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Gloom Descending On Wall Street As Worries About Funding Good Bank/Bad Bank Plan For Lehman

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The meetings between Federal Reserve officials, senior bankers and regulators to discuss a rescue of Lehman Brothers ended without any clear resolution to the situation. At least some at the meetings now believe that Lehman may be beyond rescuing, and that the focus when the meetings resume tomorrow should be on an orderly unwinding of Lehman. A good bank, bad bank plan has been worked out but it's unclear if Wall Street banks can provide adequate capital to fund the plan.
Although the formal meetings are over for the evening, across Wall Street executives and regulators continue working. New York Fed President Timothy Geithner is still at the bank's headquarters, according to the Wall Street Journal.
"A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street," the Journal reports.
CNBC reports: "Under the terms of the proposal, which could still blow up, all the major Wall Street firms would pitch in $30 billion total to purchase Lehman's bad real estate assets and create what's knows as a 'bad bank.'"
We understand that as early as last night a major focus in the meetings has been addressing the possible domino effect from a Lehman being toppled. Many other Wall Street institutions have large counterparty exposure to Lehman, and a liquidation of the firm could be costly. The stock drops at AIG and Merrill Lynch on Friday are a major source of concern.
We're going to be away from our desks for the evening but we've set up an account on twitter that will allow us to post updates on breaking news. Feel free to email us at or call or text us at our special Lehman weekend tips line: 646-526-FEAR. Yes, that's really the number.

Here's what Ben White and Eric Dash at the New York Times (and about five other journalists) are reporting:

One option discussed would be to have major banks and brokerage firms agree to do business with Lehman even as the 158-year-old firm, staggered by massive losses, liquidates itself. Another option -- a daring rescue encouraged by nervous regulators -- would be for a consortium of banks to provide financial backing for a sale of the firm.
Federal officials were adamant that no public money be used -- a big point of contention, because many of the top Wall Street executives believe that their banks, which have each written down tens of billions of dollars in assets, do not have the capacity to lead the rescue on their own.