The Bell Tolls for Lehman

Doom and Gloom is the best way to describe the mood in the room today. Trading was very limited, it was more a day to try to asses risk from the Lehman fall out and try to survive the moves of the market.

The big story of the day was the Fed asking JP Morgan and Goldman to take the lead in arranging for the bridge loan for AIG. The Fed clearly has had enough of buyouts and is now going to let Wall Street clean up after itself.

This is just me asking, but if I were Goldman or JP Morgan, I wouldn't be shy about asking the Fed for a little interest rate cut in exchange for the bridge loan. Not that I am saying that it happened, or that I think a rate cut will happen, but it was certainly worth the question. The markets clearly think a rate cut is in the cards, Eurodollar interest rate futures were up 45-55 bp today. That is huge! I am looking for rates to stay unchanged but for the Fed to definitely move to a easing bias. Would a 25bp cut do any good ? I think this is more a question of counterparty risk and a 25bp cut will do nothing to help.

I do think that Paulson and Bernanke are doing a god job (or as good as they can do). Trying to calm these markets is very difficult. There are going to be enormous layoffs on wall street. The people who keep their jobs will get little to no bonus with no chance to job ship to "greener" pastures. I think that the days of the bright young men and women flocking to wall street may slow down a bit as bigger and more interesting ways to make money lie elsewhere.

I think Inflation will begin to take a back seat as no one will have much money to spend on anything other then food and the energy bill.

I sure hope one of my presidential candidates has a solution for all this !