The Bigger They Are, the Harder They Fall

By Pamela Mortimer

Financial analysts will be debating the weekend’s events for decades to come. The only things that matter to many investors and financial institutions is that the Dow Jones Industrial Average plummeted by 504.48 points or an equivalent of 4.42%.

"This is a very bad situation and people are justifiably concerned," said Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles. "Right now it's sell first and ask questions later."

There are statistics galore but all the numbers in the world won’t change the fact that over the weekend, financial giants Lehman Brothers and Merrill Lynch saw big changes in their respective line ups. After a long struggle, Lehman Brothers filed for Chapter 11 bankruptcy at the U.S. Bankruptcy Court of the Southern District of New York. The 158 year old company’s bankruptcy filing listed the company’s assets at $639 billion, which makes it biggest bankruptcy filing in U.S. history, even topping the collective debts of WorldCom and Enron combined. There were subsidiaries of Lehman that were not included in the filing.

"As awful as Lehman is, it's not enough to bring down the financial system. It's one step closer to cleansing the system but… the collateral damage will continue to cause a lot of pain through next year," said Peter Boockvar, equity strategist at Miller Tabak.

"I think people are realizing there is a fundamental change in the entire U.S. economy with respect to debt... I'm still of the opinion that while we may bounce from today, those July lows are going to be taken out," said Boockvar.

Merrill Lynch has agreed to sell to Bank of America for $29 a share, which is equivalent to $50 billion. The sale makes BoA the largest financial institution in the world. Like Lehman Brothers, Merrill Lynch has also taken a pretty hard punch due to the housing market. Over the last year alone, ML posted$40 billion in write-downs and credit losses.

The latest punching bag on Wall Street is AIG, who has lost about 50% of its value. Like the others, AIG has lost a great deal in real estate and has been struggling to raise an estimated $40 billion to save itself from the mire that is the stock market.

There is a bright side, although almost no one has seemed to notice. For the first time in quite a long time, crude oil has dropped below $100 a barrel.