Comments on: So Where, Exactly, Did Lehman’s $130 Billion Go?

By: Lehman UK to Sue Parent for $100 Billion | Froogalizer.com

Lehman UK to Sue Parent for $100 Billion | Froogalizer.com — Sun, 30 Aug 2009 20:32:43 +0000

[...] reported positive net worth and not a single big firm equity analyst ever dreamed was insolvent wind up showing $130 billion of losses? The US administrator, which aspires to coordinate the entire international BK, has blamed the size [...]

By: Hugh

Hugh — Fri, 10 Jul 2009 18:43:56 +0000

Alvarez & Marsal's conflict of interest is another example of how rotten and corrupt the financial system remains, that those who were so responsible for creating the mess are still put in charge of its cleanup.

I would think that false, inflated valuation of assets plus leveraging could create a $130 billion hole rather quickly.

By: Dave Raithel

Dave Raithel — Fri, 10 Jul 2009 17:54:55 +0000

Love the observation at about 6 minutes (in paraphrase, but pretty close): Keep in mind the financial compensation you're paying the regulators is peanuts compared to what the PeeAchDee quants are getting to invent the "innovations".... Calls to mind a point from the Frank Rich essay the other day.

A clerk for $100,000 a year? Where do I sign up ....?

There are too many other hilarious set ups to remark, so one serious point: I suppose there is some price level for home purchases where 20% down fits the income of the average (or maybe median) wage earning household. I'm not so sure that everybody wants to see that price level.

By: Anonymous Jones

Anonymous Jones — Fri, 10 Jul 2009 16:57:41 +0000

First, I don't know what exactly composes the $130 billion, but I think it's fairly clear one way or another that a firm subject to such liquidity volatility should be regulated into oblivion. If I (as an individual) have a massive liquidity problem, the wolves would leave little left of my carcass.

Second, personally knowing a good deal about Lehman's real estate portfolio in California, I can tell you that a large portion of it was worth 0.0 cents on the dollar (and that's assuming that the overall bankruptcy eliminated many of the future funding commitments because a continuing Lehman would have had to *pay* others to take the RE portfolio off their hands). I'm not sure how that fits in, but we really have to investigate the possibility that all the banks lost such staggering sums in the bubble that no hedging positions could ever be fully made good.

By: Yves Smith

Yves Smith — Fri, 10 Jul 2009 16:38:07 +0000

This comment, via e-mail, from Economics of Contempt:

Just so you know, derivatives were exempt from the automatic stay of bankruptcy well before the 2005 bankruptcy amendments. Counterparties could always seize collateral posted against derivatives positions — it's been that way since the early 1980s. The only thing the 2005 bankruptcy bill did in this area was slightly broaden the class of exempt contracts to include repos based on "mortgage-related securities" (i.e., MBS). The FT article is wrong about the 2005 bankruptcy bill exempting credit default swaps — CDS were already exempt (see Enron). This FDIC article provides a nice history, if you don't believe me (or it you're otherwise interested): http://www.fdic.gov/bank/analytical/fyi/2005/101105fyi.html. Anyway, just for future reference.

I'm as big a critic of the 2005 bankruptcy bill as anyone, but I don't think it deserves the blame for a long-established bankruptcy rule like this one.

By: Paola

Paola — Fri, 10 Jul 2009 10:18:24 +0000

Who says the 2005 changes were for the reasons given – maybe they were a smokescreen as well

By: Brick

Brick — Fri, 10 Jul 2009 09:42:09 +0000

When I read the comment from the CNBC interview about pretend and extend, I wondered whether there was some read through to other banks.
" One of my partners said yesterday that we are going to call this phase the "extend and pretend" phase in our economy. Which is you extend someone's maturity – because they are going to default – and you pretend that business will come back or that leverage factor is going to come back.Then we'll enter phase two, which he said is the request to extend or "amend".Then "send". In other words send the keys.That is the phases we are in right now. Everyone is trying to buy time, as opposed to dealing with the leverage, they are trying to buy time. Whether you are a banker or a company, they are all trying to buy time. I don't see the leverage coming back, and I don't see the consumption of good and services coming back. –Bryan Marsal, CEO of Lehman Brothers Holdings."

Now we know from a spiegel interview that lehman had assets of $651 and roughly $200 billion worth of claims. We know they had
Illiquid assets which marsal found difficult to convert to cash. The private equity portfolio in the US was about $12 billion, and the real estate portfolio was over $40 billion.With the drailment of real estate perhaps they were just getting 25c on the dollar for some of those illiquid assets.
The read through to other banks would most likely be that they are insolvent if they marked down their illiquid assets to firesale prices.

http://www.spiegel.de/international/business/0,1518,613196,00.html