Why couldn't the analysts and other fund managers predict the downturn at Merrill and Lehman Brothers?

They did, and it was predicted. The Fed warned Lehman to do something constructive about their situation. For example, Merrill found a buyer (Bank of America) in the end, after they had exhausted all other avenues of restructuring and recapitalisation (survival).

Lehmans however, were bloody arrogant and stupid. They had dozens of opportunities to do a Merill Lynch. For example before the Barclays and Bank of America offers (that had no chance without support from the Fed), Lehman had a good offer from the Korea Development Bank, but arrogant Lehman CEO Dick Fuld turned it down because he thought he could force the sale price up by playing the stock market. The Fed were fed up! No pun intended.

Lehmans thought they were too big to fail, and really thought the Fed would bail them out as a last resort, and refused to believe that when the Fed said NO, they meant NO. A Lehman executive is reported to have said: "Heads we Win, Tails they Lose" (meaning the Fed and General Public).

AIG or CitiBank could be next. And don't tell me that no one predicted this.

Fact: AIG wanted to borrow a $40bn (Â£22bn) bridging loan from the Fed but were refused, however they were thrown a lifeline by the Fed when AIG were given permission to access up to $20bn (Â£11bn) of capital held in its subsidiaries and assets, to help ease short-term liquidity problems. This may not be enough. AIG may go the way of Lehmans i.e. bust -or- they may do a Merrill Lynch - investment guru Warren Buffett (Berkshire Hathaway) is understood to be holding talks with AIG over a cut-price deal to buy what was until the current crisis the world's biggest insurer.

"The fallout from the collapse of AIG would be much, much greater than Lehman. The word is that the Fed were prepared to let Lehman go to the wall because it wasn't particularly Consumer Facing (i.e. the investors were banks, speculators, traders, oligarchs, sheikhs and other mega-rich people)." (Also Lehman were bloody arrogant and stupid.)

"It wouldn't be as easy to to let AIG or Washington Mutual suffer the same fate" i.e. their investors are ordinary folks across America, much like HBOS, Bradford & Bingley and Nationwide in the UK.

Fact: Citibank are Lehmans biggest Unsecured Creditor named on Lehman's Chapter 11 filing. Citbank have a staggering $138bn bond debt with Lehmans. (It beggars belief, I bet the whole of Africa doesn't have a GNP as big as this.)

PS Spare a thought for Lehmans poor old staffers things may get a lot worse for them - they may actually owe the creditors (banks) money. According to City blogs, sources point out that $5.7bn (Â£3.2bn) PAID OUT IN BONUSES by Lehmans last year could be seen as FRAUDULENT under US Laws which prevent transfers of money made by companies that are insolvent. Gosh, no wonder Lehmans went bust.

PPS You may have wondered about the many pictures in the papers and on TV showing so many Lehman employees walking out with boxes (particularly with "Iron Mountain" on them).

The investment banks of Wall Street and the City have some of the finest wine cellars in the world (worth hundreds of thousands maybe millions), so it was no surprise to see pictures of Lehman staff in both London and New York leaving their offices clutching case loads of booze. No wonder staff were keen to salvage something. Whether they had taken their own personal stash, or had raided the corporate cellars, presumably will be of great interest to the liquidators.

PPPS Spare a thought for the new recruit French guy Edouard d'Archimbaud, 24, from Paris, may be the unluckiest guy in the world. Having already been delayed on his way to London by the Channel Tunnel fire, he arrived in Canary Wharf on Monday morning for his first day of work, but was told he was fired before he had even made it as far as his desk. I told a friend this sad story and they burst out laughing hysterically proving that nobody cries when you tell a sad story, but when ever you say "It's a Funny Old World" no ones laughing! Why?