The Feds must bail out Lehman Brothers

There is a fundamental question on relative merits of the previous bank bailouts - which bank did deserve a bailout and how much would it really cost? Our model of stock price, developed in articles and posts, provides an additional measure of the size of bank problems - total debt. One can estimate the debt as a product of the number of shares and their market price, which was negative for the bailed out and not bailed out banks. We base our estimate on relevant stock prices described in this blog. Table 1 lists the number of stocks, their peak negative price, and the debt:

Table 1.
....................vol............ price,$.......debt,$
LEH...... 689,000,000.......... -40...... -2.76E+10
C ..........11,000,000,000..... -10.......-1.10E+11
AIG....... 134,000,000........ -870 ......-1.17E+11
FRE...... 648,000,000......... -40 ........-2.59E+10
FNM...... 1,110,000,000...... -45 .......-5.00E+10
(see fictitious stock price estimates for Citigroup and AIG in Figures below)

The table shows that Lehman Brothers had smaller problems than Citigroup and AIG. So, it was was easier to bail out LEH from purely mathematical and financial point of view.

Also, the joint negative price of AIG, FRE and FNM is less than 200bn. It could be some (deliberate?) miscalculation of the >1000bn help package. The toxic debt might be bigger than the total debt associated with stock prices, but there should be unaccounted positive assets.