Fix your own mess

Sept. 16, 2008 12:00 AM
The Arizona Republic

It may have been the highest-stakes poker game in history.

Federal officials and Wall Street's biggest investment houses gathered over the weekend to decide the fate of two of the nation's largest and oldest brokerages, Lehman Brothers and Merrill Lynch.

The listed assets of Lehman, alone, stood last May at $639 billion, on paper; its debt at $613 billion. Merrill Lynch, a wealth-management giant with 17,000 financial advisers, was said to be worth $100 billion just a year ago. Over the weekend, both firms teetered toward bankruptcy, weighed down with rapidly devaluing real-estate holdings.

And throughout the tense weekend, the Wall Street titans and Treasury Secretary Henry Paulson stared each other down. Would the White House approve yet another Wall Street bailout?

As it happens, the financial houses would have to clean up their own mess. As of Monday, 158-year-old Lehman Brothers has begun the long, torturous tumble into bankruptcy. Merrill Lynch, meanwhile, has found a white knight: Bank of America has purchased the company for $50 billion, a deeply discounted price, but far from a fire sale.

Stocks took a serious tumble Monday. The Dow Jones slid 4.4 percent, bringing the market to its lowest point in two years.

Other financial institutions - insurance giant American International Group, for example - are also suffering fallout. This is going to hurt.

That's the bad news. The good news, at least for taxpayers, is that the federal government has said, effectively, that Wall Street's woes are for Wall Street to correct. Washington is getting out of the bailout business. Taxpayers have recently been forced to underwrite far too much of the financial storm. An earlier federal-backed bailout of investment house Bear Stearns, followed by the U.S. takeover of Fannie Mae and Freddie Mac have, together, added an estimated $5 trillion to the national debt.

Treasury Secretary Paulson, Federal Reserve Chairman Ben Bernanke and Timothy Geithner, president of the Federal Reserve Bank of New York, met with the Wall Street CEOs throughout the weekend, and, to their credit, held to the line in the sand that the U.S. taxpayer would no longer cross.