Friday. Mother Merrill’s market cap was roughly $26 billion.

So while Lehman Brothers bites the dust, Merrill Lynch has one last scam remaining. The company’s stock, which would have opened possibly in the single digits, gets sold for roughly $30 a share. Nice job. Merrill’s Thain is the same CEO who had a little chat with Andrew Cuomo just before he backed off of his auction rate securities investigation into Merrill Lynch.

That outdid Lehman Bros CEO Richard Fluad, whose seat on the Federal Reserve Board and all the influence it could buy him could not save his company. Whether he was outdone or just had a stronger hand to play can be argued. What cannot be debated any longer is the solvency and financial strength of Lehman Brothers or Merrill Lynch.


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