The liquidation of Lehman, last year's top underwriter of bonds backed by mortgages, is an amplified version of investment bank Drexel Burnham Lambert Inc., which filed for bankruptcy in 1990. Drexel made its name financing corporate takeovers in the 1980s using junk bonds pushed byMichael Milken.

Keeping the Talent

Maintaining the confidence of the markets is only one of the challenges for an investment bank -- the other is retaining employees, recalled Fred Joseph, Drexel's CEO from 1985 to 1990.

``It's an awfully good business, but the assets go down in the elevator every night,'' said Joseph, 71. ``Despite the tough times, the Street's so small, everybody wants the really good guys.''

A key difference with Drexel is Lehman's central role in the over-the-counter derivatives markets, which have ballooned to $454 trillion since Drexel was in business. A default by Lehman on its obligations in that market could cause chain reactions throughout the markets that have never before seen a major financial counterparty fail to honor its obligations.

``The implications of one of the `too big to fail' institutions being allowed to fail is incredibly difficult to grasp, but suffice to say that a huge number of firms and securities are going to get affected,'' said Michael Auyeung, who manages about $500 million as chief executive officer at Pacific Mutual Fund Bhd. in Petaling Jaya, Malaysia. ``The reach of the carnage will be global and system-wide.''

Lehman's collapse wipes out a company that had a market value of $45.5 billion in February 2007. Merrill's sale to Bank of America for $29 a share, while about a 70 percent premium to Merrill's value on Friday, compares with the company's $86 billion market capitalization in January 2007.

``It's breathtaking that we've gone from five standalone firms to two very quickly,'' said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs. ``It's certainly going to cause Wall Street to rethink the strategy.''

The US financial "house" is rapidly upgrading from "tropical storm" to a level 5 "hurricane!"

"Batten down the hatches!"

Failure of counterparties to honor even a small percentage of $454TT could propagate a global financial sunami which at least 2 Canadian banks are "party" to!

On the positive side, panic and fear create their own wake of opportunity!

Stay calm, it will pass!.

"Dogged perseverance" is the order of the day.

RUF