http://www.reuters.com/…

A meeting between top government officials and the heads of some of Wall Street’s biggest financial firms over the fate of Lehman Brothers broke up on Saturday but was set to resume on Sunday, a spokesman for the New York Federal Reserve Bank said.

“Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow,” the spokesman said. Small groups were continuing to work into the night on unspecified issues that were raised at the meeting.

Efforts are under way among Lehman executives, potential buyers and government officials to craft a buyout plan for beleaguered Lehman, possibly before the weekend is over.

Lehman has become the latest victim of the global credit crunch but Treasury and the Fed have made clear they do not want to see taxpayer funds committed to any deal involving Lehman.

Among government officials at the meetings were New York Fed President Timothy Geithner, U.S. Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

I wasn’t able to pay attention to the market the 11th and 12th as a result of attending the Service Nation Summit so I missed the Lehman Brothers and Merrill Lynch stock plunge. (Morgan Stanley didn’t do well, Fannie and Freddie dropped quite a bit too.) The Fed claims that they won’t step in with credit because Lehman has been doing poorly for some time and have access to the discount window. Seems last reported was that Lehman was perhaps to be broken up in three ways with “Bank of America would acquire the bulk of Lehman Brothers, including its mortgage assets. Barclays, Britain’s third-biggest bank, would take a smaller parcel including Lehman’s asset management and fixed income businesses, while Goldman would take the rest.” However other sources are claiming Barclays has backed out citing it “couldn’t get guarantees from the government or agree on a private-sector deal to mitigate what it called Lehman’s “open-ended” trading obligations.”

It’s going to be interesting to see what comes out. They really want to figure out something before Asia markets open. Tomorrow could be a really nasty day.

In other news JP Morgan is in talks to buy Washington Mutual. With all these buyups and mergers the results remind me more and more of the 1907 panic where its believed that JP Morgan spread rumors of bank insolvency in order to buy their assets up cheap after the bank run which would inevitably occur. The neo-merchentialist/corporatist system we have continues to increase the power and wealth of the bankers and power elite at the expense of all the rest and the public continues to dig their own grave by playing into the hands of the banks and politicians by requesting more regulation and nationalization which only further expands their power.

For those interested in knowing more about the history of banking in the United States, The Great Depression and why the Federal Reserve System is bad:

America’s Great Depression

• Free: http://mises.org/rothbard/agd.pdf
• Print: http://www.mises.org/store/Americas-Great-Depression-P63.aspx

History of Money & Banking in the United States

• Free: http://mises.org/books/historyofmoney.pdf
• Print: http://www.mises.org/store/History-of-Money-and-Banking-in-the-United-States–P191.aspx

The Case Against The FED

• Free: http://mises.org/books/fed.pdf
• Print: http://www.mises.org/store/Case-Against-the-Fed-The-P69.aspx

I just checked the news and it looks like Bank of America has pulled out too. The Fed is claiming it won’t provide any funds to prevent the collapse. Tomorrow is not going to be pretty. I also noticed that Mr. Greenspan is saying the obvious: “the U.S. credit squeeze has brought on a “once-in-a-century” financial crisis that is likely to claim more big firms before it eases.”

http://money.cnn.com/…

The Federal Reserve did not have any advance warning of the impending financial collapse of Bear Stearns (NYSE:BSC) , but now has examiners onsite at investment banks to evaluate their capital situation and potential risks, Fed Chairman Ben Bernanke told Congress’s Joint Economic Committee this morning.Bernanke said the first notification was on the morning of Thursday, March 13 that the liquidity position of the company had deteriorated drastically and that it would file for Chapter 11 bankruptcy reorganization the next morning unless some financing was arranged.

The Fed and Treasury arranged 30 bln usd of financing through JP Morgan Chase. ‘We did not bail out Bear Stearns,’ Bernanke told the committee. ‘We did what we did because it was necessary to maintain the integrity and viability of the financial system.’ While Bernanke said the actual financial risk to the Fed in taking on suspect securities as collateral for the loan was nowhere near the potential 29 bln usd now on its books (JP Morgan would take the first 1 bln usd of any losses), he also told the committee: ‘I’d hope not to ever do it again’.

Because the Fed has now opened up its discount window for direct lending to investment companies as well as banks, the Fed now has its bank examiners on site at the investment companies to assess their financial positions and Bernanke said he did not expect another Bear Stearns-type situation to occur.

I don’t doubt they didn’t realize that Bear Stearns was in trouble till that Thursday but they should have known something like that was likely to happen. Bernanke could have ratched down the interest rates slowly starting 6 months ago but if he had the market would have dived because it would have meant there was suspicion of a problem. Which would have been accurate and a dive at that point would have likely been nothing in comparison to what we have now. Several things really frighten me about all this. 1. The opening of the loans to investment firms creates a whole new level of central control corruption. 2. The word has come out that they have been planning to do that since last year. 3. “We did not bail out Bear Stearns.” Bullshit. bailout: A situation in which a business, individual or government offers money to a failing business in order to prevent the consequences that arise from a business’s downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may or may not require reimbursement. 4. ”We did what we did because it was necessary to maintain the integrity and viability of the financial system.” This shows how fragile things are. If a single company failing can cause the public to lose faith in the entire financial system sounds to me that system deserves it. 5. From what I’ve gathered the Fed had offered loans to the investment firms before Bear Stearns had bad problems so why didn’t they take out a loan from the Fed to cover their position? Why did the Fed supposedly push so hard for the $2 a share deal and get pissed at the $10 a share deal? Something happened behind the scenes we don’t know about and even though Ben “hope[s] not to ever do it again” I think we are more likely to head toward the Nordic system the Bush administration was talking about then go back to a freer economy based on personal responsibility and honest money.

http://www.smartmoney.com/…

J. P. Morgan Chase & Co. said Sunday evening that it is buying battered broker Bear Stearns Cos. for $236 million in a Federal Reserve-backed bailout unprecedented in scope and execution.

The Federal Reserve, which cut the discount rate in a coordinated move with its announced backing of the deal, is taking the extraordinary step of providing special financing in connection with this transaction.

The Fed has agreed to provide financing of up to $30 billion of Bear Stearns’ (BSC) less liquid assets. Roughly $20 billion of that funding will back mortgage securities held by the beleaguered brokerage firm.

J.P. Morgan (JPM) will exchange 0.05473 shares of its common stock for one share of Bear Stearns stock. Both boards have approved the transaction.

The deal offers Bear investors $2 a share, a massive discount to the firm’s closing price of $30 on Friday. A week ago the stock was trading above $60 and a year ago it was at more than $150. On Friday, Bear executives told analysts and investors that the firm’s book value - a measure of assets minus liabilities — was still at least $80 a share.

The destruction of billions of dollars worth of value in a matter of days shows how vulnerable even the biggest brokerage firms are to the current credit crunch. Bear’s business quickly crumbled last week as counterparties and clients lost confidence and stopped trading with the firm. Since being founded in 1923, Bear managed to survive all other crises, including the Great Depression.

And this shows how serious this whole situation is. This story is partially from Friday and the buyout and discount rate drop (first in almost 3 decades) this weekend. Ron Paul and the rest of the Austrians tried to make monetary policy and the economy a core aspect of this current US presidential race and was mocked by McCain, Romney, Rudy, Thompson and the others. Now the shit is hitting the fan, the Federal Reserve is likely to drop another 100 basis points. Some are saying that they may drop to 1.75%. What will the Fed do if we get toward 0% and we still have issues?

As Michael S. Rozeff said over at LRC:

There is no reason why the firm should not have been let fail. Its customers and lenders were abandoning it in a vote of no confidence. Why shouldn’t failures fail? The firm’s stock fell sharply and it will probably fail or be absorbed anyway. If Bear could not pay its borrowings to others, should they not suffer and feel the pangs of their errors? If Bear had to liquidate securities, should they not find a price at which investors are willing to hold them? Let the bankruptcies roll! Why is Bear favored and not others? How can a financial system in which risk plays a key role be insulated against downside risks when they come to pass? Only by shifting them to taxpayers. Main Street’s distrust of Wall Street is due for a resurgence now that the open and corrupt alliance between the Fed and its Wall Street favorites is coming out into the open. The spectacle of one bailout after another is disgusting and dismaying. The Fed is doing everything it can to prolong the financial difficulties and heighten their impact.

I wonder if we will see Bush call a bank holiday? I’d have to be a week just to keep from people freaking out over the call of the holiday.

UPDATE:

Snapshot of the bank’s stock prices at 12:00PM:

Is Lehman Brothers next to go?