Market Breakdown: What You Need to Know

A summary of all the weekend's hectic financial news.

Sept. 15, 2008— -- With so much happening on Wall Street this weekend and this morning, here is a quick summary of all the financial news:

Lehman Brothers files for bankruptcy after it was unable to sell itself. With no company willing to take on all of Lehman's debt and with the U.S. government making it clear it would not provide guarantees as it did for Bear Stearns, potential buyers balked. And so the 158-year-old company is expected to file for bankruptcy imminently. Sunday evening, many employees boxed up their belongings at the bank's New York headquarters. As one Lehman employee told me, "Just unbelievable."

Bank of America buys Merrill Lynch. Bank of America went into talks this weekend as one of the lead buyers of Lehman and exited as the buyer of the next investment bank believed to be in trouble, Merrill Lynch. The sense is that during the lengthy negotiations this weekend, Merrill, whose stock has plummeted in recent days, saw the writing on the wall, and Bank of America decided the 94-year-old Merrill Lynch was a better choice than the swiftly sinking Lehman Brothers. Bank of American CEO Kenneth Lewis has been buying up companies left and right in recent years, including the mortgage company Countrywide Financial.

Federal Reserve changes terms of the lending facilities it created earlier this year to help banks. The Fed expanded the type of collateral accepted in return for loans and Treasuries, the auctions for those loans will occur more frequently, and there will be an increase in the amount of money available from $175 billion to $200 billion. The idea is to strengthen the financial system so another bank like Lehman doesn't crash and burn.

Ten major banks (Lehman is not on the list) joined together to create a $70 billion fund that can provide loans when necessary. Lenders can take up to one-third of the value of the fund. The goal is an attempt to prevent further disruptions in the financial markets and provide another facility where banks that need cash can secure it. Think of it as banks helping themselves to get through these challenging times.

SEC working with Lehman Brothers customers to make sure they are protected.

Sadly, this turmoil is not over any time soon. There are still several big worries out there:

Insurance giant AIG has seen its stock plummet and is reportedly putting together a survival plan that includes selling assets, raising more money and even going to the Federal Reserve for help.

The largest savings and loan Washington Mutual has also seen its stock fall dramatically as investors worry it has too many bad mortgage loans on its books. If it were to go under, it could wipe out the FDIC insurance funds. But that is not expected, as other banks may be circling, looking to buy off many of the banks valuable assets.