TEXT OF STORY
KAI RYSSDAL: Stop me if you’ve heard this one before, but there’s a big piece of the global financial system that’s run into trouble. And if things keep going the way they have been Lehman Brothers is gonna need help from somebody.
Shares fell almost 45 percent today as investors worried that the Wall Street investment bank simply doesn’t have enough money in the bank. There had been some on-again-off-again talk that a South Korean bank was looking to invest. That talk is off again as of today.
So speculation’s turning to other ways Lehman might work itself through its cash crunch. That’s where the analogy to Bear Stears and Fannie and Freddie come in.
Marketplace’s Stacey Vanek Smith reports.
Stacey Vanek Smith: Lehman Brothers looks more like a damsel in distress every day. It’s written down more than $8 billion, its stock has fallen more than 80 percent since last year, and last quarter Lehman lost around a $1 billion a month.
HUGH JOHNSON: They need to raise capital.
Hugh Johnson is chief economist with Johnson Illington Advisors. He says Lehman’s best shot is to sell off some of its crown jewels like asset management division Neuberger Berman.
JOHNSON: The best outcome for Lehman would be to be able to sell parts of Lehman at an amount that will inject enough capital to offset the losses that they’re going to have to take in writing down these bad assets to turn the corner and become profitable.
A number of foreign and domestic companies are sniffing around Lehman’s good assets. But if the brokerage can’t turn the corner on its own, Uncle Sam could step in. Not everybody thinks that’s the best course of action. But Ken Thomas, with the Wharton School of Business, says there’s no question it would happen.
Ken Thomas: The precedent has been set with Bear Stearns. Lehman has equally important interconnections throughout the system. They’re involved with so many different, other companies. It’s assumed that the government will step in.
If the government let Lehman fail, it could be disastrous for the U.S. financial system, says economist Hugh Johnson. Investors could respond by dumping shares in U.S. investment banks. Those banks would stop lending and the economy would grind to a halt. Lehman reports quarterly results next week. Investors expect it will have some kind of survival plan in place by then.
I’m Stacey Vanek Smith for Marketplace.
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?