Financial thoughts

Demand for cash from the European Central Bank soared as the global credit crisis deepened and banks stopped lending to each other.

The ECB today lent banks 190 billion euros ($273 billion) for seven days after initially estimating it needed to drain 40 billion euros from the system. Demand for dollars in Europe also surged, forcing the ECB to lend an additional $30.7 billion in one-day funds. It lent $30 billion earlier at a marginal rate of 11 percent, almost six times the Federal Reserve's 2 percent benchmark interest rate. Banks had asked for $77.3 billion.

“The ECB is the only port of call at the moment,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “The money market is barely working. Central banks are increasingly playing the role of a clearing house.''

Commercial banks are refusing to lend to each other after the U.S. housing slump caused the collapse of New York-based Lehman Brothers Holdings Inc. and forced governments to bail out banks in the U.S. and Europe. The U.S. House of Representatives yesterday rejected a $700 billion financial-rescue package. Central banks including the Fed and the ECB are injecting billions into global money markets in an effort to keep them functioning.

That didn't stop banks yesterday from borrowing 15.5 billion euros from the ECB at the emergency overnight lending rate of 5.25 percent, the most since 2002. They deposited a record 44.4 billion euros with the central bank at 3.25 percent instead of lending it to other institutions.

`Complete Disarray'

“Funding markets are in complete disarray, central banks are unable to get banks to lend to one another, not to mention the outside world,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. “The flow of credit will be seriously impaired for some time.''

Banks have recorded almost $600 billion in writedowns and losses tied to the U.S. mortgage market since the start of last year. In the U.S., the government rescued American International Group Inc. earlier this month and Seattle-based Washington Mutual Inc. was seized by regulators last week in the biggest U.S. bank failure in history.

Dexia SA, the world's biggest lender to local governments, was today thrown a 6.4 billion-euro lifeline by Belgium and France. The capital infusion came two days after Belgium, the Netherlands and Luxembourg agreed to inject 11.2 billion euros into Fortis, the largest Belgian financial-services company payday loans.

The euro fell 2.7 percent against the dollar, the most since the introduction of the shared currency in 1999, to $1.4035.

`Losing Money'

Britain yesterday seized Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, while Germany bailed out Hypo Real Estate Holding AG and Iceland agreed to buy 75 percent of Glitnir Bank hf.

“Banks are seriously losing money,'' said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt. “They're posting losses if they need money and they're posting losses if they have money.''

The financial-market turmoil “has intensified over the past few weeks, prompting central banks to step up their efforts to inject liquidity into global markets,'' ECB Executive Board member Jose Manuel Gonzalez-Paramo said at an event in Madrid today. “More than ever, bringing market participants back into a liquid and stable marketplace remains our top priority.''

The Fed said yesterday it will pump an additional $630 billion into the global financial system to counter the worst financial crisis since the Great Depression. The ECB, the Bank of England and the Bank of Japan are among central banks participating in the measures.

Libor Surges

The Frankfurt-based ECB said yesterday that it will lend banks 120 billion euros for 38 days in a “special'' auction that it will renew through the end of the year.

Still, the London interbank offered rate, or Libor, that banks charge each other for loans climbed 431 basis points to an all-time high of 6.88 percent today, the British Bankers' Association said.

The euro interbank offered rate, or Euribor, for one-month loans climbed to record 5.05 percent, the European Banking Federation said. The Libor-OIS spread, a gauge of the scarcity of cash, advanced to a record. Rates in Asia also rose.

“Liquidity injections are providing short-term relief but not a cure to a capital-starved banking system,'' Gareth Claase, an economist at Royal Bank of Scotland Plc in London, wrote in a research note. “The rapid deterioration in financing conditions, if it persists, has the potential to be very disruptive for the economy.''

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Although Wachovia Corp. has been mentioned as one of the more troubled big U.S. banks, at least some analysts believe it is not at risk and is unlikely to suffer the same fate of Washington Mutual Inc. They also believe that Wachovia will be able to survive on its own, without merging with another big financial institution.

Still, shares of the Charlotte, N.C.-based bank plunged Friday as investors, the day after WaMu’s failure, shifted their focus to other financial institutions that also suffer under the weight of mounting losses tied to toxic assets.

Shares plummeted $4.90, or 35.8%, to $8.80 in afternoon trading. Shares are down 64% this year.

On Thursday, the troubled Seattle-based Washington Mutual collapsed under mounting losses tied to bad mortgage bets. The Federal Deposit Insurance Corp. was forced to seize and sell its banking assets to JPMorgan Chase & Co. (JPM, Fortune 500) for $1.9 billion in an emergency sale. WaMu, the nation’s largest thrift, became the nation’s largest-ever bank failure.

"Wachovia is obviously trading down in sympathy," said Kevin Fitzsimmons, an analyst at Sandler O’Neill & Partners, in a telephone interview. "Investors are looking for who else out there has a large exposure to mortgage assets that potentially could be written down to a significant degree."

Wachovia’s (WB, Fortune 500) current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp faxless payday loan. in 2006 for roughly $25 billion at the height of the nation’s housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West’s specialty, which let borrowers skip some payments.

"The fundamentals at Wachovia right now are not real strong, there is no question about that," said Joe Keetle, senior wealth manager at Dawson Wealth Management, who previously spent 25 years at Wachovia. "But the reaction today has more to do with WaMu going under and waiting for Congress to pass a bill. It’s more emotional reaction today."

Essentially, the feeling on Wall Street is that Wachovia is hurting, but it’s not in the same dire straights as WaMu had been before it was seized by the FDIC. The company has been mentioned as a possible merger partner for Morgan Stanley.

The bank may need to raise additional capital or speed up its turnaround plans in some way to soothe investors in the short term, analysts said.

A Wachovia representative was not immediately available for comment. 

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Lennar Corp., one of the nation’s largest homebuilders, said Tuesday its third-quarter loss narrowed as it cut costs, but revenue fell by more than half amid a prolonged housing slump.

The Miami-based company’s loss for the quarter ended Aug. 31 was $89 million, or 56 cents per share, compared with a loss of $513.9 million, or $3.25 per share, a year ago.

Revenue fell 53% to $1.11 billion from $2.34 billion.

Analysts surveyed by Thomson Reuters, on average, predicted a loss of 52 cents per share on revenue of $1.07 billion.

Deliveries of homes fell 49% in the quarter and the average sale price of homes fell 9%.

"While we expected the housing market to remain constrained throughout the third quarter, the weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards," Chief Executive Stuart Miller said in a statement.

Miller said that the landmark housing stimulus bill enacted in July, which included a temporary, $7,500 tax credit for first-time homebuyers, has failed to stabilize the skid in U.S. home prices. He said more government intervention is needed.

Lennar (LEN, Fortune 500) has homebuilding operations in 14 states, including California and Florida, the hardest-hit housing markets in the nation.

Like other builders, the company’s business has been hurting due to the combination of weakened demand for new homes, tightening mortgage lending standards and buyer uncertainty over how long home values will continue to drop. The business is also facing mounting competition from deeply discounted, foreclosed properties and other preowned homes on the market.

To cope, Lennar has cut prices and is "aggressively" reducing construction costs, cutting jobs and consolidating divisions in an effort to improve results.

The builder ended the third quarter with $857 million in cash - an increasingly important indicator as the slide in home sales continues - and no outstanding borrowings under its credit facility.

During the quarter, Lennar delivered 3,791 homes, down from 7,636 in the same period last year. The sharpest drop occurred in Western markets.

The average sale price of homes delivered fell to $270,000 as the builder cut prices or offered incentives, such as discounts matching the $7,500 tax credit for first-time buyers.

In all, Lennar offered sales incentives amounting to $45,900 per home delivered during the quarter. That compares with incentives valued at $46,000 per home delivered in the same period last year.

New orders totaled 3,387 homes, down 42% from 5,804 last year.

The cancellation rate from buyers backing out on home contracts was 27%, improving from 32% in the same quarter last year.

Lennar’s backlog, or homes under contract yet to be delivered, fell during the quarter. As of Aug. 31, the figure stood at 3,554, compared with 6,367 units at the close of the same quarter last year.

The value of homes in backlog plunged by 53% from a year ago to about $1.05 billion.

Loss on land sales totaled $28.8 million in the third quarter, including $21.4 million of valuation adjustments and $10.9 million of write-offs of deposits and pre-acquisition costs related to about 900 home sites under option that Lennar does not intend to buy.

For the first nine months of Lennar’s fiscal year, the company’s net loss narrowed to $298.1 million, or $1.88 per share. That compares with a loss of $689.4 million, or $4.37 per share, in the same period last year.

Revenue fell to $3.3 billion, compared with $8.01 billion in the same period last year.  

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European and Japanese finance officials rejected U.S. Treasury Secretary Henry Paulson's plea to help rescue troubled banks, as the Group of Seven nations pledged to step up efforts to mitigate the financial crisis.

“We are ready to take whatever actions may be necessary, individually and collectively, to ensure the stability of the international financial system,'' the G-7 finance ministers and central bankers said in a joint statement after a conference call today. Specific policies weren't mentioned.

Paulson is seeking international support as he presses Congress to pass a $700 billion plan to buy devalued mortgage- related securities from investment firms in an effort to keep the financial system from coming to a standstill. European and Japanese ministers balked at his proposal that they take similar action to aid their countries' banks.

“None of the other six G-7 members will adopt a similar program to the U.S.,'' German Finance Minister Peer Steinbrueck told reporters in Berlin after the call.

The statement said the countries “strongly welcome the extraordinary actions taken by the United States to enhance the stability of financial markets and address credit concerns, especially through its plan to implement a program to remove illiquid assets that are destabilizing financial institutions.''

The G-7 said other countries' actions to address illiquid markets were “strongly welcome.''

Yesterday, Paulson told ABC News's “This Week'' program that the U.S. authorities are “talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will.''

Tepid Response

That proposal earned a tepid response in G-7 capitals today as other governments continued to argue that their banks are in better shape than those in the U.S electronic check payday advance.

Paulson made his request after the Treasury modified its initial rescue proposal to allow institutions with “significant operations'' in the U.S. to receive assistance, potentially opening it up to banks with U.S. affiliates, such as Barclays Plc and UBS AG.

“The situation is not comparable to Germany's,'' Steinbrueck said.

French Finance Minister Christine Lagarde told BFM Television that she had “decided to take no other measure'' beyond banning short-selling practices.

Japan's Vice Finance Minister Kazuyuki Sugimoto said in Tokyo that he didn't “think it's necessary for Japan to set up a similar program to the U.S.'' U.K. Chancellor of the Exchequer Alistair Darling today acknowledged that while the financial crisis is “a global problem and it will require global solutions,'' it needed “not a knee-jerk reaction, but a measured response.''

More Regulation

The G-7 is composed of the U.S., Japan, Germany, France, Canada, Italy and the U.K. Its finance chiefs and central bankers are next scheduled to meet on Oct. 10 in Washington.

In their statement today, the officials said they recognized “the importance of making regulation more effective and bringing investors back into a liquid and stable marketplace.''

Central bankers have already cooperated. The Federal Reserve last week quadrupled the amount of dollars its counterparts can auction around the world to $247 billion in a bid to relieve a shortage of the U.S. currency in foreign markets. The French, British, German and American governments have also acted to bar short-selling of financial companies.

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Investors will hand down their verdicts this week on worldwide rescue plans topping 1 trillion dollars designed to end the worst financial crisis since the Great Depression.

The Bush administration asked Congress on Saturday for $700 billion to bail out firms burdened with bad mortgage debt, seeking extraordinary authority as it seeks to prevent meltdown in the global financial system.

Senior Bush administration officials pressed counterparts in Japan, Germany, Britain and other nations to set up similar plans for their own troubled financial firms

After a rollercoaster week which saw the collapse of Lehman Brothers, the bailout of insurer AIG and the firesale of Merrill Lynch and UK bank HBOS, policymakers hit back, throwing a lifeline of billions of dollars to global markets and banning short selling.

The Federal Reserve led a central bank move on Thursday to flood $180 billion into jammed up money markets and on Friday the U.S faxless cash advance. Treasury laid out $50 billion to guarantee money market mutual funds and crafted a plan to mop up toxic mortgage debt.

The market reaction on Friday was dramatic. World stocks, measured by MSCI, rallied 6.15 percent, posting their biggest one-day gain since at least 1988, while the dollar rallied more than 2 percent against the yen.

Russia, which was forced to suspend stock and bond trading for two days last week, is pledging $130 billion in emergency funds to help prop up local markets.

Under the latest U.S. plan to purge bombed-out assets from balance sheets, the U.S. government could acquire up to $700 billion in home and commercial mortgages and related assets from U.S.-headquartered banks and other institutions over the next two years. 

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House Financial Services Committee Chairman Barney Frank said Congress within two weeks will pass legislation letting the Treasury take on financial companies' soured assets to help revive credit markets.

“I'm pretty sure this will be Treasury being the one that executes it because you don't have time to create a new agency,'' Frank said today in an interview on Bloomberg Television's “Political Capital with Al Hunt.''

The temporary plan is likely to include a “second stimulus'' proposal, and Congress will begin weighing broad regulation of hedge funds, private-equity firms and investment banks when it reconvenes next year, the Massachusetts Democrat said.

Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox met with Frank and other congressional leaders in Washington yesterday to propose steps to calm financial markets roiled by the biggest housing slump since the Great Depression. The plan would remove devalued mortgage assets from companies' balance sheets. Frank said Bernanke and Paulson told him doing nothing would mean “disaster, the financial system going into a mode of very little activity.''

The plan may cost taxpayers “ultimately not a great deal,'' because Treasury will buy “selectively,'' Frank said. The bad debt will cost “maybe double-figure billions over a few years,'' he said.

Tax Rebates

The House of Representatives will pass legislation to implement the plan by the end of next week, and the Senate will act soon after, Frank said internet payday loans. The second stimulus package may include infrastructure funds, low-income energy aid and Medicaid assistance. It won't contain tax rebates for families, he said.

“It's a lot of aid to the states and cities so they can keep spending, and on socially useful stuff,'' Frank said.

Congress will move next year to place Wall Street firms under rules similar to those governing commercial banks such as capital requirements and limits on leverage, he said.

Commercial banks “are examined and they can't make loans that are too risky,'' Frank said. “And because they have to have a minimum amount of capital, they can't get so extended to a point where they owe 30,40, 50 times as much as they can put up.''

He endorsed the SEC's decision to temporarily ban short- selling to bet on declines in the shares of financial companies. The prohibition, which covers 799 companies, is effective immediately and will be in place through Oct. 2, the SEC said today.

“They banned it some, they should go even further,'' Frank said. “This is another example of the price we are paying for the philosophy of deregulation.''

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The Federal Reserve and five other central banks around the globe announced joint efforts early Thursday to try to pump an additional $180 billion into the battered global financial system.

The Fed joined with the European Central Bank, the Swiss National Bank, the Bank of Japan, Bank of England and Bank of Canada in the coordinated effort.

"These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets," said the Fed’s statement. "The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures."

The bankruptcy of Lehman Brothers and the Fed rescue of insurance giant American International Group (AIG, Fortune 500) this week has led to a tightening of credit in global markets.

Major banks have become even more reluctant to lend to each other on an overnight basis because of worries about unknown financial problems with other institutions and a desire to hoard cash to protect themselves.

Even money market managers are reluctant to loan money to banks, preferring to buy short-term Treasurys instead. That demand has driven up the price of Treasurys and driven down the yield, or interest rate, that those government instruments pay.

The yield on the 3-month Treasury bill fell briefly into negative territory for the first time since 1940 and closed Wednesday at 0.04%.

"Liquidity has never been in shorter supply in the credit markets during this painful episode," said Kevin Giddis, managing director and head of fixed income for investment bank Morgan Keegan.

Bond prices slipped narrowly, lifting yields only slightly guaranteed payday loan. The three-month had a yield of 0.105% in early trading. Giddis said the markets are looking for a more permanent solution than the one announced by the central banks Thursday.

"Based on nearly every metric that’s used in our business, a clear message has emerged over the last couple of days’ of trading activity: those with capital are reluctant to lend until the near term visibility becomes a little more certain," he added.

The New York Federal Reserve Bank Thursday also pumped $55 billion into the nation’s financial system. That comes on top of $70 billion that it pumped into the system Tuesday.

The announcement of coordinated action Thursday helps provide dollars to foreign banks that needed the U.S. currency to transact business, but had been unable to access the Fed directly the way U.S. banks can. While the Bank of England and European Central had pumped money into their own financial systems earlier this week, that had been in the own currency, not dollars.

The ECB will get a $55 billion increase in the dollars it can loan out, doubling what it had already received under an earlier swap program, while the Swiss National Bank will receive an additional $15 billion on top of an earlier $12 billion program.

The Bank of Japan, Bank of England and Bank of Canada set up new swap programs with the Fed, with Japan getting $60 billion, England getting $50 billion and Canada getting $10 billion.

The swap program provides essentially no risk for the Fed since the U.S. central bank is receiving the same amount of cash back from its foreign counterparts.  

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If your morning commute takes you on Florida’s Turnpike in the Doral area, be prepared for a major traffic realignment at the Okeechobee mainline toll plaza as early as Monday morning.

That’s when the southbound SunPass-only express lanes are scheduled to open, just in time for the morning commute.

Drivers with SunPass will be routed under the new open-road tolling lanes and should stay in the left or center lanes. There will be no gates and no tollbooths for drivers with SunPass.

What’s important to note is that the SunPass-only lanes will be separated from the cash/SunPass lanes by a concrete wall, and drivers will not be able to make any last-minute lane changes.

Cash customers who accidentally end up in SunPass-only lanes should not stop, but keep driving paydayloans. Once a destination is reached, call (888) 865-5352 to avoid a penalty.

Cash customers should be in the right lane as they approach the toll plaza, which will have five tollbooths available to collect both SunPass and cash tolls.

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Consumer prices eased on an annual basis in August, bouncing off a 17-year high the previous month as energy prices fell, the government said Tuesday.

Overall consumer prices rose 5.4% in August from a year ago, the Labor Department said. The annual rate of increase was 5.6% in July, the highest level since 1991.

On a monthly basis, the Consumer Price Index fell 0.1%, in line with the decrease expected by economists surveyed by Briefing.com, and compared with the 0.8% rise in July.

The report may indicate a "turn in the underlying trends in inflation," said Mark Vitner, senior economist at Wachovia. "All the stars are aligned today for a significant moderation in inflationary pressures."

"Inflation is about to slow in a very significant way because we have weak global growth," said Vitner. And we have seen "dramatic declines in commodity prices that are unlikely to be reversed," he added.

Excluding volatile energy and food prices, the core Consumer Price Index increased by 0.2%, which was what economists had expected. That measure rose 0.3% in July.

Energy prices fell 3.1% in August, but remained 27.2% higher on an annual basis.

Instability: Wall Street reeled on Monday on a flood of bad news, and stocks were battered. The Dow Jones industrial average shed 504 points, or 4.4%.

On Monday, Lehman Brothers (LEH, Fortune 500) filed for bankruptcy, while Merrill Lynch (MER, Fortune 500) agreed to be purchased by Bank of America (BAC, Fortune 500) on Sunday. Meanwhile,American International Group (AIG, Fortune 500) continues to be hit by downgrades even as it struggles to come up with capital.

The financial news "implies weaker economic growth," said Vitner. "Weaker economic growth means that there will be more slack opening up in the economy, and that means inflation will be headed lower."

Speculation mounted that the Federal Reserve bank will step in and cut interest rates http://savingpaydayloans.com. For the past several months, the central bank has had to balance a slowing economy with inflation pressures. "This frees the Fed’s hands to cut rates, if they deem that to be the right move later today," said Vitner.

"If inflation continued to accelerate, it would make it very difficult for the Fed to cut interest rates," said Vitner. "But now, if they need to cut interest rates, they will do it."

Food and gas: As drivers know, the pain at the pump eased in August - although Hurricane Ike made those lower gas prices mere memories in September.

In August, gas prices decreased 4.2%, following a 4.1% increase in July. Even with the relief in August, however, gas prices remained 35.6% higher than in August 2007.

Food prices gained 0.6% in August following a 0.9% increase in July. Food prices were up 6.1% for the year.

Grocery bills were bigger this year than last year. The index for food at home increased 0.8% in August, following a 1.2% rise in July. However, four of the six grocery store food groups increased less in August than in July.

Cereals and bakery products declined 0.1% in August after a 1.8% jump in July. Prices for dairy products rose 0.4% in August after a 1.6% increase in July.

The index for meats, poultry, fish and eggs increased 1% for the second consecutive month. The fruits and vegetables index jumped up 2.1% in August, after a 1.2% increase in July.

The price of fruits and vegetables have jumped because of the high cost of gas and diesel, which farmers use to get products to market, said Vitner.

"If you go to the farmers market, you don’t get a good deal," he said, "because they are having to spend so much to bring their products to market."  

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When Lehman Brothers filed for bankruptcy on Monday, the government essentially sat on the sideline. Six months ago, when Bear Stearns faced a similar fate, the Federal Reserve intervened with the Treasury Department’s support.

Why did Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson change their tune?

Experts say the Fed’s lack of action on Lehman wasn’t as much a change in thinking as it was a change in circumstance. They say simply that the firms were very different - that Bear posed a greater risk - and that regulators were better prepared this time to deal with the consequences of a failure.

"The system wasn’t ready for Bear to fail in March," said Jaret Seiberg, financial services analyst for policy research firm Stanford Group. "It couldn’t have been unwound in an orderly fashion."

In the case of Bear Stearns, the Fed engineered a bargain-basement sale of the firm by JPMorgan Chase (JPM, Fortune 500) by agreeing to assume $29 billion of the risk of losses from Bear Stearns going forward.

But when other banks considering a purchase of Lehman (LEH, Fortune 500) over the weekend sought the same kind of assurances from the Fed, they were turned down. Without a buyer, Lehman had little choice but Monday’s bankruptcy filing that is expected to lead to its liquidation.

Seiberg said a Bear Stearns bankruptcy would have prompted a massive sell-off and hit the financial sector much harder than the Lehman bankruptcy did on Monday. The Dow Jones industrial average fell more than 500 points Monday - a very rough day but not as bad as many feared. Seiberg said that steps taken by the Fed to make more money available to Wall Street and banks since March means that "the market doesn’t have the same liquidity fears about Lehman failing as it did about Bear."

Barry Ritholtz, CEO of Fusion IQ, said that Bear Stearns’ holdings also posed a greater risk to the nation’s financial institution than did Lehman’s. He said Bear Stearns had $9 trillion worth of financial instruments known as derivatives, much of it shared with other financial institutions such as its eventual buyer, JPMorgan Chase. He said Lehman had about a tenth that much exposure.

"Lehman was only incompetent enough to blow up and destroy themselves, where as Bear’s degree of incompetence was enough to threaten the entire financial system," Ritholtz said http://us-fast-cash-now.com.

There is also a sense that investors, financial regulators and Wall Street firms have a better handle on the problems in the financial markets than they did six months ago. The fact that Bear Stearns took place when there was so much more uncertainty is also a reason the Fed kept it out of bankruptcy then, but didn’t step in to help Lehman now.

"We didn’t know what we didn’t know in March," said Art Hogan, chief market analyst at Jefferies & Co. "We know much more now."

And there is also the widespread belief that the Fed felt it needed to take a stand and not become the first and primary source of funds for every purchase of a troubled financial firm.

"The Fed did not want to be in the position of having to save everybody," said David Wyss, chief economist with Standard & Poor’s.

But experts said it’s certain that the recent upheaval - the Lehman bankruptcy and the seizure of mortgage lending giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) by the Treasury Department - will cause more losses going forward.

"There’s a possibility that this unwinds in a much more messy fashion than we’re seeing right now," said Hogan. He wouldn’t rule out the aftershocks of Lehman even causing a failure of another major firm.

"It’s too soon to say nothing bad has happened because of Lehman," he said. "I don’t think we’ll know in six days or six weeks. We’ll know a lot more in six months than we know right now."

And that uncertainty about the challenges that lie ahead is another reason that the Fed and the Treasury Department didn’t want to rush in to keep Lehman out of bankruptcy - the realization that there could well be bigger and more expensive challenges ahead.

"There was a lot of negative pressure about all these bailouts," said Bob Andres, chief investment strategist for PMC. "They have to use the money they have judiciously." 

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