Merrill Crashes Lehman Burns

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 each expected to be able to remove from their own balance sheet to someone else’s. In thinking they were poisoning others, they gorged themselves on the toxic fruit of their own just desserts.

Now one bank is dead in one bank is gone the way of countrywide, force fed to Banc of America. But what’s in it for Bank of America? That’s why they call it a shot gun wedding. Lehman Brothers was a sacrificial lamb, but they only sacrificed one lamb over the week end.

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 and a stock, which would have opened, possibly in the single digits gets sold for roughly $30 a share, nice job. This Thain is the same CEO who had that little chat with Andrew Cuomo just before he backed off of his auction rate securities investigation into Merrill Lynch.

That out did insider of the insiders Richard Fluad CEO of Lehman Brothers, whose seat on the Federal Reserve Board, and all the influence it could buy him would not save his company. Whether he was outdone or whether the same 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.