Both Lehman Brothers and Merrill Lynch were faced with liquidity crises and attendant losses on financial instruments. Merrill Lynch has recorded some large losses at the end of last year and the beginning of this year and saw more coming. In order to avoid the kind of panic that hit Lehman, Merrill Lynch engineered a sale and merger of itself to Bank of America. This is an all stock deal with Merrill stockholders now owning stock in Bank of America although Merrill stockholders have lost scads of money over the last year.
BofA could only do this for stock, there is no way they could have raised $50 billion in cash.
Lehman could not find a buyer and the government didn to step in and try to rescue the firm so they filed a bankruptcy petition.which means they sought protection from their creditors under the jurisdiction of the court.. In essence they have put the company up for liquidation.
The thing to remember is that on Friday the government basically announed that they were not going to step in an save another institution.
This had a negative effect on the equities market and resulted in today’s mess.
SRM