Investors run for cover as Dow plunges 416 points, worst day since Sept. 2001

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Was done to prevent a domino effect...

Fed's Wall Street bailout was needed to avert financial crisis
Saturday, June 28, 2008 WASHINGTON -- The Federal Reserve was scrambling to prevent a "contagion" from infecting the U.S.'s financial system when it took unprecedented actions to back a Bear Stearns rescue package and provide emergency loans to big Wall Street firms.

The Federal Reserve released documents Friday providing insights into its private deliberations in March that led to those controversial decisions. The Fed's actions came at a time when credit and financial problems were intensifying, threatening to paralyze the entire financial system and plunge the economy into a recession. Given the fragile conditions of the financial markets at that time, the Fed said it felt compelled to intervene because an "immediate failure" of Bear Stearns would bring about an "expected contagion."

Fed Chairman Ben Bernanke and his colleagues initially moved on March 14 to provide temporary emergency financing to investment bank Bear Stearns Cos. through an arrangement with JP Morgan Chase & Co. Two days later as the investment bank teetered on the brink of bankruptcy, the Fed agreed to provide backing for up to $30 billion of a deal where JP Morgan would take over the troubled company.

That same day -- March 16-- the Fed said it would allow big Wall Street firms to go directly to the Fed for emergency loans, a privilege only commercial banks had enjoyed. It was the broadest use of the Fed's lending powers since the 1930s. The Fed's decision to take this action was "based on recent, rapidly changing developments," the documents said. "These developments demonstrated that there had been impairment of a broad range of financial markets" that Wall Street firms rely on for financing.

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Merrill's ship listing to one side...

Merrill Lynch: How Bad Is It?
July 14, 2008, Analysts think the broker's second-quarter writedowns could be as high as $6 billion, and more losses could come, given its exposure to bad loans

Poor Merrill Lynch. Was it only three months ago that investors were buying shares of the nation's third-largest broker ahead of its first-quarter earnings announcement? Not this time around. Since the beginning of May, Merrill's stock has dropped 45%—and touched a nine-year low of 26.50 on July 11, as investors continued to pound the stock in the days leading up to the company's July 17 earnings release. What has changed? Back then, optimistic investors hoped the worst was over. Now, they know it's not.

The taint of bad loans continues to linger on Merrill's balance sheet. Merrill owns some of the worst junk out there. As of Mar. 31, Merrill said it had $6.7 billion of exposure to complicated mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), which remain difficult to price. They're also nearly impossible to sell. Normally, distressed debt specialists would scoop them up on the cheap. But with many credit products damaged in one way or another, buyers are ignoring the ridiculously complicated ones and sticking with simple products like high-yield bonds. "Given the size of their exposures, some further writedowns seem inevitable," says Standard & Poor's credit analyst Scott Sprinzen.

Exacerbating the problem is Merrill's $3 billion of hedges with monoline insurers like MBIA and Ambac Financial. The monolines had their credit ratings slashed in June, and those downgrades may force Merrill to set aside extra cash reserves to cover the inability of the bond insurers to pay its liabilities, assuming there are any. Like Lehman Brothers, which lost $600 million in the second quarter, Merrill is likely to find that the indexes used to hedge its exposure to certain assets and the actual assets no longer move together. That could force Merrill to announce even more losses.

May Be Forced to Raise More Capital

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Subprime problems send global markets into a tailspin...

World Stocks Plummet on U.S. Worries
July 15, 2008 - Asia, Europe markets fall sharply as worries mount over US financial systems.

Asian and European stock markets fell sharply Tuesday as investor confidence in the U.S. financial system eroded further despite a government-backed plan to help beleaguered mortgage financiers Fannie Mae and Freddie Mac. Financials were hit particularly hard as investors worried that trouble in the U.S. markets would spill over into Asia and Europe. By afternoon in Europe, Britain's FTSE 100 had fallen 2.55 percent to 5,165.20, Germany's DAX lost 2.60 percent at 6,039.20, and France's CAC-40 retreated 2.18 percent to 4,052.28.

Fears of yet more bank losses in Europe weighed on stocks. Several major banks have written off billions and had to raise more capital. "We have got results coming out later in the week and there are worries there are going to be more write-downs," said Lawrence Peterman, investment director at Eden Financial in London. Official figures showing inflation in Britain hit a higher-than-expected 3.8 percent in June, up from 3.3 percent in May, was also having an effect, Peterman said.

In Asia, every major index suffered declines, with Hong Kong's Hang Seng Index dropping more than 3.8 percent and Taiwan's benchmark losing over 4.5 percent. In Tokyo, the Nikkei 225 index dropped nearly 2 percent to close at 12,754.56. Japanese traders were rattled by a local business newspaper report that the country's top three banks hold a combined 4.7 trillion yen ($44 billion) in Fannie Mae and Freddie Mac debt. Another newspaper report unnerved Taiwan's market with news that at least two leading financial institutions have invested in the mortgage giants, and the country's central bank may also have purchased their bonds. In China, rumors were circulating that the Chinese government had also invested in Fannie and Freddie bonds.

More ABC News: World Stocks Plummet on U.S. Worries

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Who's Next? List of Troubled Banks Worries Wall Street, DC
July 15, 2008 - ABC News has obtained privately prepared lists of troubled banks.

Banks in Colorado, Maryland, Georgia and California top privately-prepared lists of troubled banks being circulated on Wall Street and in Washington. While the Federal Deposit Insurance Corporation (FDIC) is keeping secret its official list of 90 troubled banks, ABC News has obtained other lists prepared by several research groups and financial analysts.

The lists use versions of the so-called "Texas ratio" which compare a bank's assets and reserves to its non-performing loans, based on financial data made public by the FDIC in March. Analysts say banks with a ratio over 100 per cent would be the most likely to fail, based on what happened to Texas savings and loans during the 1980's. "That a fair measure," said Hal Scott, a Harvard law school professor specializing in banking law. "It doesn't mean every one of those banks is going to become insolvent, but if you have more bad loans than assets, it's not a bad way to judge what could happen," Scott told ABC News.

One list prepared by Research Associates of America, a non-profit group in Washington, D.C. funded by labor unions, reported 10 banks with a ratio over 100. "This is information that the FDIC essentially hides in plain sight," said Jeff Fiedler, president of Research Associates of America. At the top of the list was ANB Financial National Association of Bentonville, AR, with a 344 ratio. The bank failed earlier this year and was later taken over by a Louisiana bank. The Colorado Federal Savings Bank of Greenwood Village, CO, was listed as having a bad loan to asset ratio of 244.82. Late today, Colorado Federal's president and CEO, Randy Ilich, reported that a new owner bought the bank two weeks ago, adding more than $10 million in capital.

"The previous owners were in serious trouble, but we are now in a very good place," Ilich told ABC News. Ilich said Colorado Federal had suffered from "fraudulent transactions" and speculative home buyers who could not make their payments. "We now have more than enough reserves in place to go forward," said Ilich. The Eastern Savings Bank of Hunt Valley, MD was listed as having a Texas ratio of 222.74, meaning it had twice as many bad loans as assets and surplus. Repeated calls seeking comment from Eastern were not returned. The Integrity Bank of Alpharetta, GA was listed with a 191 ratio.

More ABC News: Who's Next? List of Troubled Banks Worries Wall Street, DC

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Not a good day for AIG...

AIG reports $5 billion loss
August 6, 2008: Shares tumble after the company's third straight quarterly deficit as it struggles under the weight of crumbling credit markets.

American International Group Inc. said Wednesday that it lost more than $5 billion in the second quarter, as struggling credit markets stripped several billions of dollars in value from its credit default swaps portfolio and other investments. The world's largest insurer lost $5.36 billion in the April-to-June period, or $2.06 per share. In the same period last year the company earned $4.28 billion, or $1.64 per share.

After excluding one-time items, the loss per share came to 51 cents -- much worse than the 63-cent gain that analysts were anticipating. Shares of AIG fell more than 7 percent in after-hours trading, having fallen 80 cents, or 2.7 percent, to close Wednesday at $29.09. AIG's third straight quarterly deficit occurred after it took a loss of $5.56 billion, or $3.62 billion after taxes, in what are called credit default swaps, and a write-down of $6.08 billion, or $4.02 billion after taxes, in the value of other investments.

Credit default swaps, which slammed AIG in previous quarters as well, are essentially insurance policies to protect bondholders against defaults. Over the past three quarters, AIG has lost more than $25 billion, pre-tax, to credit default swaps, and more than $15 billion, pre-tax, in other investments. Financial institutions that bet heavily on risky mortgage-backed securities have been pummeled since the start of the credit crisis. When the mortgages underlying these securities began failing, the value of the investments plunged, forcing companies including AIG to heavily mark down the value of their holdings.

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Buffett shyin' away from Freddie...

Buffett passes on Freddie investment
August 22, 2008: Moody's downgrades the struggling mortgage finance firm's rating to near junk status.

Freddie Mac talked to investors this week about possibly buying its stock to raise much-needed capital but billionaire investor Warren Buffett said he passed on an opportunity to help the troubled mortgage giant. The likelihood Freddie will find willing investors took another hit after Moody's Investors Service lowered the company's preferred stock ratings and those of its sister company Fannie Mae to near junk status. Shares of the government-sponsored enterprises tumbled in midday trading.

Freddie spokesman Douglas Duvall confirmed to The Associated Press Friday that the company's management has been in talks with potential investors this week as part of ongoing discussions to raise capital. He declined to give any details about the meetings, possible investors or structures. The Wall Street Journal reported on the talks Friday. Freddie promised in May to raise $5.5 billion to shore up its finances, but hasn't yet and its declining share price makes raising that money far less feasible. Fannie Mae spokeswoman Amy Bonitatibus declined to comment on whether the company is pursuing similar talks.

Warren Buffett acknowledged during a live appearance on CNBC Friday that he had been approached by Freddie and Fannie and passed on getting involved. The timing of the incident was not immediately clear. Buffett's company Berkshire Hathaway Inc. (BRK.B) was the largest Freddie shareholder around 2000 and 2001, he said. The company sold its shares after Buffett realized that both companies were trying "to report quarterly earnings to please Wall Street."

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Buffett: We're still in a recession
August 22, 2008: Billionaire investor says financial crisis will continue in the near term as credit market continues to drag on financial industry.

Billionaire investor Warren Buffett said Friday the economy continues to be in a recession, by his definition, and will continue to be for at least several more months. During a live appearance on CNBC, Buffett said ripples of the credit crunch are continuing to cause problems in financial businesses and the economy. Earlier this year he said a financial crisis reveals which players have been "swimming naked," because the tide goes out. That picture has worsened along with the crisis.

"We found out that Wall Street has been king of a nudist beach," said Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., which is based in Omaha. Buffett said activity at businesses Berkshire owns, especially ones related to housing construction such as Shaw carpet and Acme Brick, continued to slow during the summer. He's confident the nation will be doing better five years from now, Buffett said, but the economy could be worse five months from now.

Buffett said the economy is in a recession because most Americans aren't doing as well today as they used to be. The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product. Regarding the nation's credit crunch, Buffett said he believes mortgage giants Fannie Mae and Freddie Mac are too big to fail, but that doesn't mean that all the shareholder equity in those companies can't be wiped out.

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Fannie and Freddie draggin' down stocks...

Fannie and Freddie woes spread
August 25, 2008: The sharp decline in the value of preferred shares of the troubled mortgage finance firms could lead to billions of dollars more in bank writedowns.

The problems plaguing mortgage finance giants Fannie Mae and Freddie Mac could cause another big financial drain on banks. Shares of Fannie and Freddie have plunged in recent weeks due to fears that the two companies may need to turn to the Treasury Department to raise more capital. Some even speculate that Fannie and Freddie may wind up being nationalized, which would cause the stocks to lose most, if not all, of their value.

This is a problem for several banks since they own a big chunk of the estimated $36 billion in preferred shares of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500). Preferred shares typically offer higher dividend payments than common stock and holders of the preferred shares would, in theory, be paid before common shareholders in the event of a government bailout.

The preferred shares have held up a bit better than the firms' common shares, which have lost about 90% of their value so far this year. Still, many classes of the preferred shares are down 50% or more this year. Credit rating agency Moody's downgraded Fannie's and Freddie's preferred shares Friday, citing the risk of a government bailout. And the sharp decline in value of these preferred shares could lead to billions in cumulative charges for the banks that own them.

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Stocks hit hard on bank woes
August 25, 2008: Wall Street retreats, with the Dow losing 242 points, on credit market problems and higher oil prices. Investors discount better-than-expected existing home sales report.

Credit market woes hit Wall Street again Monday, with the Dow dropping around 242 points in a thinly-traded session also influenced by fluctuating oil prices and a weaker U.S. dollar. The Dow Jones industrial average (INDU) lost nearly 242 points, or 2.1%. The broader Standard & Poor's 500 (SPX) index fell almost 2% and the Nasdaq composite (COMP) lost 2%.

"It's been looking ugly today," said Lee Schultheis, chief investment strategist at AIP Funds. "Lately people are realizing that there may be a whole other leg of this credit market fallout that they haven't anticipated yet." Stocks rallied from mid-July through mid-April, as oil prices backed off records above $147 a barrel. But revived concerns about the financial sector over the last week have stopped investors from continuing any advance. Additionally, oil prices have been very volatile.

"You're seeing a rolling problem that started two years ago in the mortgage business, and we haven't touched the bottom of the swimming pool in terms of the housing market," said Mark Travis, CEO at Intrepid Capital Funds. Add to these factors the fluctuations in the oil market and the uncertainty about the political landscape as the Democratic Convention gets underway, he said. "Between all these factors, I don't think you can make the argument that the broad market is at a compelling place to get in," Travis said.

More CNNMoney.com Market Report - Aug. 25, 2008

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Lehman loss havin' global effects...

Lehman stock tumble raises government rescue specter
Tue Sep 9, 2008 WASHINGTON (Reuters) - A 45 percent slide in the shares of Lehman Brothers Holdings Inc, on concern it was struggling to raise desperately needed capital, stirred speculation that a U.S. government-sponsored rescue was increasingly likely.

The forced-sale of the Bear Stearns brokerage in March and the pre-emptive seizure Sunday of mortgage finance giants Fannie Mae and Freddie Mac has set a template that U.S. financial authorities might find hard to avoid. Lehman, left as the smallest major U.S. independent investment bank after Bear Stearns' takeover by JPMorgan Chase & Co, has a prominent role in many of the same markets that Bear Stearns had: interest rate swaps, credit default swaps and equity derivatives.

While the government would be very reluctant to intervene yet again, especially if it required taxpayers' money, several experts say there may be no alternative to avoid a systemic financial crisis. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke may be forced to act to preserve stability in the rest of the financial system.

"There is a risk that you could get the equivalent of a financial black hole and more people getting sucked in," said Robert Litan, a senior fellow in the economic studies program at the Brookings Institution in Washington. Litan doubted Paulson or Bernanke wanted to go down in history books as an example of what not to do.

More Lehman stock tumble raises government rescue specter | Special Coverage | Reuters

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Asian stocks fall on Lehman fears; oil gains
Wed Sep 10, 2008 - Asian shares fell about 1 percent and U.S. Treasuries dipped on Wednesday on fears about Lehman Brothers' ability to raise capital, demonstrating Washington's bailout of Fannie Mae and Freddie Mac this week had not fixed the credit crisis.

Oil prices rose above $103 a barrel from a five-month low, after OPEC agreed to a small but unexpected product cut. A retreat in oil prices from a record high in July has supported the U.S. dollar, which hit an 13-month high against the euro.

While the U.S. government bailout of its top mortgage finance companies on Sunday removed a big risk of a system-wide failure, problems at other financial institutions were painful reminders of how severely an avalanche of bad loans has threatened almost every major economy.

Shares of firms such as Macquarie Group Ltd, Australia's largest investment bank, fell 1.3 percent after Lehman's stock plunged 45 percent overnight on fears it would not be able to raise the funds it needs to survive.

European equities were set to fall, with futures for the Eurostoxx 50 STXEc1, Germany's DAX FDXc1 and the French CAC 40 down between 0.4 and 0.6 percent. Lehman reports its quarterly results ahead of the U.S. stock market open.

More Asian stocks fall on Lehman fears; oil gains | Markets | Hot Stocks | Reuters

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Lehman down for the count...

Lehman Bros. May Need Miracle To Survive
Sept. 12, 2008 - Financial Heavyweights Hold Emergency Meeting To Discuss Firm's Future

The Wall Street firm that started the U.S. cotton trade before the Civil War and financed the railroads that built a nation might soon fade into history. Just days after Lehman Brothers Chief Executive Richard S. Fuld tried to pitch Wall Street on a plan to save the firm by shrinking it, he's in complicated negotiations with potential buyers that may see the company sold piecemeal as soon as Sunday night, analysts said. "Nothing short of a miracle can save Lehman as is," said Anthony Sabino, professor of law and business at St. John's University. "It is highly unlikely Lehman will be in existence on Monday morning."

Late Friday, the Federal Reserve Bank of New York held an emergency meeting with top Washington policymakers and major financial institutions to discuss Lehman's future. Attendees included Treasury Secretary Henry Paulson; Christopher Cox, chairman of the Securities and Exchange Commission; and Timothy Geithner, president of the Federal Reserve Bank of New York. Fed spokeswoman Michelle Smith declined to disclose what financial institutions participated or whether the group had reached any conclusion. The Wall Street Journal reported on its Web site that the group included Morgan Stanley chief executive John Mack and Merrill Lynch chief executive John Thain, among others.

Paulson is against any use of government money to bail out Lehman Brothers Holdings Inc., a person familiar with his thinking said Friday. Other financial firms may swallow portions of Lehman's investment banking or bond trading business, analysts said. Considering the firm's deep financial problems, riskier assets like its mortgage and real-estate portfolios could be sold for just pennies on the dollar. Potential buyers could include Bank of America Corp., Britain's Barclay's Plc, Japan's Nomura Securities, France's BNP Paribas and Deutsche Bank AG. All have declined to comment.

Randy Whitestone, a spokesman for Lehman Brothers, declined to comment on the firm's situation Friday. On Friday, Lehman's stock closed at $3.65 - an all-time low and down nearly 95 percent from its 52-week high of $67.73 as investors grew more convinced that Lehman may be auctioned at fire-sale prices.

More Lehman Bros. May Need Miracle To Survive, Financial Heavyweights Hold Emergency Meeting To Discuss Firm's Future - CBS News

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Source: No Gov't Funds For Lehman Bros.
WASHINGTON, Sept. 12, 2008 - Treasury Secretary Said To Be Against Bailout Of Struggling Investment Bank

U.S. Treasury Secretary Henry Paulson is against any use of government money to bail out Lehman Brothers Holdings Inc., a person familiar with his thinking said Friday. Lehman Brothers was racing to find a buyer two days after it laid out a restructuring plan it said would raise badly needed money it lost on bad bets in real estate holdings.

The No. 4 U.S. investment bank has lost almost $7 billion in the last two quarters alone, primarily because of wrong-way bets on mortgage securities and other risky investments. The person said Paulson, who played a major role in engineering the government-back Bear Stearns bailout in March, believes the Lehman situation is different in two critical aspects. The person spoke on condition of anonymity given the sensitivity of negotiations.

The person said Paulson believes that financial markets have been aware of Lehman's troubles for a long time and have had time to prepare. A second difference is that the Federal Reserve is now allowing investment banks to borrow directly from the Fed just as commercial banks can do. "Given those two things, he is adamant that there be no government money in the resolution of this situation," the source said.

Paulson played a major role not only in the sale of Bear Stearns to JP Morgan Chase & Co. last spring, a deal in which the Fed put up $29 billion in loans, but also in the government takeover last Sunday of mortgage giants Fannie Mae and Freddie Mac in which Treasury has pledged to provide up to $200 billion in capital to the two companies if needed.

http://www.cbsnews.com/stories/2008/...n4444065.shtml

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BoA gonna buy out Merrill-Lynch...

Bank of America to buy Merrill - reports
September 15, 2008: Soon after its talks to acquire Lehman Brothers broke down, Bank of America moves to scoop up Merrill Lynch.

Bank of America agreed to buy Merrill Lynch in an all-stock deal valued at as much as $50 billion, according to several reports. The purchase price would value the company at more than $29 a share, at least a 70% premium from Merrill's closing price on Friday of $17.05. The acquisition comes as Wall Street awaits the fate of battered investment bank Lehman Brothers - increasingly thought to be a liquidation. Throughout the weekend, Bank of America was considered a potential acquirer of Lehman, though those discussions had broken off by Sunday afternoon.

Like Lehman, Merrill Lynch has been suffering from bad real estate bets and its stock price has been punished severely, losing 27% last week. Shares are down 65% this year. Concerns had been growing that Merrill would need to take more writedowns and raise more capital to shore up its balance sheet. Merrill has posted net losses of more than $17 billion over the past four quarters. "The Merrill deal adresses what the market fears most right now - a flood of assets hitting the market," said David Alpert, managing director of Westwood Capital. A spokesperson for Merrill Lynch would not comment. Attempts to reach Bank of America for comment were unsuccessful.

Bank of America is the nation's No. 3 bank holding company in terms of assets, behind only Citigroup and JPMorgan Chase. It is the largest by market value. Bank of America CEO Kenneth Lewis has a history of making bold acquisitions, including most recently, Countrywide, the troubled mortgage lender. That purchase has so far exceeded expectations, with Bank of America saying recently that Countrywide would add to its earnings this year. Some consider Merrill Lynch, and its massive retail brokerage operation, a better fit for Bank of America than investment bank Lehman would be. Despite its troubles, Merrill still has the most extensive retail brokerage operations of the major Wall Street firms.

Bank of America to buy Merrill Lynch - reports - Sep. 14, 2008

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Banks seen offering plan to restore confidence
Sun Sep 14, `08 - As the outlook for Lehman Brothers dimmed Sunday, U.S. and foreign banks were pressed to create a plan aimed at inoculating the global financial system against the investment bank's failure, a top investment banking official said.

Banks were in tense talks to create a pool of money worth up to $100 billion to lend troubled financial companies, the official said on condition of anonymity because the discussions were ongoing. And officials at the U.S. Treasury and the Federal Reserve were expected to announce they are prepared to be more generous in the Fed's emergency lending program for commercial and investment banks.

The plan comes as top government officials and Wall Street executives held marathon, but so far fruitless, meetings to save Lehman Brothers, and amid signs that the 158-year-old investment bank might be forced to seek bankruptcy protection and liquidate. The company's shares have plunged 95 percent in the past year over worries that it does not have enough money to cover losses from its massive real estate holdings.

The official also said the Treasury Department and the Fed were pushing Bank of America Corp. to buy Merrill Lynch & Co. On Friday, Merrill Lynch's shares fell as investors fretted it might be the next investment bank to come under pressure from its portfolio of risky mortgage-backed securities. Expectations that the 158-year-old Lehman would survive dimmed Sunday afternoon after Barclays PLC withdrew its bid to buy the investment bank. Barclays and Bank of America were considered front-runners to buy Lehman, which is foundering under the weight of $60 billion in soured real estate holdings.

The Lehman talks originally were aimed at selling the investment bank in whole or in part. The deal was tripping on the potential buyers' insistence that they receive the same kind of help that Bear Stearns Cos. got last March when JPMorgan Chase & Co. bought the securities firm with a $29 billion Fed-backed loan. Treasury Secretary Henry Paulson has said the government will not help close a Lehman deal, and it was clear late Sunday he was not budging.

More http://news.yahoo.com/s/ap/20080915/...ehman_brothers

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If dem rich folks is so smart, den how come dey lost all dat money?

Stocks get pummeled
September 15, 2008: Wall Street sees worst day in 7 years, with Dow down 504 points, as financials implode.

Stocks tanked Monday, amid the largest financial crisis in years after Lehman Brothers filed for the biggest bankruptcy in history, Bank of America said it would buy Merrill Lynch and AIG slumped on fears that it can't raise cash. Treasury prices rallied as investors sought the comparative safety of government debt, sending the corresponding yields lower. Oil prices tumbled, falling well below $100 a barrel on slowing global economic growth. The dollar rallied versus the euro and gold prices spiked.

The Dow Jones industrial average (INDU) lost 504 points, or 4.4%. It was the biggest one-day decline for the Dow on a point basis since Sept. 17, 2001, when the market reopened for trading after having been closed in the aftermath of 9/11 terrorist attacks. On a percentage basis, it was the biggest decline since July 19, 2002. The Standard & Poor's 500 (SPX) index lost 4.7%, its worst day since Sept. 17, 2001, when it plunged 4.9%. The S&P 500 also closed at its lowest point since Oct. 27, 2005. The Nasdaq composite (COMP) lost 3.6%, its worst single-session percentage decline since March 24, 2003. It left the tech-fueled average at its lowest point since March 17 of this year.

"It was an ugly day," said James King, president and chief investment officer at National Penn Investors Trust Company. "Lehman's failure to find a suitor and Merrill deciding to cash in their chips before a similar fate could befall them really stoked the fears of the public." AIG exacerbated those fears in the afternoon. And all the bad news isn't out there yet, King said. "Investor confidence is at the lowest point we've seen in a while."

He said that after the government bailout of Fannie Mae and Freddie Mac last week and all the other financial market bad news, this was just too much for investors. But it doesn't mean that the stock market is likely to see these kind of massive selloffs on a regular basis, King said. Nasdaq and S&P futures pointed to a higher open Tuesday, when fair value is taken into account.

More CNNMoney.com Market Report - Sep. 15, 2008

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The meltdown
September 15, 2008: Lehman files for bankruptcy. Merrill is bought by Bank of America. The Fed and major banks expand lending. Anxiety lingers.

Wall Street was a vastly different world Monday from what it looked like just days earlier, following one of the most harrowing days in the history of U.S. financial industry. Just a day earlier, Lehman Brothers, one of the nation's oldest investment banks, filed for bankruptcy - the largest ever announced in the United States. And Bank of America executed a bold and swift $50 billion takeover of Merrill Lynch, while the fate of other brand-name financial institutions remained in doubt.

Anxiety was palpable in the financial community all day Monday. The Dow Jones industrial average suffered a painful selloff, falling more than 500 points - its worst decline in more than seven years. Driving much of the fear was a decision by Lehman to file for bankruptcy under Chapter 11 with the U.S. Bankruptcy Court for the Southern District of New York. The firm, whose fate was in doubt for much of last week, made its intentions known shortly after midnight as talks aimed at saving the 158-year-old firm failed.

Lehman shares, which had lost 94% of their value this year as of Friday, were nearly worthless after markets closed Monday. Different divisions of Lehman offered reassurances to nervous clients during the day. Still, both analysts and rating agencies slashed their assessment of the once-mighty investment bank. Lehman's dramatic collapse concluded what proved to be a long weekend for top Wall Street executives and regulators, who held marathon talks to try to craft a rescue plan for the embattled investment bank. Over the past six months, the firm has lost close to $7 billion dollars because of bad bets on both the housing and commercial real estate markets.

More Lehman: The morning after - Sep. 15, 2008