With the excitement in the market last Friday, chances are you missed the fact that regulators closed Ameribank, which is based in West Virginia.  This raises the number of retail banks closed to 12 for 2008.

Ameribank was a small, $104 million dollar, operation that got into trouble with construction rehabilitation loans in low income real estate markets.

It’s all part of the shake out, nothing to fear… yet…

In an effort to prevent the proverbial house of cards from falling in the financial industry, the Federal Reserve is providing an 85 Billion dollar loan to AIG in exchange for an 80% stake in the company.

Here is what will now take place:

1. AIG obtains a 2 year, 85 Billion dollar loan
2. Certain lines of business will be sold in order to repay the loan
3. The company’s management will be replaced, former Allstate Corp. CEO Edward Liddy will take the top spot within AIG

Most likely the entire company will be sold, in the long run, to repay the debts owed to the Federal Reserve; however, the two years allows the new management to orderly sell of the company, repay debts, and not cause panic in the financial markets. The major reason the Fed stepped in with AIG, and not in the case of Lehman, was due to the chance AIG would bring down financial institutions in the U.S., as well as overseas financial institutions.

What is unknown at this point is what happens to the company, and any equity holders. Does a much leaner AIG come out to the market place, or does this entire process simply mean here is 85 billion dollars to orderly disband the company leaving employees, equity and bond holders with nothing.

But what does this mean to us, the bag holding public? Nothing. The assets of AIG will have to be sold off in order to pay a loans coming due and thereby protecting the taxpayer.

So, no, this is not like Fannie Mae and Freddie Mac… that is the deal that will hurt the tax paying public.

Others:

Ankle Biting Pundits – The Financial Meltdown
Let’s talk Money – Fed’s $85M loan to AIG; Time to fire Paulson
Lehman collapse – AIG on the way
A Time to choose – $85 Billion to AIG, oh my god
Jon Taplin’s Blog – The AIG Rescue

What the financial markets face today are two ugly monsters, walking hand and hand, causing devastation wherever they seem to go.

First off, the economy is stuck in the middle of a Sub-Prime mortgage crisis. Essentially, banks became greedy and started handing out mortgages and loans to just about anyone who had a pulse, couple this with falling real estates values and there is a disaster waiting to happen.

A large number of the recipients of said loans often had poor credit and little to no money down on the property they purchased. Suddenly, home owners can no longer pay on their mortgage (loss of a job, mortgage rates changed) and the bank is left with property deflated in value and no one to pay on the loan. This means financial institutions are now holding “bad debt” – receivables that can no longer be collected on – which needs to be covered on the company’s balance sheet. When the bank can no longer cover the debt situations like Countrywide, Lehman Brothers or Bear Stearns take place, they go out of business and the remaining assets, or anything of value, are purchased by competitors for pennies on the dollar.

The second crisis facing Wall Street – no, the economy in general – is now a credit crunch.

Due to the risk seen in the mortgage industry, and the bodies on Wall Street, banks and institutions are unwilling to provide, or make it incredible difficult to obtain credit for, individuals or companies.

You want a new car? Maybe you cannot get a loan because your credit is under 700. What about that oil producer? BigOil Co. wants to expand operations but cannot obtain a loan because the cost is too great, there by reducing a competitive advantage. Worse yet, companies that need bridge funding – funding for the short term to fund operations – may be unable to get the cash they need and as a result go out of business.

AIG, one of the largest bond insurers in the World, is being hit by both the sub-prime crisis and the credit crunch.

One of the many products AIG offered was insurance on financial products and what is hurting the company at this point is their insurance of mortgages. When a financial institution had a loan that is considered to be “bad” they file a claim (AIG) in order to recoup their money. While AIG could be able to insure the mortgage portfolio of one institution, say Country Wide for example, it did not have enough money to fund the portfolios of Country Wide, Lehman and Bear Sterns combined. So, what does the company do? Go to the credit market…but that well may be dry due to the credit crunch as described above, leaving the company trying to find a buyer for it’s assets, find funding at a steep price, or going bankrupt.

Note: Constellation Energy fell almost 40% as investors fear banks may pull lines of credit – this is how the credit crunch can impact ALL aspects of the world economy.

The sub-prime crisis triggered the credit crunch. As a result every individual, world wide, is at risk of being impacted in some way – be it large or small. The lack of credit or liquidity has the ability to send economies around the world into recession. If businesses are not spending money, people are not spending money, and economies shrink until the deflation has worked out of the system.

While I understand the government’s reason for stepping in to socialize Fannie Mae and Feddie Mac, I am sure I agree with the decision to do so. The only thing I can assume is the impact on the U.S., and potentially global, economy was so great no other option existed. So, in this political season the question that seems to be asked quite often is “What policy could be put in place to stop this?” Short answer: none.

As much as people do not want to hear it, this is what happens in a free market. Ups and downs occur. The government should not be rescuing companies because of their greed or poor judgment, nor should they be bailing out the “man on the street” that purchased too much home.

The one place government does need to look; however, is their enforcement of financially significant data. A number of the financial institutions with bad debt were unable to tell investors or regulators just how much risk was on their books (i.e. – we don’t know how many of our loans are bad). This lack of visibility in financial information led to the sudden collapse of firms like Bear Sterns and Lehman

Funny thing… I thought SOx was going to fix all of that.

Hang on, the ride is going to be bumpy for some time.

Others Covering:

The Anchoress: Wall Street Woes, Media Meltdown & More
Hot Air: Who’s policies led to the credit crisis
Right Voices: Dodd says he was on top of the financial crisis
Flopping Aces: Democrats rewriting history once more
The Dude’s Blog: Disingenuous Dems Lying About Credit Crisis

Just scanning the news today when I found this wonderful headline:

Doctor convicted of giving patients breast massages – to cure their hair loss

From the article:

Leading hair consultant Praminder Mankoo told his victims they needed stress relieving massages to help with their scalp problems but instead groped their breasts under the guise of ‘treatment’. Ms Franklin, of Windsor, Berkshire, said: ‘He began to massage my shoulders and slowly his hand crept down until he had a full hold of my breast. Then he ripped off his coat and stripped naked.

Actually, if you read the entire article you’ll see how disgusting this guy really was… what I would like to know is why it took 10 years to have him convicted, and I would also be interested to know how many other women this happened to.

With the Lehman bankruptcy filing it was a foregone conclusion that the stock market was going to be hammered today. The DOW opened down almost 300 points – Energy, Basic Materials, Conglomerates and Financial were hit the hardest.

This is a sell due to Lehman along with falling oil and weakness in the dollar, but what a sell off it is. Just focusing in the Investment Services sector for a second, look at where stocks sit as of right now (11AM ET)

Lehman Brothers (LEH) – 0.20 – down 94.4%
AIG (AIG) – down 42%
Bank of America (BAC) - down 15.23%
UBS AG (UBS) – 17.83 – down 13.44%
Morgan Stanley (MS) – 34.16 – down 8.25%

AIG is in the downward spiral Lehman was facing, all this because of exposure to bad debt with real estate. Based on reports in the media AIG is searching hard for funding and may not be able to avoid a liquidity crisis.

One has to ask where will the pain end? Ironically, the answer seems to be when the housing market stabilizes. It’s funny the investment instrument that helped create the current situation may be the thing that can put a stop to this mess. The only issue is that it may be a long time off…

Nothing like waiting to the last second – Lehman Brothers, at 1:21 AM ET, says that it was unable to find a buyer for the firm and that it intends to file for Chapter 11 bankruptcy.

With this news, which was expected, the sale of Merrill Lynch to Bank of America, and markets are falling around the world in response to the Lehman, as well as a crashing dollar, Monday will be a very interesting day on Wall Street.

Just a week ago the Democrats and Republicans alike were under the impression Bacak Obama was going to have a problem with his fundraising efforts (I commented on that here) but the Obama camp released the August fundraising numbers – $66 million.

Now that the conventions are finished and there are 51 days left until the election, let’s see how both camps do raising money.

Very impressive on Obama’s part. As I said before, polls are one thing but money is something you cannot argue.

Wall St. woke up and saw the writing on the wall for Lehman Brothers (LEH) this past week.  Thinking bankruptcy was a distinct possibility; investors sold off the stock letting the price fall roughly 77.4% in the last five days alone.  So, where does this leave us?

Starting Friday evening, members of the Federal Reserve and Senior Management of Large US banking concerns were meeting to discuss a purchase of Lehman.  The Government made it clear no funds would be provided to save the bank, nor would they subsidize the purchase for any interested party.  Does that mean anything at this point?  Just a few weeks ago they said Freddie Mac and Fannie Mae were not going to be supported with Government funds either.

As the weekend continued on Barclays bank, out of the U.K., emerged as a potential buyer of Lehman but decided against the purchase when the U.S. government would not offer to limit the potential losses. This means, as of right now, no known buyer is stepping up to make the purcahse.

Right now it looks as if Bankruptcy is the only way out, but what other possible – all be it slim fates – may await Lehman?

• Another buyer is found who is willing to pick up all liabilities
• Another buyer is found but the Federal Reserve will help support the purchase by funding a portion of the sale or accepting some of Lehman’s liabilities
• No buyer is found; bankruptcy takes place, causing possible panic on Wall St.

The big reason the Fed wants to resolve this issue over the weekend really means a Lehman collapse has the potential to throw the market into a panic and bring other banks down in the process, but the Street seems to think otherwise.  With the pending collapse of Lehman is that the money markets do not seem to be concerned with what is occurring.

Is it a bankruptcy?  Is it a buy-out?  Is it a buy-out with government support?  Let’s see what Monday brings…

Others covering:

Chartsandnumbers – Lehman Brothers Fate
Lehman Brothers Weekend Opera @ Ruleboy
nahnopenotquite.com – Lehman to be Liquidated?

With Ike hitting the U.S. late Friday night / Early Saturday morning, the news and picture of the aftermath are now coming out.

Initial news reports are indicating the economic damange, mainly due to the fact that oil infrastructure seemed to have been missed, is much less than had been expected.   The major problem facing the areas hit by the storm is the lack of power, roughly 2.6 million customers in Texas and Louisiana are out of power.

Interested in some pictures of the aftermath?  Chron.com has a nice wrap up.

This is worth reading – Melissa Clouthier was Live Blogging her Hurricane experience.

If you are interested in the Hurricane and the impact to oil, check out The Oil Drum. They have data showing what Oil rigs are out of order due to the storm.  Outstanding write-up, great read and a new add to my “must read” list.

If you’ve ever wanted to feel small, just take a look at this:

Hurricane Ike over Cuba

This is a picture that NASA took as Ike passed over Cuba. Now realize that the storm has doubled in size since this picture was taken. Amazing. Simply amazing.

The storm looks to be on track to his Houston at some point this evening. With nearly a million people moving out of Ike’s path, gas prices on the rise due refinery shut downs, and 15 foot storm surge expected, this will be a wild weekend for some in Texas.

Here is the current model…

Others talking about the storm:

Hurricane Ike Resources
Jonny Torres – Ike video coming ashore
Diary of a Mad Poker Player – Hurricane Ike
Symonsez – Hurricane Ike Not Intense But Has Serious Muscle