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Lehman Brothers: What You Need to Know

Updated from 10:53 a.m. EDT

Early this morning, Lehman Brothers (LEH) filed for Chapter 11 bankruptcy protection.

Get up to speed on this company in crisis with the following insights from

From Lehman Files for Chapter 11 Bankruptcy:

The 158-year-old investment bank filed for Chapter 11 protection at 1:45 a.m. EDT in the Bankruptcy Court for the Southern District of New York, according to The Wall Street Journal. In a statement, Lehman said its board decided to file for Chapter 11 to "protect its assets and maximize value." Lehman said it plans to file certain motions so that it can continue to manage its operations.

Lehman's bankruptcy filing listed debts of $613 billion and named banks from Tokyo, Hong Kong, New York, Singapore, Taipei and elsewhere as unsecured creditors owed hundreds of millions of dollars, the Journal reported.

A group of banks will provide a financial backstop in order to help Lehman liquidate in an orderly fashion, and the Federal Reserve will accept lower-quality assets in return for loans, the [<i>The New York</i>] Times reported.

The agreement by the banks and Fed to attempt to smooth the impact of a liquidation came out of a series of emergency meetings over the weekend at which government officials and top Wall Street executives tried to work out a rescue plan for Lehman.

It appeared that a plan was coming together under which either Barclays (BCS) or Bank of America (BAC)would purchase Lehman's "good assets," while Lehman's "bad assets" would be cordoned off in a "bad" bank, according to an earlier report in the Journal.

But that plan fell apart after it became clear that the government and multiple Wall Street firms would not provide financial support.

Bank of America ended up focusing its attention on another troubled investment bank, Merrill Lynch (MER), and by early Monday the two companies confirmed a merger agreement.

Read the full version of Lehman Files for Chapter 11 Bankruptcy.

From Lehman Doesn't Pose Systemic Risk:

The Fed's dealer liquidity window, which was Ben Bernanke's creation after Bear Stearns collapsed, has likely kept Lehman on life support for some time, but again, the Fed's decision to let Lehman go belly up indicates that the central bank didn't perceive that there would be too bad of a ripple effect from a Lehman collapse. Otherwise, the Fed would have felt forced to backstop a buyer for Lehman. (While critics decry the use of public funds for any bailout, the Fed has to act if there is "systemic" financial system risk.)

Read the full version of Lehman Doesn't Pose Systemic Risk.

Plus, don't miss Big Banks Plan to Form Loan Pool (Sept. 15: Ten companies will create a $70 billion loan program in the latest step to try to stem the global credit crisis.)

Brokerages Need Banks to Survive (Video, Sept. 15)

Debra Borchardt reports from the New York Stock Exchange that standalone brokerages can't make it without a banking element.

To watch the video, click the player below:

From Cramer: Throw Out the Rulebook:

Having Lehman die is obviously bad for its customers and lenders, but it will be sorted out.

But how can the Fed and Treasury not have been in there telling AIG (AIG - Get Report) what to do? How can there not be a plan? How could we let free-market capitalism still run wild? It obviously failed.

How can the Fed not cut rates right now in this deflationary environment to make the deposits of banks worth more?

I put this one on the Federal Reserve. They had every chance to do more, and all they did as fret about Chinese-led inflation. Now the Chinese are so desperate they are doing a stimulus package, and all we have is a Fed that is worried about trying to be sure not that liquidity is available but that its various fancy facilities are in place, facilities that did nothing to help Lehman and did nothing to help Merrill and are doing nothing to help AIG.

Without a rate cut and a Resolution Mortgage Trust, we will simply be facing the imminent demise of Washington Mutual (WM - Get Report). We aren't any more ready for that than we were for Lehman.

Read the full version of Cramer: Throw Out the Rulebook. (Related: Cramer: Lazy Leaders Will Cripple Capitalism and Cramer: If Only the Fed Would Slash Rates on TV)

Plus, don't miss Crescenzi: Where's the Fed? (Sept. 15: There's a chance the central bank is thinking about adding money to the system.).
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