Big is dying

Wall Street, we have a problem:

Stocks fell sharply at the opening bell Monday after a trifecta of Wall Street pain: Lehman Brothers filed for bankruptcy, Merrill Lynch was bought by Bank of America and AIG asked the Fed for short-term financing.

What's important is not that Wall Street is down over 300 500 points at the open close today. Stocks go up and they go down, and they'll be going down for a long time - though punctuated by massive barnburner rallies - just as they went up for a long time, just as before that they went down for a long time.

What's really important is to put a picture together:

• With Lehman going bankrupt* and Merrill wed via the shotgun last weekend, three of the five largest investment banks in America as of 6 months ago no longer exist.
• Freddie and Fannie, the nation's largest mortgage holders, were nationalized last week.
• AIG, the biggest insurer in America, is begging the Fed for cash, just as the biggest automakers in America are doing across the street at the Capitol.
• IndyMac bank, the largest bank failure in 2 decades and the second largest ever, wiped out 1/6 of the FDIC's insurance pool. There are 117 more banks** on the FDIC's trouble list.
  
• WaMu, the nation's largest S&L, looks to be the subject of this weekend's emergency Fed/Treasury meetings.
  

What they have in common is that they are all huge, they are all leveraged, and they require the ability to issue tons of debt to stay in business. That ability is gone, but not only for big.

* With over $600 billion in debts, Lehman Brothers is the largest bankruptcy in US history. Do not expect them to hold that record very long.

** though in all fairness, most of them are tiny compared to IndyMac. Though in unfairness, Indymac didn't even make that list until a few weeks before it imploded, so whether that number is meaningful is debatable.