IMPEACH BUSH

SAN FRANCISCO (MarketWatch) -- As U.S. Treasury officials made it clear the government will not bail out Lehman Bros., the Federal Reserve Bank of New York met Friday night with Wall Street executives in an effort to forestall the collapse of the investment firm and shore up rapidly weakening financial markets.

The New York Fed called the emergency meeting Friday evening with the heads of major financial institutions and the group reportedly plans to continue meeting throughout the weekend if necessary to come up with a plan to save the ailing Lehman Bros. and prevent further damage among financial companies.

According to media reports, Fed spokeswoman Michelle Smith confirmed the meeting but did not disclose which financial institutions participated in the meeting or whether the group had reached any decisions. But Smith told media outlets that that Treasury Secretary Henry Paulson, New York Fed President Timothy Geithner and Securities and Exchange Commission Chairman Christopher Cox were present.

A story in the online edition of the Wall Street Journal, citing people familiar with the situation, reported that Paulson made it clear to participants that no government bailout for Lehman should be expected.

The Wall Street executives attending included Morgan Stanley Chief Executive John Mack, Merrill Lynch  Chief Executive John Thain, J.P. Morgan Chase CEO Jamie Dimon, Goldman Sachs Group GS, CEO Lloyd Blankfein, Citigroup Inc. head Vikram Pandit and representatives from the Royal Bank of Scotland Group PLC and Bank of New York Mellon Corp., as well as others, according to the Journal. Most of those firms have themselves sustained major losses, and it remains unclear whether any individual firm has the needed capital to step in or if a consortium will have to emerge to solve Lehman's problems. The meeting appeared similar to one held a decade ago when the New York Fed pulled top Wall Street executives together to prevent the collapse of hedge fund Long-Term Capital Management, the Journal report noted.

The Journal reported that while the talks go on, Lehman continues to try to find a buyer for the company and also to work on bids due Friday night for a stake in the auction for its investment management unit. Lehman is scheduled to release its fiscal third-quarter financial results on Thursday.

Shares of the once-thriving Lehman slumped another 13% Friday on concern the sale may come at a distressed price. See full story.

Suitors include Bank of America according to an earlier Journal report. Spokesmen at Lehman and Bank of America declined to comment.

Bank of America, J.C. Flowers, and the Chinese sovereign wealth fund China Investment Co. are mulling a joint bid for Lehman, the Financial Times reported on its Web site Friday. Lehman got bids for its asset-management business from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc. The offers value the unit at about $5 billion, Bloomberg News reported, citing unidentified people familiar with the auction.

On Wall Street, shares of the nation's top financial stocks fell as Lehman Brothers struggled to find a savior, Moody's downgraded Washington Mutual, the nation's largest thrift, to a junk rating, and American International Group, long the world's largest insurer, is losing that status as losses explode. See Financial Stocks.

AIG beset by a record stock slump and a possible cut from ratings agency Standard & Poor's, said it was reviewing its businesses and that "everything was on the table," suggesting it might sell assets to raise capital and avoid a crippling downgrade. See full story.