Reader Hubert soliders on in the lonely task of continued Lehman spadework. He highlighted this section of FCIC testimony from Warren Buffett:
I think that if Lehman had been less leveraged there would have been less problems in the way of problems. And part of that leverage arose from the use of derivatives. And part of the dislocation that took place afterwards arose from that. And there’s some interesting material if you look at, I don’t exactly what Lehman material I was looking at, but they had a netting arrangement with the Bank of America as I remember and, you know, the day before they went broke and these are very, very, very rough ﬁgures from memory, but as I remember the day before they went broke Bank of America was in a minus position of $600 million or something like that they had deposited which I think J.P. Morgan in relation to Lehman and I think that the day they went broke it reversed to a billion and a half in the other direction and those are big numbers.
So LEH-BAC had a $2.1 billion swing in derivatives on one day. Multiply this around 15 or 20 bigger institutions and many smaller ones and the LEH Black Hole is getting substantiated….
JPM “got” the collateral in front of bankruptcy and they just divided it up as drove the market against LEH positions. I guess they told the LEH guys to hand over everything on their balance sheet and they divided the spoils. And the LEH guys might practically get LEGAL IMMUNITY for doing so. The story would go how derivative counterparties screwed unsecured LEH creditors.
This point does not appear to be sufficiently well understood.
Now perhaps Buffett read of the Lehman-Bank of America issue in the Valukas report, but I missed it in my admittedly selective reading, and I have not seen any one comment on it. I pinged a contact who is pretty deeply involved in the Lehman bankruptcy. His observation:
Very interesting. I don’t know where he would have got any of this information.
The people who would have this data are: Lehman, BA, Alvarez & Marsal [the Lehman bankruptcy overseers] or their lawyers. Regulators may also have this data and some other dealers may also have some knowledge.
Now if any of the first set of people shared this information with Buffett, that would seem to be mighty inappropriate. This is internal financial information, that’s generally considered to be non-public (not that this could be traded on). You might have some loose lipped employees, but Buffett said he read this, not heard it. Similarly, regulators are typically very protective of information they get from entities they supervise.
Now perhaps a reader knows where this tidbit came from and can clear up this mystery. But if not, this is mighty curious.