Will Lehman Brothers Be Bailed Out? Should It?

Will Lehman Brothers Be Bailed Out? Should It?

Is it time for the government to help out Lehman Brothers Holdings?

It has been all of two days since the Fannie Mae-Freddie Mac bailout was announced, the Dow Jones Industrial Average fell 280 points and a general sense of doom hangs over the markets.

And yet, Lehman is the center of an anxiety show all of its own. Its shares fell 45% on news that Korea Development Bank wasn't interested in a deal. Then there are the three fears: coming third-quarter earnings, expected to be horrid; its exposure to risky real estate and mortgages, a market already plagued with uncertainty amid the government intervention at Fannie Mae and Freddie Mac; and the threat that worried counterparties might avoid doing business with Lehman in a replay of what happened to Bear Stearns. Banc of America Securities analyst Michael Hecht tonight said, "from here, we continue to view the situation as very binary, with a worst case scenario including a [Bear Stearns] type of bail-out/outright sale (which likely leaves little value left for common stockholders of about $2 per share after setting aside a ~$20B+ reserve for troubled asset markdowns, plus severance & retention)." The other option would be for Lehman to limp along by raising capital or selling off a portion of Neuberger Berman at fire sale prices.

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