Breaking news: the Lehman Brothers investment bank has failed to find a buyer, and as things stand it will have to file for Chapter 11 bankruptcy protection in the US tomorrow morning. That is unless :
(a) a buyer is found (and it looks like all the obvious avenues have been exhausted on this front), or
(b) the US government steps in with a financial support package.
BBC Business Editor Robert Peston suggests in his blog that US Treasury Secretary Henry Paulson is reluctant to do another Freddie Mac/Fannie Mae and bail Lehman out. I'm not sure what source Peston bases that assertion on, but if the bank really does go under, the knock-on effect on other banks could be substantial. On the other hand, bailing the bank out sends a signal to other financial institutions that the US taxpayer will pick up the tab if they run into difficulties. It's a tough quandary but I think Paulson is probably bluffing and will step in with a rescue package at the eleventh hour. The danger of a bank the size of Lehman collapsing is simply too big for the authorities to contemplate.
Strangely, the Bush administration seems to be succeeding in moving the US economy towards a nationalised financial services sector - one of the key elements of a socialist economy. Actor-turned-nutter Jon Voight claimed earlier this year that Barack Obama would introduce socialism into America if elected. But the way things seem to be going in the banking sector, maybe America won't have to wait that long.
Update: well I was wrong and not for the first time - they let it fail. Hold on to yer hats folks - sounds like the gigantic insurer AIG could be next in line... and then...?