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CHICAGO - Democratic presidential nominee Barack Obama said Monday the upheaval on Wall Street was "the most serious financial crisis since the Great Depression" and blamed it on policies that he said Republican rival John McCain supports.
Wall Street is in a full meltdown. Bear Stearns (BSC) is gone, so the markets are wondering who's next. The leading contender? Lehman Brothers (LEH).
Lehman's stock dropped 15% on Friday, and it's down by another third in pre-market trading. Some specific concerns:
* Like Bear Stearns, Lehman is relatively small and undiversified.
* Like Bear Stearns, Lehman just reiterated that its "liquidity position is strong."
* Like Bear Stearns, at least one of Lehman's trading partners is cutting it off: The WSJ reports that Southeast Asia's biggest bank, DBS Holdings, has asked traders not to enter new transactions with Lehman Brothers. "DBS has sent an internal e-mail saying it would not deal with Lehman Brothers from now on." [Update: DBS has since re-authorized some Lehman trades]
* Like Bear Stearns, Lehman gambles about $30 for every $1 it has.
* Like Bear Stearns, Lehman chose not to raise additional capital last fall.
* Like Bear Stearns, no one has any idea what's really on Lehman's balance sheet (including, probably, Lehman)
* Unlike Bear Stearns, says an analyst at ING, Lehman is NOT too big to fail, which means that the Fed might not be in such a panic to bail it out.
If Lehman is hellbent on following the Bear Stearns playbook, it will now trot Dick Fuld out onto CNBC to say that the bank is in great shape. And then, a day or two later, it will go bankrupt.
"This turmoil is a major threat to our economy and its ability to create good-paying jobs and help working Americans pay their bills, save for their future, and make their mortgage payments," the candidate said in a statement.
"The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren't minding the store," Obama said.
"Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression," he said, referring to the mandate of US President George W. Bush.
We are carefully monitoring the financial markets, including the duress at Lehman Brothers that is the latest reminder of ineffective regulation and management. Efforts must also be focused on ensuring that the deposits of hardworking Americans are protected.
"It is essential for us to make sure that the U.S. remains the pre-eminent financial market of the world. This will be a highest priority of my Administration. In order to do this, major reform must be made in Washington and on Wall Street. We cannot tolerate a system that handicaps our markets and our banks and places at risk the savings of hard-working Americans and investors. The McCain-Palin Administration will replace the outdated and ineffective patchwork quilt of regulatory oversight in Washington and bring transparency and accountability to Wall Street. We will rebuild confidence in our markets and restore our leadership in the financial world."