Lehman market cap is 28.40B, balance sheet shows 451B long term
investments, 280B short/current-long term debt, 124B long term debt,
80B payable and current liabilities, 28B receivable, 12B cash, 18B
equity, 15B net tangible assets.   What is their leverage based on
this?  Damn good question.   I would say 451/(451 - (280 + 124 + 80 -
28 - 12)) = 451/7 = 64:1.  Another way to calculate is as 451/15 =
30:1.   Whatever the exact number, it is very high.

44% of Lehman's portfolio is in mortgage-backed securities (source:
http://money.cnn.com/news/newsfeeds/articles/newstex/IBD-0001-1882647...)

Countrywide said that 20.15% of their subprime and 3.70% of prime
loans are delinquent, or an average of 4.98%, a big increase from last
quarter (source: http://www.reuters.com/article/marketsNews/idUKN0927223520070810?rpc=44).

What happens to Lehman if their mortgage-backed portfolio drops by
5%?  Let's see... 5% * 44% * 451B = 9.9B loss.   That's a loss of half
their equity or a third of their market cap, basically.   What if the
drop is 10%?  You get the picture.

But wait: actually, things may be much worse than that.  When CDOs are
created, someone has to hold the lower (non-AAA, "toxic") tranches.
Everyone who was in on the game was certainly scrambling to dump those
on pension funds and the like, but given the sheer volume of new
mortgages and CDOs created until recently and the abruptness with
which the market seized up, they are now probably holding a
considerable amount of those on their books.  Those tranches are the
ones that take any hit from defaults first - that's why the rest can
be "AAA" (yeah right).  That of course also means that the lower
tranches are also completely wiped out by even a 5% loss.  Another way
to think of it is that they are leveraged at a 20:1 or so to any
downside in the mortgage market.  Now, what do you think happens to a
company which is holding lower tranches of CDOs as a sizeable portion
of their 451B, 30:1 leveraged portfolio?  Which is now leveraged
essentially at a 30:1 *times* a 20:1 to any potential downside?

Yes, exactly: it starts with a B and and ends with a Y.