Another weekend, another desperate Fed scramble

Just like the Bear-Stearns and Freddie/Fannie bailout/takeovers, another weekend orchestration is taking place as week speak to try to clear up the Lehman debacle.

If you've had your head in the sand (which is a much nicer place to be, I admit, than watching the mess that is the financial markets these days), Lehman Brothers is in deep doo-doo. The firm procrastinated for, oh, several months before the market basically told it to sell itself or die. So last week they proclaimed themselves to be open to any and all deals. That wasn't good enough for the market, which wanted a firm deal made.

So all the relevant government players (the Treasury Department, the Fed) are trying to grease the wheels of a private takeover and prevent further market turmoil. This time the government said "no deal" to a bailout a la Bear Stearnes or a government takeover a la Freddie/Fannie, trying to limit "systemic risk." Meaning, if we bail out every firm, what prevents people from investing to the hilt in risky firms?

The answer of course, is that nothing will prevent that. But they might at least not encourage it, which they've been doing for years, especially as Freddie and Fannie are concerned.

Friday's market action wasn't nearly bad enough to suggest a Monday meltdown, regardless of the Lehman outcome. The worst case scenario is probably another 3% drop; the best case? I'm not sure any result will jar the markets higher. If gains come Monday, it will be due to oil price declines or Ike damage fears abating.

But once again, the mounting pressures for a large (7%) one-day drop continue. Be prepared for that eventuality, and for the ensuing 3.5% gain the next day that inevitably seems to follow the big drop.