Lehman Brothers Bankruptcy and the Brink of Financial Meltdown

Sunday is widely being described as "one of the most dramatic days in Wall Street's history". The global financial system is on the brink of a full-scale meltdown, and regulators are taking unprecedented steps to prevent this from occurring.

The key developments:

-Regulators, executives of financial institutions, and government officials have been huddled in lower Manhattan all weekend trying to prevent the collapse of the US financial system. Efforts to find a buyer for Lehman Brothers failed, with both Barcalys and Bank of America pulling out of talks. Barclays reportedly pulled out after the US government refused to take on the risk of Lehman's balance sheet until the deal closed (no taxpayer money will be committed).

-Lehman Brothers has just filed for bankruptcy. The bank is reported to have refused to devalue its assets below a certain level, essentially insisting that the bank is in better shape than everyone thinks. Some might interpret this position as a negotiating strategy, but in retrospect it appears to have been insanity, as the bank was forced to file for bankruptcy late Sunday evening. The 158-year old firm wasn't as interconnected as Bear Stearns, and was therefore allowed to fail.

-Bank of America has agreed to buy Merrill Lynch for around $50bn. Merrill Lynch was expected to be one of the next banks in the short-seller's sights, and once it became clear that Lehman would fail, Merrill CEO John Thain moved quickly to protect the bank. BofA now rivals Citigroup for the title of largest financial institution in the world.

-The US Federal Reserve has greatly expanded its lending facility and taken the unprecedented step of accepting equities as collateral.

-10 global investment banks have pooled $70bn into a lending facility to inject liquidity into the markets. Any of these banks are eligible to borrow up to a third of the facility.

All major markets around the globe are significantly down in the futures markets (many Asian markets are, thankfully, closed for holiday on Monday). A strategist on CNBC World just said that the global bear market is now entering "legendary" territory (measured by % decline).