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Subject:  Wall Street Gets Set to Make a Killing Date:  9/14/2008  8:18 PM
Author:  doubtit Number:  251846 of 501122

Mean Street: If Lehman Liquidates, Wall Street Gets Set to Make a Killing
Posted by Deal Journal
So this is the way it ends. Not with a bang but a whimper–Lehman Brothers looks headed into liquidation.

Apparently, you can put dozens of Wall Street’s finest into conference rooms at the Federal Reserve Bank of New York, but they can’t rewrite an immutable law of human nature: people act in their self-interest.

And it is in everyone’s narrow interest–except for Lehman’s shareholders, debt holders and employees–to see Lehman in bankruptcy proceedings.

Over the weekend, it has become clear that Lehman is a zero sum game. Slice it and dice it. Ring fence asset manager Neuberger Berman. Put the commercial mortgages into a separate vehicle. But the $53 billion of illiquid assets that Lehman has on its books are still bad assets.

Early on the Treasury Department made it clear the U.S. taxpayer doesn’t want these assets. Barclays and the Bank of America don’t want them either. So the Treasury has tried without success to convince Lehman’s Wall Street brethren to take them on.

But why should they?

Imagine you are John Thain, CEO of Merrill Lynch. Unlike Dick Fuld, who has held tight, in July you sold collateralized debt obligations with a face value of $31 billion at 22 cents on the dollar. But you still are capital constrained.

And now you are asked by Treasury Secretary Hank Paulson, the man who didn’t make you CEO of Goldman Sachs, to put up billions of dollars to save Lehman? So that Barclays or BofA can pick up Lehman on the cheap to compete with y