Goodbye, Lehman! We all knew it was coming, but here it is. Preparations have been made for Lehman Brothers, the substantial US investment bank, to obtain protection from its creditors under US Chapter 11 insolvency procedures.

CHAPTER 11! FAIL! EPIC FAIL!

Further, I hope none of you own any bank stocks right now: I have been told that its executives are seeing the New York Fed right now to investigate whether it can borrow several billion dollars so that it can go into an orderly liquidation as an alternative to formal insolvency. But Lehman executives do not expect the Fed to give them the funding that would be required, so they assume their business will formally collapse. The implications will be huge. If the new controllers of the business in insolvency feel obliged to sell assets, that could do severe damage to other banks, because there would be a sharp fall in the market value of those assets.

The dollar is weakening noticeably on the news, though it seems to me it would’ve weakened more if the US had orchestrated a bailout. Futures are down about 300, and I wonder where we’re gonna open on Monday morning. The way things are shaping up right now I think we may retest 11000.

WORTH NOTING: Rules mandate that certain parts of Lehman go Chapter 7 to protect some investors. Lehman’s broker-deal subsidiaries would not be a part of the bankruptcy filing. Those entities must file under Chapter 7 rules, which are the procedures for liquidation, under the assumption that it is the best way to protect customers. The Securities Investor Protection Corporation would handle the liquidation of such brokerages, and bankruptcy lawyers say that customers are likely to receive their holdings back.