Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Lehman: more socialising the losses of the rich

by Jerome a Paris Sun Sep 14th, 2008 at 01:07:25 PM EST


Talks Continue in Effort to Rescue Lehman

The fate of Lehman Brothers, the beleaguered investment bank, hung in the balance on Sunday as Federal Reserve officials and the leaders of major financial institutions continued to gather in emergency meetings trying to complete a plan to rescue the stricken bank.

The talks took on even greater urgency on Sunday as government officials push for a deal to be completed before the markets open.

After weeks of agony, Lehman's fate appeared sealed by the end of last week, as its stock market value dropped 74% in a few days, after having lost more than 80% since the beginning of the year. That the Fed and Treasury have called an emergency meeting over the week-end ensures that things are over for the bank and it will either be bought over the week-end (with someone taking over its liabilities) or go bankrupt.


And the very reason the government took action over the week-end is also the one that ensures that it will not go bankrupt: it is considered too big to fall. As the WSJ notes:


A disorderly unwind of Lehman's derivatives trades is only one worry. Another worry is that if Lehman collapses, its distressed assets -- such as commercial real estate -- could suddenly hit Wall Street for sale, forcing prices even lower and potentially forcing other dealers to mark down once again the value of their own holdings.

With  both Merrill Lynch and AIG seen as extremely weak (both lost more than 30% of their market value on Friday alone), a liquidation of Lehman could bring them, and others, down, in a collapsing house of cards.

The reason is that in a liquidation, all the liabilities become immediately due, whereas the assets need to be sold to willing buyers. So the "loss" in such a collapse is not, as it would be in normal times, the difference between the liabilities and the assets, it is the difference between the liabilities and what money can be realised fast with the assets. It's the difference between the value for you of a mobile phone, and its value for a junkie that needs to raise cash quick to get its cash.

In normal times, or for non-financial companies, such a loss could be tolerated, but in today's context, this would have a number of nasty consequences:

  • other banks that deal with Lehman would suddenly lose the counterparty to these transactions: whether Lehman had committed to take a risk, or to make a payment, that commitment is suddenly in doubt, and if these transactions were a hedge for another transaction, that other transaction suddenly becomes something different.   In each individual case, the risk may not be that big, but the problem is that Lehman is a big player in some markets that have become staggeringly large, like CDS (credit default swaps), which banks use to move risk arond, and which reach into tens of trillions of dollars (yes, trillions with a t). These markets are zero-sum games, but if ou suddenly remove one link in the chain, it can unravel all interlinked transactions. In a calm market, such ripples might be tolerated, but at times when banks are weakened, hoard cash and don't trust one another, it could be absolute chaos if all scramble to protect themselves in an uncoordinated way;

  • even more worrisome for banks would be a firesale of Lehman assets. Banks are forced by accounting rules (which they pushed for when times were good and these rules favored them) to "mark to market", ie to value the assets they have on their books as the markets values them. For simple stocks, this is a no-brainer, but for more complex financial instruments that are not usually traded on public markets, this means valuing them by using the price comparable products fetched in recent transactions. If Lehman sold its financial assets at distressed prices, this would force many other banks to mark similar assets on their books at such prices, causing more losses to appear: these would be paper losses, to be sure, but the impact on accounts would be real and would certainly trigger regulatory requirements to raise more capital to plug the holes - at the very time when banks are struggling to shore up their balance sheets already.

In other words, a Lehman collapse could cause chaos in the markets, and bring other banks down.

So far, the solution pushed by the Treasury is not unreasonable, as the NYT describes it (link above):


The leading proposal would divide Lehman into two entities, a "good bank" and a "bad bank." Barclays of Britain would buy the parts of Lehman that have been performing well, while a group of 10 to 15 Wall Street companies would agree to absorb losses from the bank's troubled assets, according to two people briefed on the proposal. Taxpayer money would not be included in such a deal, they said.

Under that plan, the Wall Street banks would agree to provide up to $30 billion of support to absorb the losses of the bad bank. That is roughly the same amount of money that the government agreed to commit to support JPMorgan Chase's emergency takeover of Bear Stearns in March.

The assets of the bad bank would be sold over time as the market for mortgage-related assets recovers and buyers emerge. If the assets appreciate, the bank consortium would share in the profits. But they would also be responsible for any losses.

Saving Lehman would avoid massive problems for Wall St's other banks, and thus it would be appropriate to get them to contribute the (much smaller) amounts that would allow for an orderly closing down of Lehman.

The problem is, of course, that each has an incentive to put up as little money as possible, as long as others put something. And none want to help the buyer of the good bits to get a good deal at their expense. But of course, no buyer has any reason to do any deal and put any money on the table unless it makes sense for it to do so.

A classic "freerider" problem, which can only be solved if there is an outside force to coordinate contributions and, if necessary, impose them. This is the function that the Treasury and the Fed can play.

But - they are themselves against the wall: if no solution is found before the markets open on Monday (and that's only a few hours away in Asia now), then there is a good chance of a total financial meltdown, something that the Treasury is desperate to avoid.

Thus it is likely that the Wall St banks are holding their own commitments to the last minute to push for public money to help make the deal. Given the precedents that have been set first with Bear Stearns in March, and only last week with Freddie Mac and Fannie Mae, it is not surprising that they expect the same to happen again.

So my bet is that we'll see another bailout of Wall Street and the financial investors it serves, with large amounts of public cash committed in a way that looks painless today (ie, no money upfront, but large liabilities into the future, likely to cost hapless taxpayers billions later - after the election).

Has this administration ever behaved otherwise? The mores and havemores have fucked up on a massive scale, but their are "the base", and they cannot be let down.

They gorged in the good times, and they are letting taxpayers deal with the hangover. A sweet deal if you can get it (all you need is a few billions).

Display:
http://www.dailykos.com/storyonly/2008/9/14/12252/1317/580/598435

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 01:08:24 PM EST
Nine minutes ago, Bloomberg reported that Barclay's has pulled out of the talks.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 01:21:10 PM EST
[ Parent ]
So Barclays wants taxpayer guarantees even for the good stuff. This doesn't sound encouraging.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Sun Sep 14th, 2008 at 11:34:57 PM EST
[ Parent ]
There isn't any "good stuff" at the moment.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Mon Sep 15th, 2008 at 10:53:01 AM EST
[ Parent ]
you can read it daily on European Tribune!

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 04:18:53 PM EST
[ Parent ]
When do they Asian markets open, by the way?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 01:22:15 PM EST
[ Parent ]
at 10pm EST tonight, I think.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 01:47:48 PM EST
[ Parent ]
Shanghai, Seoul and Tokyo are closed tomorrow. So maybe the deadline is Europe opening, ie 3am EST.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 03:27:09 PM EST
[ Parent ]
by Metatone (metatone [a|t] gmail (dot) com) on Sun Sep 14th, 2008 at 02:07:07 PM EST
[ Parent ]
What's amusing to me is that, if Barry Ritholz is to be believed (and, personally, I'm a fan), Lehman is actually being punished for not being as reckless as Bear.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 01:28:07 PM EST
They did not tinker in the same instruments, but they have a lot of real estate sludge, and were just as highly overleveraged, which is the heart of the problem.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 01:48:44 PM EST
[ Parent ]
True, but isn't it also the case that Bear's garbage was much more spread out (among the hedgies, etc)?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 01:57:28 PM EST
[ Parent ]
Um, as I suggested in the Salon, Bear seems to have had its fingers all over the credit-default-swap pie and its failure would have triggered default clauses in assets on everyone's balance sheets. It appears Lehman basically kept the lower tranches of the subrpime CDOs it originated on its books, either by choice or because they couldn't find a sucker to buy it.

So Lehman failing is unlikely to trigger a cascade of writedowns in other financials' balance sheets, while (or so the story goes) Bear would have taken at least J P Morgn down with it.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 03:13:48 PM EST
[ Parent ]

The latest twist is that (according to the NYT) Barclays is pulling out:


Unable to find a savior, the troubled investment bank Lehman Brothers appeared headed toward bankruptcy on Sunday, in what would be one of the biggest failures in Wall Street history.

The fate of Lehman hung in the balance as Federal Reserve officials and the leaders of major financial institutions continued to gather in emergency meetings on Sunday trying to complete a plan to rescue the stricken bank.

But Barclays, considered the leading contender to buy all or part of Lehman, said Sunday that it could not reach a deal without financial support from the federal government or other banks, making a bankruptcy filing more likely.

The WSJ says on its front page that this might still just be a negotiating ploy.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 01:46:59 PM EST
The WSJ says on its front page that this might still just be a negotiating ploy.

Good point.  I'd keep an eye on the WSJ.  Murdoch hasn't purged the good reporters there yet.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 01:50:35 PM EST
[ Parent ]
The Financial Times in London is more specific:


Top Wall Street executives and regulators were on Sunday night racing to thrash out a rescue plan for Lehman Brothers as Barclays of the UK, one of two front-runners to buy the stricken bank, said it would walk away unless the US government provided a financial safety net for a takeover.

Barclays said it would withdraw from the race after failing to secure a US government guarantee over Lehman's potentially huge trading and credit losses. However, in a sign of the increasing brinkmanship over the rescue the UK bank indicated that a change in the government's position would bring it back to the table.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 02:19:41 PM EST
[ Parent ]
The last-minute request of a vote by the shareholders certainly points to Barclay's simply playing hardball.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 02:23:38 PM EST
[ Parent ]
BBC Business editor, Robert Preston: Latest view of Barclays walk out

It's decision, which was described by an executive close to the negotiations as "pretty definitive and unlikely to change", is a setback for attempts to rescue Lehman, which are being coordinated by the US Treasury and the New York Federal Reserve


You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 14th, 2008 at 02:48:31 PM EST
[ Parent ]
Hmm.  So, for those who do the investment thing, what should we expect from the markets if there's no deal?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 02:54:27 PM EST
[ Parent ]
Deal, financial stocks go up. No deal, financials crash.

At least on Monday. As we saw from this week's Monday-Tuesday movements, predicting the effect of government actions more than 12 hours in advance is suicidal in the current climate :-)

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 03:05:17 PM EST
[ Parent ]
Still have to contend with WaMu, though, and I think it's reasonable to suggest it's only a matter of time there.  That's a big one.

I'm a little concerned about Wachovia as well.  Probably pulling my money out of it this week.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 03:08:33 PM EST
[ Parent ]
Ain't bin no injuns round these part for nigh on <sssssftum> aaaaaarrrgghhh.

Don't listen to the oldtimers Drew, get the frick out of anything that doesn't create tangible assets. Invest in spades.

You can't be me, I'm taken

by Sven Triloqvist on Sun Sep 14th, 2008 at 03:15:42 PM EST
[ Parent ]
Invest in spades.

(insert joke about donating to Obama here)

</snark>

(Awful, I know, but I couldn't resist.)

My retirement account, which doesn't have a lot in it anyway, is with Barclay's.  It's a forty-year evolutionary one.  The rest of my stuff is FDIC insured, I think, although I'm not positive on he IRA.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 03:21:57 PM EST
[ Parent ]
No Drew, use the spades to dig holes into which you can crawl.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 14th, 2008 at 05:48:44 PM EST
[ Parent ]
Rest assured, I do plenty of that.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 05:58:17 PM EST
[ Parent ]
Fr the record, I recognize the joke was way over the top.  I apologize.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 06:22:38 PM EST
[ Parent ]
No need to apologize. I have enjoyed the exchange.  If you want to insult or upset me you will have to work a lot harder.  Besides, I agree with much of what you said. But the fact remains that in a lot of red states the voting is strongly affected by small town and rural voters.  It is a different world with a different world view.  

Progressives need to learn how to address small town and rural voters in an effective way in order to peel off a substantial portion that I suspect can be recruited to support a progressive agenda.  To speak in terms of icons or architypes, we may never recruit the John Wayne fans of that world, but we may have success with the Clark Gable fans.  This is especially true with this segment's younger voters.  Most of them have to leave their homes, their families and their communities just to make a living.  There is a community of interests, but progressives must find a language that works in this demographic without losing voters it already has.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 14th, 2008 at 08:00:09 PM EST
[ Parent ]
I did not get it at all. Good thing there is wikipedia or I would have had to ask.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Sep 15th, 2008 at 10:44:37 AM EST
[ Parent ]
a fall even if a deal is reached as people will move on to Merrill and AIG. If no deal, then it will be ... lively (I expect more Fed or Treasury intervention of some kind)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 03:30:39 PM EST
[ Parent ]
Well, the NYT says it's looking like liquidation for Lehman.

So I suppose "lively" is our likely outcome.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 03:39:30 PM EST
[ Parent ]
This is why you first nationalise credit institutions and, once nationalised, leave them nationalised.

Not the only reqson though....credit rationing should also be a political decision, and not one gamed by the interests of "big C" Capital...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Sep 14th, 2008 at 01:49:34 PM EST
How does making it a political decision prevent it from being gamed by the interests of Finance Capital?


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Sep 14th, 2008 at 02:56:09 PM EST
[ Parent ]
Well, if you had parliament vote on it, it would all be on the public record.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 03:07:44 PM EST
[ Parent ]
That's just silly ... a Unitary Executive Prime Minister is the model of transparency and open government as opposed to the Madisonian system.

Sorry, I lived for a decade in Australia during Howard's tenure as Prime Minister, so I aint falling for that particular line.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Sep 14th, 2008 at 04:41:50 PM EST
[ Parent ]
He was voted out, though.

You can't do that to the head of Bank of America.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Sep 16th, 2008 at 07:50:44 AM EST
[ Parent ]
Yes you can, you only need enough money to buy a swing bloc of BoA shares.

And if someone could be elected that would run a publicly owned institution in the public interest, then why couldn't someone be elected to regulate a privately owned institution in the public interest?


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Sep 16th, 2008 at 09:44:33 AM EST
[ Parent ]
My first reaction was that you were being purely defensive. But you are correct, if we can only organize millions of people to mobilize billions of U$D and Euros. Times of "Shock" might help to drive this movement.

We'll have to move fast, though, as the Feds can print money very quickly, as we have seen recently. This reduces the value of our individual pittances even further, but the good news is that the stock prices of most of our potential targets are falling, too.

So - we need a steering committee to decide on our target corporation(s). Who wants to join? After that, we'll need a publicity committee, a membership committee, and a Comptroller. Please sign up now. I will be glad to join the steering committee. How about you?

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Tue Sep 16th, 2008 at 01:20:01 PM EST
[ Parent ]
All I have is debt, of dubious quality considering my income level, and from what I understand, BoA already has an ample supply of debt of dubious quality.

On the other hand, while the venture is not likely to succeed, it has much better chance than an effort build a political coalition to nationalize the banking system and establish governance institutions that will prevent the recapture of the banking system by the entrenched aristocracy of wealth.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Sep 16th, 2008 at 01:44:39 PM EST
[ Parent ]
are you joining?

Debt of dubious quality is the best kind; you should get some more in order to help build this movement.

This venture is a political coalition. All 'successful' political coalitions fail eventually, so why worry about that part? Even political coalitions such as the "entrenched aristocracy of wealth" fail. How many descendants of the English 'nobles' from the 19th century are part of the current "aristocracy"? How many Mings are part of the current Chinese ruling class?

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Tue Sep 16th, 2008 at 03:57:07 PM EST
[ Parent ]
... a particularly promising foundation for a change coalition. Every successful change coalition eventually falls apart, but far more change coalitions fail to ever come together in the first place.

Actually, come down to it, I'm not entirely clear on whether I am supposed to excuse it for not bring an especially appealing political prospect, because of the policy appeal that is taken as read, or whether I am supposed to excuse it for not being an especially appealing policy position, because of the political appeal that is taken as read.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Sep 16th, 2008 at 11:54:49 PM EST
[ Parent ]
I am lost on that second paragraph.

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Wed Sep 17th, 2008 at 11:35:26 AM EST
[ Parent ]
redstar proposes to nationalise financial institutions and keep them nationalised. I don't see what the first on its own accomplishes over and above the regulatory regime in place in the US in the 1950's, and I don't see how the second is enforced.

And getting a change coalition together to nationalize a nation's financial institutions seems to me to be a really tall ask, far harder than a change coalition to pursue sustainable energy independence, and that is pretty damn hard in its own right.

So when told "All 'successful' political coalitions fail eventually, so why worry about that part?", I'm not clear on whether I am being told there is some compelling political coalition of interests that can be organized around nationalizing financial institutions that I am not seeing, which justifies the pursuit of a policy that on its merits would be a silver or bronze medalist, or whether I am being told there is some compelling policy benefit I am not seeing, that justifies working for such a political long shot.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 17th, 2008 at 12:24:28 PM EST
[ Parent ]
You wrote: "you only need enough money to buy a swing bloc of BoA shares". So I wrote to the effect that, "OK, let's do that."

Then the subject became effective political coalitions vs. useful policy. Apparently.

Now you seem to imply that unregulated financial institutions are no worse than regulated ones ("the US in the 1950's"). Plus, we can't enforce 'nationalization'. Also, 'change coalitions' are very difficult to assemble; and nationalizing financial institutions in the current context is a second- or third-tier objective.

Is that a fair synopsis? If not, please characterize the thread. If so, what are your first-tier objectives, and how do you propose to implement?

If you want my opinion, my objectives are always to create and maintain political coalitions that build socialism and democracy. Too vague? If you want to see specifically what I propose, go to my web-site  www.spencerforpresident2008.com

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Thu Sep 18th, 2008 at 12:31:16 AM EST
[ Parent ]
Oh, come on, from the 30s to the 60s is a good run. 30 years after nationalisation nobody remembers why it was done.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 03:07:06 PM EST
[ Parent ]
What makes me really nervous right now is how often we're hearing the words "to big to fail", as if saying makes it so.

If the credit crisis goes on long enough, of course, at some point one of these institutions is bound to. I see a lot of candidates queuing up behind Lehman.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt ät gmail dotcom) on Sun Sep 14th, 2008 at 02:04:12 PM EST
... out if they are over a certain size, that is too big to (be allowed to) fail.

Now, sure, the US dollar could meltdown, so for youse furriners enough rescues of failed US financial institutions could look in the portfolio to be the next thing to failing, but for those obligations in US dollars, the monopoly issuer of vertical US dollars can always bail them out if it decides to do so, whether they are horizontal issuers of US dollars or pure intermediaries.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Sep 14th, 2008 at 02:58:43 PM EST
[ Parent ]
this is getting serious:


Wall Street Prepares for Potential Lehman Bankruptcy Filing

Sept. 14 (Bloomberg) -- A group of banks and brokers began preparing for a potential Lehman Brothers Holdings Inc. bankruptcy filing today, addressing outstanding trades that the company has in over-the-counter derivatives markets.

Financial firms have started ``netting'' Lehman trades on credit, equity, interest-rate, foreign exchange, and commodity derivatives, according to a statement from the International Swaps and Derivatives Association e-mailed to Bloomberg News.

``ISDA confirms a netting trading session will take place between 2 p.m. and 4 p.m. New York time for over-the-counter derivatives,'' the ISDA said. ``Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time, Sunday, Sept. 14, 2008. If there is no filing, the trades cease to exist.''

That is, if A is owed x by Lehman, and Lehamn owes x to B, A and B agree to eliminate Lehman and to say that A is owed x by B.

That's a good thing, but preparing for this means that the likelihood of bankruptcy is not remote.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 03:14:49 PM EST
``Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time, Sunday, Sept. 14, 2008. If there is no filing, the trades cease to exist.''

Very nice use of embedded exotic options.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 03:18:40 PM EST
[ Parent ]
Aaah - the old EEO ploy ;-)

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 14th, 2008 at 03:20:20 PM EST
[ Parent ]
What I don't get is this stuff about "bad banks".

What's a "good bank"?

Maybe it's like injuns - the only good bank is a dead bank....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Sep 14th, 2008 at 03:27:16 PM EST
[ Parent ]
good bank: assets worth what is claimed
bad bank: assets not worth that, and this losses to be borne at some point on the future even with enough liquidity in the meantime

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 03:33:17 PM EST
[ Parent ]
By the definition, how many good banks are there on Wall St?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Sep 14th, 2008 at 03:53:12 PM EST
[ Parent ]
Probably just the one at the end of the street with water running against it which you can stand on and look out towards Brooklyn.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Sep 14th, 2008 at 04:07:50 PM EST
[ Parent ]
Is the bank you are refering to the FED of New York?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Sep 14th, 2008 at 06:54:00 PM EST
[ Parent ]
past the east side of Manhattan Island.  

Home of the Brooklyn Bridge, which somehow inevitably comes to mind these days.  

The Fates are kind.

by Gaianne on Sun Sep 14th, 2008 at 07:37:49 PM EST
[ Parent ]
Stupid me.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Sep 14th, 2008 at 07:39:03 PM EST
[ Parent ]
It's 1:40am your time, after all...

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:39:47 PM EST
[ Parent ]
He's referring to the river bank.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:38:54 PM EST
[ Parent ]
I don't think it is that easy. If the systems by which assets are externally valued are suspect, then the claims of even the good banks are hollow.

Banks do not operate in a closed microsystem (though they might like to).  Value is ultimately social. As someone pointed out - the value of a mobile phone when lost and thirsty  in a large un-networked desert is zilch. The ownership or income worth of commercial or industrial property, for example, is not in the cement. It's in the space.

You can't be me, I'm taken

by Sven Triloqvist on Sun Sep 14th, 2008 at 04:01:38 PM EST
[ Parent ]
bad bank: assets not worth that, and this losses to be borne at some point on the future even with enough liquidity in the meantime

I think in this case it's more like "assets worthless as long as the market has no liquidity - and pockets not deep enough t make it through".

Keynes said "the market can stay irrational longer than you can stay solvent".

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 06:51:39 PM EST
[ Parent ]


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 04:00:08 PM EST
Oh dear - I have been sneaking looks at the Cheezburgr Lolcats myself. I keep telling myself that it is purely academic and only in the interests of improving my headline and caption writing.

But sadly I am amused by even some of the crasser ones.

You can't be me, I'm taken

by Sven Triloqvist on Sun Sep 14th, 2008 at 04:04:39 PM EST
[ Parent ]
Whats it's done for your spelling?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Sep 14th, 2008 at 04:10:55 PM EST
[ Parent ]
Iz in yr coments

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 14th, 2008 at 04:12:37 PM EST
[ Parent ]
Unapologetic Lolfan here.

I was talking to an illustrator recently who was saying that he thought digital art had killed political cartooning and satire.

I pointed him at Lolcats and the new Lolpolitics and he seems to have had

a bit of a revelation.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Sep 14th, 2008 at 04:53:10 PM EST
[ Parent ]
This is such a relief!

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 14th, 2008 at 04:57:55 PM EST
[ Parent ]
And thanks for Pundit Kitchen - an instant favourite.

LolET anyone?

You can't be me, I'm taken

by Sven Triloqvist on Sun Sep 14th, 2008 at 05:00:32 PM EST
[ Parent ]
Obama Pictures and McCain Pictures
see Sarah Palin pictures

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 14th, 2008 at 05:08:55 PM EST
[ Parent ]
Damn No image editing sofgtware on here, Was going to add "I can has Windmillz" onto a photo of Jerome. ;-)

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Sep 14th, 2008 at 05:39:52 PM EST
[ Parent ]
This is probably meaningless but on CSPAN's Washington Journal this A.M. the call-in topic (based on the Lehman situation) was "Is the faith in the market system shaken?"  Not one caller had ANY confidence; many intelligent, informed callers said they thought the worst is still ahead.

Question : What does a DEPRESSION look like? (Please, no quips.  Serious question.)

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sun Sep 14th, 2008 at 04:07:33 PM EST
Think a really bad recession.

Massive unemployment - up to 20-30%, financial collapse, severe deflation, cash becomes king, lowered economic activity, hunger, despair, disruption of food supplies to major population centers, farms foreclosed, farms that are still going can't find the money to put a crop in the ground, massive homelessness, & so on and so forth.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Sep 14th, 2008 at 04:20:19 PM EST
[ Parent ]
Talk about target rich; where do I start:



They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sun Sep 14th, 2008 at 04:30:33 PM EST
[ Parent ]
Like The Grapes of Wrath?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 06:58:06 PM EST
[ Parent ]
Like The Worst Hard Time.

We all bleed the same color.
by budr on Mon Sep 15th, 2008 at 11:29:30 AM EST
[ Parent ]
Actually, yes.

The US rural areas (agricultural areas) have been in Depression at least since the early 90s.  Thousands of farms have been foreclosed and the acres 'consolidated' into ever bigger operations.  As the population dwindled the local economy evaporated destroying thousands, literally, of communities.   The people who used to work in the feed stores, equipment businesses, banks, schools, & etc also joined the migration to metropolitan areas in search of jobs, boosting the demand for housing while simultaneously increasing the labor force triggering a stagnative affect on wages.

Awash in cash -- Bubbles made sure of that - the financial and real estates sectors made money off of this migration and the natural increase in population of those areas while the other side of the cubicle wall made money by playing games with the mortgages, loans, credit card purchases, & etc.  

It worked for a time, of course.  

What was forgotten was that debt has to be repaid.

The consumer economy IS most of the economy.  When that economy is debt-fueled, at some point, the consumer has to start paying for all the junk they've accumulated and as the velocity of the money going to debt repayment increases the velocity of money going to new purchases must decrease.  (In a stagnate wage environment.)  

I submit this is the Elephant in the Room.

Until the working class receives a wage increase the FED can pump money Top/Down all they want.  This addresses the symptom, not the disease.  For decades the US productive class has been systematically stripped of the wealth we create.  Just as this wealth is not available for the purchase of goods and services in a mass market it is not available for the repayment of debt accrued for those purchases.  

I note, but do not examine, the negative affect of Compound Interest on all of this.

Until Bottom/Up measures are applied to address the actual, as opposed to Top/Down for the crisis-of-the-moment, problems things are only going to get worse.

 

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Sep 15th, 2008 at 11:58:35 AM EST
[ Parent ]
There are various "Chapters" or varieties of bankruptcy in US law.  The one Lehman will be under is Chapter 7.  This is where a court divvies-up all the assets to the debt holders at a cost the court decides.  The sludge Lehman has been carrying for $X can be given to a debt holder valued at $X which means the Accounting balances and everybody can keep the financial illusion the sludge are actually "assets."

Or the court can decide the net worth of the sludge, establish a new corporation, give the debt holders equity in the new corporation to some value of the debt, and tell them all to get on with.

Or something else.

The point is when a company goes into Chapter 7 the court decides who gets what, when, where, & how much in their own sweet time -- which may be in a couple of hours to a couple of years to a couple of decades.  


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun Sep 14th, 2008 at 04:12:59 PM EST
Bloomberg.com: Bank of America Said to Walk Away From Lehman Talks
Bank of America Corp. abandoned talks to buy Lehman Brothers Holdings Inc., according to a person with knowledge of the matter, less than three hours after Barclays Plc said it wouldn't buy the faltering investment bank.

Bank of America, the biggest U.S. consumer bank, and Barclays, the U.K.'s third-largest lender, had been among the leading candidates to acquire all or parts of New York-based Lehman. The Wall Street Journal reported that Bank of America had entered into merger talks with Merrill Lynch & Co., citing unidentified people.

The two potential bidders pulled out amid a third day of emergency negotiations led by the U.S. Treasury and Federal Reserve. Leigh Bruce, a spokesman for London-based Barclays, confirmed in a phone interview today that his firm had withdrawn. Spokespeople for Bank of America didn't immediately return calls seeking comment.



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Sun Sep 14th, 2008 at 04:42:56 PM EST
I'm reading conflicting stories about just who is going to get Merrill Lynch: either AIG (though in other stories, I read that AIG is frantically trying to raise cash), or BoA (I read more detail about the BoA deal to get Merrill Lynch - $44 - 50 bn in stock @ roughly $30/share - so this story seems more credible).

It's a mark of just how much the landscape has shaken Wall St up, that I see conflicting reports like this.

Be a good time the buy oil stocks, though. The coming slump in the USD should create a bump in the price of crude.

Speaking of which, I forget what I predicted exactly for the price of crude come Dec 31, but I recall that it was on the high side. Keep the champagne chilled, Jerome, s'il vous plait :)

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Sun Sep 14th, 2008 at 11:09:52 PM EST
[ Parent ]
AIG isn't buying anything.  AIG's trying to avoid collapsing.  BoA's buying Merrill for $29/share (about $44bn).

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 11:15:24 PM EST
[ Parent ]


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Sep 14th, 2008 at 04:43:21 PM EST
A triple whammy.

Tomorrow is going to be ugly.  Thanks for this Jerome.  The other blogs appear to be oblivious.  The band plays on ....

by Maryb2004 on Sun Sep 14th, 2008 at 06:22:26 PM EST
[ Parent ]
Roubini is predicting a run on the brokers if they don't reach a deal on Lehman.

Countdown to 3AM EST?

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 06:26:29 PM EST
[ Parent ]
Link.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 06:55:19 PM EST
[ Parent ]
Who needs Doom Pr0n when we have reality at this point?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 07:00:09 PM EST
[ Parent ]
http://dealbook.blogs.nytimes.com/2008/09/14/lehman-to-file-for-bankruptcy-protection/

5:55 PM EDT: [T]he Federal Reserve has agreed to accept lower-quality assets in return for loans from the government. [?!]
...
It was not clear whether the government would appoint a trustee to supervise Lehman's liquidation, or how big the financial backstop would be.

Lehman's broker-deal subsidiaries would not be a part of the bankruptcy filing. Those entities must file under Chapter 7 rules, which are the procedures for liquidation, under the assumption that it is the best way to protect customers. The Securities Investor Protection Corporation would handle the liquidation of such brokerages, and bankruptcy lawyers say that customers are likely to receive their holdings back.
...
Moreover, changes to the bankruptcy code mean that counterparties to Lehman's credit-default swaps can seize their collateral at any time, posing an enormous potential risk to the entire financial markets.

Today's special "netting" session is ended. I'm assuming FRBNY (Geithner) --rather than "the government"-- will recommend a trustee, assigned to settle contracts languishing in LEH's bag.

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 14th, 2008 at 06:41:01 PM EST
The futures are taking a big hit.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 07:04:18 PM EST
[ Parent ]
Merril's board is meeting on BoA's $26 or $29 offer, according to the Journal.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 07:09:10 PM EST
[ Parent ]
MER last traded above $26 on Tuesday and closet at $17 on Friday.

That the board is meeting on a Sunday night means that after Lehman fails Merrill can't be far behind.

Also, wasn't BofA trying to buy Lehman last week? What are they playing at?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:12:23 PM EST
[ Parent ]
What's the benefit for BofA? After Lehman surely even $17 is overpriced. $26 is an early Christmas for Merrill.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Sep 14th, 2008 at 07:23:40 PM EST
[ Parent ]
Maybe BofA is killing the broker dealers on purpose. If BofA pulls out of this deal, Merrill is toast, like Lehman was toast after BofA pulled out of the previous deal to buy Lehman.

Does BofA hold put options or short positions on Merrill?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:26:16 PM EST
[ Parent ]
Interesting idea.

Although I suppose beyond a certain point the whole system falls apart, and BofA wouldn't survive that either, even after vampirising the investment houses.

Does anyone know what BofA's culture is like?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Sep 14th, 2008 at 07:40:08 PM EST
[ Parent ]
Maybe BofA is killing the broker dealers on purpose. If BofA pulls out of this deal, Merrill is toast, like Lehman was toast after BofA pulled out of the previous deal to buy Lehman.

BoA destroys Lehman AND gets Merrill Lynch, eliminating 2 competitors in one fell swoop.

Hmmmmm....

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Sun Sep 14th, 2008 at 11:25:40 PM EST
[ Parent ]
Depends on the terms of the agreement they signed. These kind of things often have stiff pullout penalties. If this one is typical, if BoA pulls out, it ends up giving Merrill a nice big free cash infusion.
by MarekNYC on Sun Sep 14th, 2008 at 11:42:01 PM EST
[ Parent ]
if this is true:

A deal would be all the more dramatic because Merrill, upon the arrival of Chief Executive John Thain, did more than many U.S. financial giants to insulate itself from the financial crisis that began last year. It raised large amounts of capital, purged itself of toxic assets and sold big equity stakes, such as its holding in financial-information giant Bloomberg. That Merrill has opted to sell itself thus underscores the severity of crisis.

Then why would Merrill cut and run (apart from making a 10+% profit with the reported $29 per share offering)? This seems like awfully short term thinking.

For BoA, it seems CEO Kenneth Lewis just plain likes to acquire:

"Why would Bank of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically."

Both quotes taken from WSJ - "Bank of America Reaches Deal for Merrill"

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon Sep 15th, 2008 at 12:29:04 AM EST
[ Parent ]
Then why would Merrill cut and run (apart from making a 10+% profit with the reported $29 per share offering)?
Perhaps Thain truly fears that that might be the best deal they will get going forward.  Refuse it and follow Lehman.  The fate of Morgan, Goldman and others may give some idea of the accuracy of his appraisal. Perhaps Chris Cox will re-institute the ban on the already illegal practice of selling shorts naked.  It may be that it was too late for even that to help Merrill.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 15th, 2008 at 12:43:45 PM EST
[ Parent ]
your "The Polish press on the Ossetian conflict".

A good post, thanks. I have no news sites from Poland in my favorites, nor any from the Batlic states, and only one in Kyiv. I need to work on that.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon Sep 15th, 2008 at 12:54:08 AM EST
[ Parent ]
That would be consistent with BoA tradition.  Didn't they pay way over the market price for CountryWide?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 07:29:23 PM EST
[ Parent ]
BoA is a dollar LIBOR panelist and FRB "core bank." ML is an FRB primary dealer. US Basel II implementation is still on the table, too. As the "modernized" financial regulatory structure takes shape, "synergy" in primary and secondary mortgage marketing will be quite valuable, I suppose. From that vantage --standardizing "innovative" products-- NPV does look cheap enough.

Besides, "the market" let off BoA easily, when management dumped, refused to honor, Countrywide's liabilities in June [?]. ML may expect equally favorable market treatment of its CDOs, now its book is being trimmed by LEH's bankruptcy.

BAC closed at a "healthy" $33 on Friday and (Aug 8-K) profit --despite significant FRB borrowing.

I dunno. I'm inclined to see this scene as a mutually opportunistic share swap to please both firms' preferred creditors. I don't see upside otherwise. I'm not convinced ML is motivated to deal "simply" because of write-down anxiety ...

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 14th, 2008 at 09:20:22 PM EST
[ Parent ]
What's the benefit for BofA?

The benefit, dear TBG, is that BoA drives itself bankrupt and leaves me pissed off dealing with the FDIC.  A kind of farewell "Fuck You" from my grand ol' bank.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 08:24:09 AM EST
[ Parent ]
Does BofA have a spare $13bn to lose? (the difference between $17 and $29)

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 08:32:15 AM EST
[ Parent ]
Well, it's all stock, so it's not as if they're spending Real Money™.

As I understand the deal is contingent on an analysis of Merrill's balance sheet. So if Merrill is an empty shell, BofA gets to walk away.

The plan seems to be that there's still some real value there, somewhere.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 15th, 2008 at 08:37:19 AM EST
[ Parent ]
Presumably there's at least some real value left, but probably not $44bn worth.  Depends on how deep Merrill was in Big Shitpile.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 08:54:36 AM EST
[ Parent ]
Future prospects. (Huh?)

Also, big boss of BofA seems to enjoy shopping.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 15th, 2008 at 10:15:47 AM EST
[ Parent ]
Does the Merrill Board really have any choice at this point but to say yes.  Now that the news has broken - what would be the repurcussions of not making a deal.  Catastrophe.
by Maryb2004 on Sun Sep 14th, 2008 at 07:15:00 PM EST
[ Parent ]
They're being offered a +50% premium over the last market quote!

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:22:05 PM EST
[ Parent ]
No, no choice.  The Fed apparently forced them into it.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 08:24:46 AM EST
[ Parent ]
Good riddance.

:: ::

...

:: ::

(Yes, yes, they're not all bad, you know what I mean.)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Sep 14th, 2008 at 07:16:10 PM EST
[ Parent ]
Considering the credit crisis has been rolling for more than a year and we have had several failures earlier, this sudden collapse of Lehman (and maybe some more soon?) seemed to surprise the market.

What if someone who really understood the problem (let's call him "JaP") had been made chief executive of one of these toxic banks and given a free mandate and sharp axe, could that have saved the bank?

Or were these failed banks condemned a year ago already, with no hope of survival what so ever?

If that is so, why didn't the market figure it out earlier? It's been a whole year after all.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Sep 14th, 2008 at 07:00:58 PM EST
I suspect it has to do with incremental access to accounting information as quarterly and annual reports are published. That's why it's taken a year since the crisis started.

But you can't say the collapse of Lehman has taken the market by surprise. Look at the 1-year price series. The stock started sliding in March from $50 and was at $15 at the start of the month when the following was going on:

Lehman Brothers Holdings Inc., under pressure to raise cash before reporting third-quarter financial results, hasn't yet struck a deal to sell a stake to Korea Development Bank because the two sides disagree on how much the U.S. firm is worth, KDB's chief executive officer said.

Negotiations have been ``difficult because of differences over price,'' Korea Development Bank CEO Min Euoo Sung said today.

Lehman CEO Richard Fuld is racing to raise capital and sell devalued real-estate assets before reporting results in two weeks. Analysts surveyed by Bloomberg predict a loss of about $1.62 billion and say the New York-based firm may be forced to write down roughly $3.25 billion of assets. Lehman shares have plunged 75 percent this year.

(That's Bloomberg on Sept. 2) Note how the reporting of Q3 results plays a key role as a trigger.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:21:08 PM EST
[ Parent ]
Interesting... But I wonder if Lehman (or Bear, or Merril...) would have made it if they had gotten a new CEO who understood this crisis, as early as a year ago.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Sep 14th, 2008 at 07:25:58 PM EST
[ Parent ]
They all knew what they were doing... Remember what the CEO of Citigroup said in July 2007?
When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing.
(my emphasis)

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:30:13 PM EST
[ Parent ]
That didn't seem to help the banks or their shareholders. But I guess we might have a classical agent-principal problem here: the people in charge don't care about the shareholders as long as they can make a quick, massive, buck, and as long as the music plays, they'll make that buck.

Shareholders or the stability of the financial system be damned!

Is there any way charges could be filed against them? As the crime "financial treason" doesn't exist, maybe they could be put in jail for ignoring their duty against the shareholders?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Sep 14th, 2008 at 07:34:54 PM EST
[ Parent ]
You still believe in shareholder sovereignty. You should read The New Industrial State.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:36:12 PM EST
[ Parent ]
I really should, as soon as I can wrap my mind around Calculus. And I should really be asleep now, damn stupid math in 7 hours...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Sep 14th, 2008 at 07:41:19 PM EST
[ Parent ]
FT.com: Bank shares plummet in Europe (September 15 2008)
Looking ahead, Goldman Sachs and Morgan Stanley are due to report third quarter results this week. Analysts at SocGen said: "Their earnings should represent a relatively easier barrier for the market to overcome, but we will then be in a vacuum of sorts as far as single names are concerned given that the full reporting season is still some four weeks away."


A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 06:01:14 AM EST
[ Parent ]
Greenspan seems to treat all this as an act of God, a once-in-a-century financial hurricane:

Alan Greenspan, describing the banking crisis as the worst of his career and possibly the worst in a century including the 1929 Wall Street crash, added however that companies collapsing may not be a problem.

 'It depends on how it is handled and how the liquidations take place,' he said.

'And indeed we shouldn't try to protect every single institution. The ordinary course of financial change has winners and losers.'

Appearing on US TV, he said: 'Let's recognize that this is a once-in- a-half-century, probably once-in-a-century type of event'  - the worst 'by far' in his career, he added.

'There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go.

'And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes.

'That will induce a series of events around the globe which will stabilize the system,' he added.

My question is: what do the various possible future scenarios regarding Lehman and the whole banking mess mean down the road for the US, EU, Japan, Chinese, Developing World set of parameters we call Economies, and, more importantly, for the average bloke in various countries around the world? Should I head for the countryside, buy a gun and start growing my own food :b ? Under what sort of a scenario does this crisis become a societal crash and where? Under what scenario this is just more taxes and somewhat falling wages?

The road of excess leads to the palace of wisdom - William Blake

by talos (mihalis at gmail dot com) on Sun Sep 14th, 2008 at 07:22:56 PM EST
Iäm no expert, but I'll take a shot. The worst thing that can happen is that most of the banks crash and the State steps in and takes control of the financial system.

If you have bank shares you'll lose that money, or if you own bank corporate debt you'll lose that too. On top of that we have house prices still falling, and unemployment will rise.

But when push comes to shove, finance is just a way of sending numbers back and forth. Zombies won't stalk the streets because they didn't get any dividends.

People will still have food in their stomachs and diesel in their cars.

The real crisis begins when those problems hit us... ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Sep 14th, 2008 at 07:31:11 PM EST
[ Parent ]
You need massive government intervention one way or another.

If the government doesn't take control of the economy early, you get a depression and then the government has to pick up the pieces. WWII got the world out of the Great Depression.

If the government takes control of the economy early... Hey, stop laughing!

When capitalism fails it's socialism or fascism.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:35:03 PM EST
[ Parent ]
Or my favourite blend, Gaullism. ;)

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sun Sep 14th, 2008 at 07:37:58 PM EST
[ Parent ]
I just LOVE this SHIT!!!!

GOOD MORNING WORLD!!!

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 04:22:10 AM EST
[ Parent ]
Heh, they don't call it doom porn for no reason.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 05:37:19 AM EST
[ Parent ]
LOL. Just because NBER hasn't called a US recession doesn't mean US isn't in recession.

Democrats' latest idea: gas stamps, 11 Sep 2008

As the U.S. economy teeters on the brink of recession, Democratic leaders are revisiting an idea born of the Great Depression: gas stamps to help Americans cope with high fuel prices.

The proposal to subsidize fuel costs for lower-income families and individuals would almost certainly be popular with white, working-class voters and could boost Barack Obama's appeal with that critical voting bloc in this year's presidential election.
[...]
Under one version of the proposal, a person earning up to $31,200 or a family of four earning up to $63,600 could receive government payments totaling $500 for gas.
[...]
The idea for fuel stamps was first proposed by maverick Rep. Jim McDermott (D-Wash.), chairman of the House Income Security and Family Support subcommittee, who remembers his family using gas stamps when he was a boy during World War II.

That story hasn't gotten any play yet, has it? Pelosi didn't, when she announced the second stimulus package. 15 July. It's as new. Again. All that campaign excitement! does tend to gloss who is calling the shots in DC.

See these stories and more at How I spent my stimulus to get a feel for how quickly that $120B disappeared.

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 14th, 2008 at 09:45:11 PM EST
[ Parent ]
Wanker. As if it had nothing to do with him.

If Greenspan, famous for his positive spin, is saying this is worse than 1929, then yes, I suspect buying a gun - or more likely a tank and small artillery - may not be inappropriate.

Then again, he just be trying to talk down the market so his neo-feudalist friends can buy everything and everyone cheap in a fire sale.

Given his background, I wouldn't put it past him.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Sep 14th, 2008 at 07:32:23 PM EST
[ Parent ]
Lotta gun dealers out in darkest Wiltshire?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 07:46:43 PM EST
[ Parent ]
Just the army. ;)
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Sep 14th, 2008 at 07:57:13 PM EST
[ Parent ]
I think he's done us all a great service by bringing the whole crazy house of cards down a few years earlier than it would otherwise have done.

We need a Bretton Woods II, and before too long, there will be one.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Sep 14th, 2008 at 07:47:16 PM EST
[ Parent ]
an act of God, a once-in-a-century financial hurricane

Act of God, my ass. That's like removing the moderator from a nuclear reactor core and calling the result an Act of God

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Sun Sep 14th, 2008 at 07:48:28 PM EST
[ Parent ]
Would you put an eighty-year-old in charge of a nuclear reactor?

Greenspan's not stupid, but I think much of the problem, aside from his ideology, was that the finance game passed him by.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 07:50:30 PM EST
[ Parent ]
Alright, so now that an enormous crisis is erupting, should we start the countdown on another "Mars, Bitches!" press conference from Junior?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 07:53:27 PM EST
All I know is my retirement portfolio is either gaining or losing 30% tomorrow.

you are the media you consume.

by MillMan (millguy at gmail) on Sun Sep 14th, 2008 at 08:25:16 PM EST
[ Parent ]
Jeebus, how's that?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 08:25:55 PM EST
[ Parent ]
This guy. Obviously I have no idea for sure. I'm not betting against a deal, though.

you are the media you consume.

by MillMan (millguy at gmail) on Sun Sep 14th, 2008 at 08:28:36 PM EST
[ Parent ]
Ah, gotcha.  I'm guessing that a fund shorting the financials?

Probably going to be a good day for you, if so.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 08:37:14 PM EST
[ Parent ]
Yeah, that's what it is.

you are the media you consume.

by MillMan (millguy at gmail) on Sun Sep 14th, 2008 at 09:53:37 PM EST
[ Parent ]
Merrill's done.  WaMu is all but done.

Fed's thrown the discount window wide open.

AIG has just announced that it's turned down private equity firms and is running to the Fed.

Roubini's on CNBC now, for anyone in the states.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 09:04:51 PM EST
OK, I'm off to buy that gun we were talking about, now...

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Sep 14th, 2008 at 09:18:23 PM EST
[ Parent ]
Yeah, spoke to my father, who's a pretty sharp small investor.

"So, Dad, should I start stocking up on ammo?"

"God, I've never seen it this bad."

Yeah....

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 10:41:59 PM EST
[ Parent ]
Wow.
by Maryb2004 on Sun Sep 14th, 2008 at 09:19:23 PM EST
[ Parent ]
Do you have a link for the AIG news?  Or has it just been on teevee?
by Maryb2004 on Sun Sep 14th, 2008 at 09:29:29 PM EST
[ Parent ]
Sorry, was lovin' me some doomin', Maryb.  (But I'm an economist, so cut me some slack.  This must be how regular people feel when they watch porn.)  Link is here.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 10:37:08 PM EST
[ Parent ]
I just turned it on...some nice doom porn there.

you are the media you consume.

by MillMan (millguy at gmail) on Sun Sep 14th, 2008 at 09:58:07 PM EST
[ Parent ]
WSJ
The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter.
[...]
A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.

It would also show how the credit crisis has created opportunities for financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago, and half its all-time peak value of early 2007. Merrill shares changed hands at $17.05 each on Friday, after falling sharply in the wake of Lehman's looming demise.



Diversity is the key to economic and political evolution.
by Cat on Sun Sep 14th, 2008 at 10:32:59 PM EST
[ Parent ]
WSJ
The turmoil in housing and credit markets has hammered AIG, largely because of contracts it sold protecting others against losses tied to subprime loans and other risky assets. AIG's stock has fallen nearly 80% this year. It reported a second-quarter net loss of $5.36 billion last month after a first-quarter loss of $7.81 billion.

Among its challenges: It doesn't have access to the Fed's lending window, as some other troubled financial firms do. It could face significant claims from Hurricane Ike, which battered the Texas coast over the weekend. It had to pay a stiff premium in August when it borrowed money in the corporate bond market.
[...]
S&P said AIG had enough money to pay claims and post collateral, if needed -- an important statement, given that AIG could have to post billions of dollars if it got downgraded.

AIG had more than $1 trillion in assets at the end of the second quarter. Its shareholders equity -- assets minus liabilities -- stood at about $78 billion at that point.

Not a good week to be in property&casualty.

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 14th, 2008 at 10:39:37 PM EST
[ Parent ]
The private equity firms just withdrew their bids on AIG.

The Giant Talking Penis and Benny and the Inkjets better have a plan, or get one real quick, 'cause the shit's about to really hit the fan.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 10:43:47 PM EST
[ Parent ]
Benny and the inkjets

hahahahaha

you are the media you consume.

by MillMan (millguy at gmail) on Sun Sep 14th, 2008 at 11:24:03 PM EST
[ Parent ]
The fate of both Morgan Stanley and Goldman Sachs will be front and center Monday morning, as the Street wakes up to a world where the independent broker-dealer are increasingly thin in number.
  WSJ
by Maryb2004 on Sun Sep 14th, 2008 at 09:58:34 PM EST
They're allegedly in better shape than the others were, but I'll be damned if I'll put my money in Goldman or Stanley.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 10:38:44 PM EST
[ Parent ]
Atrios is in prime form tonight.  Highly entertaining, highly recommended.

The Fed is now taking equities at the discount window?  WTF?!?!

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Sep 14th, 2008 at 10:50:15 PM EST
The Fed is now taking equities at the discount window?  WTF?

Discount window, alright.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 02:58:46 AM EST
[ Parent ]
Shit.

That means the Money Market Banks and Prime Borrowers no longer have financial standing to borrow based on their non-equity (i.e., Paper) assets.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Sep 15th, 2008 at 12:05:52 PM EST
[ Parent ]
FT.com: Bank shares plummet in Europe (September 15 2008)
The European Central Bank announced emergency steps to counter is financial turmoil in the wake of the crisis in the US banking system. It announced a special operation offering unlimited overnight liquidity to markets.

Earlier, using language similar to that it has used previously used to signal possible intervention in financial markets, the Frankfurt-based institution said it "continues to closely monitor the conditions in the euro area money market".

...

The Federal Reserve agreed to take equities as collateral for emergency loans for the first time ever, as the chances of a rate cut at its scheduled meeting this week grew according to interest rate futures trading.



A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 06:04:40 AM EST
[ Parent ]
The End For Lehman?
The International Swaps and Derivatives Association [ISDA], which includes more than 200 banks, brokerages, insurance companies and other financial institutions, called on Sunday an emergency trading session that would run between 2 p.m. to 4 p.m., involving credit, equity, rates, foreign exchange and commodity derivatives aimed at reducing the risk of a potential bankruptcy filing by Lehman.

ISDA also issued a statement where it said:

    Trades are contingent on a bankruptcy filing at or before 11.59 p.m. New York time Sunday. If there is no filing, the trades cease to exist.

The steps taken by ISDA prompted credit default swaps of investment banks such as Goldman Sachs (GS) and others sharply higher. ISDA's actions also underline the fact that Wall Street seems to have lost confidence in the efforts orchestrated by federal regulators for a successful purchase or bailout of the 158-year-old investment firm.

Lehman Brothers, which has come under tremendous financial pressure because of significant losses tied to the collapse of the U.S. housing market and subsequent credit crunch, has hired law firm Weil, Gotshal & Manges LLP to prepare a potential bankruptcy filing.

Update: DealBook now is reporting that as of Sunday night Lehman Brothers will file for bankruptcy protection.

(My Bold)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 14th, 2008 at 11:43:37 PM EST
I've been reading that things will get interesting when the Asian markets open today. Except I just saw they won't. Japan, South Korea, China, and Hong Kong are all closed for a holiday on Monday.
by MarekNYC on Sun Sep 14th, 2008 at 11:44:06 PM EST
Singapore / Taiwan / Australia are all off two to four percent.

you are the media you consume.

by MillMan (millguy at gmail) on Mon Sep 15th, 2008 at 12:35:08 AM EST
[ Parent ]
Europe's dropped 5% already.

YAHOO!

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 07:32:12 AM EST
and Frances CAC40 has dropped the ruthest, isn't this just additional data that Europe is Doomed?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Sep 15th, 2008 at 08:33:40 AM EST
[ Parent ]
Indeed.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 08:55:15 AM EST
[ Parent ]
and the CAC has big energy companies in addition to the banks (5 banks + 3 big energy companies out of 40)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 10:43:58 AM EST
[ Parent ]
Energy, Basic Materials and Conglomerates were the three taking the biggest hits last I checked.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 10:56:58 AM EST
[ Parent ]
UK winners and losers here.

The usual mix of impulsive baa-ing and inexplicable irrationality. (Thomas Cook? Huh?)

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 15th, 2008 at 11:01:25 AM EST
[ Parent ]
Wondering why Europe's taking the bigger hit than the US.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 11:09:16 AM EST
[ Parent ]
It takes it earlier.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 11:15:42 AM EST
[ Parent ]
True.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 11:22:20 AM EST
[ Parent ]
is that US investors sell foreign stocks when they need to raise cash at home to cover losses - and they are still a big part of the ownership of European stocks.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 04:25:04 PM EST
[ Parent ]
Wound up not being true anyway.  The Yurpian indexes dropped ~2.5-3.5%, I believe.  Yank ones dropped ~3.5-4.7%.

Fun, fun, fun!

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 04:41:37 PM EST
[ Parent ]
might have to do with the various tour-operators that have gone bankrupt in the past couple days. It's been almost unnoticed in the ongoing news (Lehman + Ike) but close to 100,000 people have been left stranded while on their holidays...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 04:23:58 PM EST
[ Parent ]
Good point - but even so, I suspect package holidays may not be getting a lot of consumer attention next year.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 15th, 2008 at 05:15:46 PM EST
[ Parent ]
It's all Thomas Cooked, as they say.

You can't be me, I'm taken
by Sven Triloqvist on Mon Sep 15th, 2008 at 05:44:53 PM EST
[ Parent ]
Things I've heard about those stranded passengers and their implications to the share price of other travel firms is that the collapse of one travel firm tends to push the share prices of others higher, as there has been a contraction in the market supply.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Sep 16th, 2008 at 08:36:57 AM EST
[ Parent ]
Obama is good:
Well now, instead of prosperity trickling down, the pain has trickled up - from the struggles of hardworking Americans on Main Street to the largest firms of Wall Street. This country can't afford another four years of this failed philosophy


A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 08:54:55 AM EST
That is absolutely beautiful framing.

Ad.  Now.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 08:56:16 AM EST
[ Parent ]
Right under the flotation line of Reaganomics.

The rising tide would then sink that boat.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 08:59:10 AM EST
[ Parent ]
That is, as one Kossack put it, the best one-line assault on supply-side economics since Daddy Bush called it "voodoo".

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 09:03:18 AM EST
[ Parent ]
Why did Daddy Bush attack supply-side economics?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 09:13:31 AM EST
[ Parent ]
Because he was running against Reagan in 1980.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 09:14:13 AM EST
[ Parent ]
Oh, I thought the phrase came from the 1992 race against Clinton.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 09:14:46 AM EST
[ Parent ]
No.  Clinton's attack on it wasn't really a one-liner kind of attack.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 09:17:25 AM EST
[ Parent ]
Mig
The rising tide would then sink that boat.
That is what happens to beached boats that have no sound bottom.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 15th, 2008 at 12:58:11 PM EST
[ Parent ]

The document has made it onto the www. It is a 19pp pdf, US Southern District of NY. See rebeltraders.com. Of interest are Top Ten excerpted from Schedule 1, 30 Largest Unsecured Claims (excluding insiders). The Asian exchanges are closed for holiday today. Australians suspended LEH trading, although in terms of dollar exposure, Japanese commercial and investment banks rank higher over all LEH creditors. Not highly enough perhaps to have been invited to the war room this weekend.

Top Ten, USD billions

Citibank N.A. and Bank of New York Mellon Corp (indenture trustees, sr notes)Bond debt$138
Bank of New York Mellon Corp (indenture trustees, sub. notes)Bond debt$12
Bank of New York Mellon Corp (indenture trustees, jr. sub. notes)Bond debt$5
AOZORA, TokyoBank loan0.436
Mizuho Corp. BankBank Loan0.289
Citibank N.A. Hong KongBank Loan0.275
BNP ParibasBank Loan0.250
Shinsei Bank Ltd, TokyoBank Loan0.231
UFJ Bank Ltd, TokyoBank Loan0.185
Sumitomo Mitsubishi Banking Corp., TokyoBank Loan0.177

total $156.8B

Hua Nan Commercial Bank LtdBank Loan0.59
Bank of ChinaBank Loan0.50
Bank of TaiwanBank Loan0.25
Taipei Fubon BankBank Loan0.10

total $144M

It is unclear for whom or institutional investors Citi and Bank of New York manage custodial accounts. With it filing, LEH also applied for a waiver of the requirement for filing a complete list of creditors. "The schedule of liabilities to be subsequently filed should be consulted for a list of the Debtor's creditors that is comprehensive and current as of the date of commencement of this case." That task will take some time, I'm sure.

Diversity is the key to economic and political evolution.

by Cat on Mon Sep 15th, 2008 at 09:16:49 AM EST
Does that mean Citi is losing $138bn today?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 09:22:41 AM EST
[ Parent ]
And, if so, can Citi afford to lose $138bn?

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 09:24:13 AM EST
[ Parent ]
I'm not so sure. I'm not licensed, remember? To attempt answer, I'd have to dig around Cit 8-K and 10-Q footnotes. First, I must grocery shop and chill beer. Yes, it's come to that ...

Diversity is the key to economic and political evolution.
by Cat on Mon Sep 15th, 2008 at 09:37:43 AM EST
[ Parent ]
<speculation class=wild>Well, it appears from what you posted that Citi holds 90% of Lehman's unsecured debt. Lehman's latest balance sheet on gogole finance is $500bn assets and $480 liabilities. So if Lehman's assets get written down by 4% that takes out all the equity (well, that has happened already obviously).

If Lehman's assets get written down by 10%, then $30bn unsecured debt doesn't get paid and Citi loses $27bn out of $90bn (market cap). So Citi's shares would go down by 30%.

If Lehman's assets get written down by 20%, then that's $80bn unsecured debt unpaid, of which Citi eats $72bn (80% of Citi's market cap).

And if Lehman's assets get written down by 25% or more, that's it for Citi.</speculation>

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 09:51:28 AM EST
[ Parent ]
ShitiGroup goes down!  Down goes ShitiGroup!

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 10:02:55 AM EST
[ Parent ]
As a holder of Senior Notes Citibank, in theory and practice, could be paid-off in full with the other subordinate debt holders get the shaft.

All depends on the Bankruptcy work-out.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Sep 15th, 2008 at 12:18:22 PM EST
[ Parent ]
Right.

However, the other debt is small enough that "getting the shaft" is unlikely to topple the others. It's the $138bn figure that stands out.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 12:25:35 PM EST
[ Parent ]
Need to look at and see how much of these assets© are generating positive Cash Flow.  Right now Balance Sheet Accounting is meaningless.  Nobody knows what that shit is worth.  As long as Net Income is positive Citi can stay in business.

At least until they have to do some debt roll-over.

Then ... who knows?

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Sep 15th, 2008 at 12:38:27 PM EST
[ Parent ]
Could be that this was what much of the credit default swap two hour special session on Sunday was about.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 15th, 2008 at 01:03:57 PM EST
[ Parent ]
not to mention 12 USC 17. LEH is a financial holding company rather than national charter bank or bank holding company. Some unusual considerations, mmm hmm, will apply.

Diversity is the key to economic and political evolution.
by Cat on Mon Sep 15th, 2008 at 12:50:55 PM EST
[ Parent ]
Can you give a quick explanation? (For those of us who don't want to search through pages of the US legal code...)
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 15th, 2008 at 05:17:44 PM EST
[ Parent ]
Gracious! I think that's a diary. For one, the FRB is the principal regulator of financial and bank holding companies; Paulson abets Bernanke evidently to circumvent SEC jurisdiction and prosecution; and case law allows corps plenty latitude in dispositions.

That's what I mean by "unusual consideration." I'll give it --facts available to the public-- some thought, then report.

Diversity is the key to economic and political evolution.

by Cat on Mon Sep 15th, 2008 at 07:21:56 PM EST
[ Parent ]
MT is apparently still living with the idea that our elite economic players operate within the laws that little shits like all of us operate within.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 09:25:45 PM EST
[ Parent ]
LOL. No. I'm merely wanting to be helpful by offering some kind of explanation as to how US arrived at the current predicament. The law (USC) is a document trail if nothing else, and it leads straight to "our" bipartisan Congress.

Frankly, not Bush. Sorry, that freak is a "comma" in the scheme. The electorate will continue to seat their hoary jackasses despite it all and expecting somehow a different result ...

Diversity is the key to economic and political evolution.

by Cat on Wed Sep 17th, 2008 at 02:58:42 PM EST
[ Parent ]
How funny it would be if all these banks crashed, bought each other, merged some more, crashed again, just to be all bought at bargain basement prices by the only who still has a considerable pile of dry gunpowder, Warren Buffet.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Sep 15th, 2008 at 09:53:50 AM EST
[ Parent ]
No.

The loss depends on the terms of the Bankruptcy proceedings and how much 'Good Stuff' (positive Cash Flow instruments) there is in Lehman.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Sep 15th, 2008 at 12:14:22 PM EST
[ Parent ]
is just the place where the securities are deposited - it's acting as custodian and is not really owning these assets - just holding them on behalf of third parties.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 04:28:22 PM EST
[ Parent ]
AP via Google: Lehman Brothers files for Chapter 11 protection
In its bankruptcy petition, Lehman listed Citigroup among its biggest unsecured creditors, with about $138 billion in bonds as of July 2. The Bank of New York Mellon Corp. was listed as holding about $17 billion in debt.

Citi and Bank of New York both said Monday they serve as trustees for Lehman debt, not that they are creditors themselves. Citi issued a statement to say that its role is "administrative in nature and does not represent exposure for Citi to Lehman." Bank of New York said, "In this situation, our role has been to serve as a trustee for certain Lehman Brothers bond offerings. We have no outstanding loans to Lehman."

Lehman said that as of May 31, it had assets of $639 billion and debt of $613 billion.



A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Tue Sep 16th, 2008 at 08:52:55 AM EST
[ Parent ]
Trustee, eh?

AFAIK, IANAL, a trustee can be held responsible for loses upon failing the Due Diligence, Misfeasance, and/or Malfeasance Tests.  

Reckon it depends on how the Trust or Trustee Contract was written?


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Sep 16th, 2008 at 02:07:06 PM EST
[ Parent ]
Alrighty, it appears this pdf is not the filing in its entirety -OR- the story of LEH creditors is developing on the hour.

Jesse showcases some later Bloomberg and WSJ news. Good for 'em; I'm not prepared yet to invest in a PACER account. (That could turn into the mother of all digressions.) The reporting clarifies somewhat ordinal value of LEH's 30 largest creditors, engrossed by (brokered deposits at) Citi and Bank of New York bond debt. Bank lenders, e.g. Japanese commercials, are subordinate.

Pimco, Vanguard Are Biggest Lehman Bond Fund Losers
Sept. 15 (Bloomberg) -- Pimco Advisors LP, Vanguard Group Inc. and Franklin Advisers Inc. are among investment companies that may face losses of at least $86 billion ... according to data compiled by Bloomberg as of June 30.
[...]
While bond investors will recover different amounts based on their ranking in Lehman's capital structure, models of credit-default swaps assume lenders will recoup 40 percent of their loans overall in a bankruptcy. Investors may receive less than that, based on prices for Lehman's senior bonds of as little as 35 cents on the dollar from price provider Trace.

Pimco holds Lehman bonds in at least 12 of its funds, including the $134 billion Total Return
[...]
New York-based Lehman, which filed for protection from creditors today, owes its 10 largest unsecured creditors more than $157 billion, according to the Chapter 11 filing in U.S. Bankruptcy Court in New York. The largest single creditor is Aozora Bank Ltd. in Tokyo, with $463 million in a bank loan.

"Single largest creditor" is a distinction that deserves examination with respect to "indenture trustees" (1, 2) Citi and Bank of New York. Regardless, a bond is accrual accounting -- no mark-to-market loss to principal UNLESS negotiated with bondholders. Credit swap trade by and income to funds' positions would be dependent, I assume, on outcome of the forgoing. Follows some Asia-Pac red meat, uh-oh, L-curve contagion copy. These banks' unsecured loans to LEH are relatively small; assume "net loss" includes future income attributed to int payments and spreads.

Several Japanese Banks Are Top Lenders to Lehman
Aozora Bank, a mid-sized Tokyo bank, was No.1 on the list of largest bank lenders with a loan of $463 million, followed by Mizuho Corporate Bank, with a $289 million loan, according to court documents submitted with Lehman's Chapter 11 bankruptcy filing. Mizuho Corporate Bank is the wholesale banking unit of Mizuho Financial Group, Japan's third-largest bank by market value. Other big Japanese lenders to Lehman included Shinsei Bank, another mid-sized Tokyo bank, and Mitsubishi UFJ Financial Group, Japan's largest bank.
[...]
On Friday, Aozora said it expects to swing to a net loss of four billion yen [USD 378,214 a/o 15 Sep] in the fiscal first half ending Sept. 30, compared with a previous forecast of a 15.5 billion yen profit, as it changed the timing of write-downs related to its investment in GMAC LLC [?!], the unprofitable finance arm of General Motors Corp. Aozora invested in this business alongside Cerberus Capital Management, its largest investor.

The long list of Japanese names on the list of bank lenders underlines how these banks are playing an increasingly important role as providers of capital in the global financial market battered by a credit crunch.
[...]
The filing doesn't necessarily mean the loans extended by these banks would go sour. Lehman said it had $639 billion in assets, which will be liquidated and eventually distributed among creditors during the process of liquidation.



Diversity is the key to economic and political evolution.
by Cat on Mon Sep 15th, 2008 at 03:41:01 PM EST
Um, the Asians are apparently wiping out AIG.  Calling in the CDSes, etc.

AIG's gone by Wednesday.

This is not good, I'm guessing.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Sep 15th, 2008 at 09:34:51 PM EST


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