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Author Topic: Lehman's fire sale, Obama's 'Reform' - Hiding secrets?  (Read 1840 times)
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WhiskeyGirl
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« on: April 22, 2010, 11:01:17 AM »

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Put differently, just because clearing worked OK (not great) for the futures and futures options at issue at CME with Lehman, does not mean that things would work just as well with an expanded set of cleared products.  Indeed, things would almost inevitably be worse.  The set of cleared products is not exogenously determined: it is endogenous.  The products that are easier to clear are more likely to be cleared now.  Forcing, exogenously by government fiat, clearing of more products which almost by definition are more difficult to clear (and perhaps substantially so) means that the process of handling the next Lehman will be messier than the process of handling the last one at CME.

Would you give a recovering gambling addict a bottomless credit line, blank check, and send them back into the casino?  Or online gambling website?

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The third issue relates to the auction process.  CME originally solicited bids from 6 firms, and then in a second round from only 5 (dropping Morgan Stanley because its earlier bids had been uncompetitive.)  Felix Salmon considers this “scandalous”:

    Not only was the whole thing utterly unprecedented, it was also far from transparent: only six firms were invited to bid. If the CME was actively trying to get the lowest possible bids it’s hard to think how they could have done better than this, holding a hurried auction in the midst of utter market chaos, with no minimum bids and seemingly not a care in the world about whether Lehman was getting a fair price for its assets. It looks very much as though the CME wanted to hand Lehman spoils to its largest clients, since Lehman itself was clearly not going to be a client going forwards and was in no position to object.

Regarding “unprecedented”–well, circumstances were pretty unprecedented.  Regarding “hurried . . . in the midst of utter chaos”–is Salmon proposing a langourous process, waiting for the market to return to “normal”?  Like, when, exactly?  And what if CME had waited, and Lehman had gone bankrupt, what then?  Would it have been any easier to deal with these defaulted positions?  As if.

Regarding the number of bidders.  Consider the CME’s position.  It didn’t want to jump from the frying pan into the fire, and transfer the positions to another firm or firms that didn’t have the capital to handle the risk thereby assumed.  It wanted to move the positions into firms that it felt could handle them.  (Not that, in retrospect, Goldman and Morgan Stanley were in much of a condition at the time to handle the risk.)  Under the circumstances, limiting the number of bidders makes some sense.

And consider the irony of Salmon’s concern for whether Lehman was getting a “fair price.”  (Just exactly what were fair prices “in the midst of utter market chaos,” Felix?) The whole reason that many–including Salmon–advocate a move to clearing is to protect other financial entities from the knock-on effects of a default by a particular entity.  That’s exactly what CME was trying to do: to protect the other clearing members from the knock-on effects of a default.  Yes, that has distributive effects: to the extent  that the clearinghouse reduces the losses its members suffer, the defaulter’s other creditors lose, dollar for dollar.  But that’s part of the clearing package, as I’ve written repeatedly.  By advocating clearing, you are providing advantages to one set of creditors, at the expense of others.  That may be advisable, if the advantaged creditors are more systemically important than the disadvantaged ones.  But if you advocate that one group of folks should get first crack at the seats in the lifeboats, in the event you really can’t cry over the people left at the rail while the ship goes down.  That’s a predictable consequence of the choice.

One would hope that this window onto clearing as it is, as opposed to clearing in the fantasy land that is DC, would be a revelation to Timmy!, and Gensler, and Dodd, and Frank, and now Blanche Lincoln.  But, alas, one would almost surely hope in vain.

http://streetwiseprofessor.com/?p=3637

Why didn't they just break up Lehman? 

Real insurance for risk IS expensive.  REAL smart people take a good look at the risks and charge a premium for that risk.

Derivatives are like gambling.  Who's looking at the risk when you pay your $1 for a lottery ticket?  What are the chances you'll strike it rich and have the $500 million dollar winner?

For some reason, government want's everyone buying those derivatives to win the $500 trillion dollar lottery, and for taxpayers to make good on all those losing tickets.

Will the clearing house really make things better?  I don't think so. 

The losers are still buying tickets, and Obama want's each and every one of them to will the $500 trillion dollar prize!!!

Does Obama allow Main Street to buy a lottery ticket to pay for their healthcare?  Car insurance?

Why allow banks and hedge funds to bet with derivatives instead of SOUND financial products?

Who's judging the risk?  Can they be trusted?

my opinions.
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WhiskeyGirl
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« Reply #1 on: April 22, 2010, 11:32:44 AM »

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Barclays requests Lehman files

Barclays has staged an 11th-hour attempt to seize what could prove to be key documents in its upcoming court battle against Lehman Brothers' estate.

The British bank is being sued for as much as $11bn (£7.1bn) in assets by the fallen investment bank's estate. Lehman's creditors say these assets were incorrectly transferred when Barclays Capital bought the US bank's brokerage arm just days after it failed in September 2008. Barclays, in turn, claims it is still owed $3bn from the estate.


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Barclays is demanding Judge James Peck order the production of "any economic analysis of the sale transaction they performed prior to March 13 2009 and which they are withholding". According to the filing, the two sides have discussed the situation out of court but failed to come to any resolution.

more here - http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7615962/Barclays-requests-Lehman-files.html
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
WhiskeyGirl
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« Reply #2 on: April 22, 2010, 11:34:46 AM »

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Lehman creditors seek E&Y documents

Ernst & Young could be forced by a US court to hand over millions of pages of documents relating to its auditing of Lehman Brothers, the collapsed investment bank.

Lehman's official committee of unsecured creditors – whose members include MetLife and Bank of New York Mellon – is demanding the bankruptcy judge dealing with the bank's collapse rules that the committee can demand a raft of documents from the auditor.

The request follows the report by Anton Valukas, the court appointed examiner looking into the bank's demise, in which he said that the global accountancy firm – one of the so-called 'Big Four' – could face legal claims for "professional malpractice" stemming from a number of negligent actions.

more here - http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7612004/Lehman-creditors-seek-EandY-documents.html
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
WhiskeyGirl
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« Reply #3 on: April 22, 2010, 12:09:28 PM »

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Goldman lawyers advised Lehman

The US law firm supporting Goldman Sachs against fraud allegations was Lehman Brothers' legal adviser as it crashed into bankruptcy two years ago.

Rodgin Cohen, the senior chairman at Sullivan & Cromwell, was the man who made the fateful call on Sunday September 14, 2008 to Dick Fuld, the boss of Lehman, to tell him the final attempt to save the investment bank had failed.

Mr Cohen, 65, has become one of the most recognisable legal faces on Wall Street since the financial crisis, advising clients such as Bear Stearns and AIG. Recalling the talks to bail out the US banking system in 2008, Hank Paulson, the former US Treasury Secretary, said last year: "Every time I looked up, it seemed like Rodge was in the room."


more here - http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7604725/Goldman-lawyers-advised-Lehman.html
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
WhiskeyGirl
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« Reply #4 on: April 23, 2010, 06:56:10 PM »

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Lehman Brothers' liquidator pockets US$262.2-million in fees

Alvarez & Marsal LLC, the liquidator of bankrupt Lehman Brothers Holdings Inc., has collected US$262.2-million in fees over 18 months, topping a quarter-billion dollars for its work, according to a regulatory filing. The restructuring firm, which provided Lehman with its current chief executive, Bryan Marsal, is billing the bankruptcy estate for "interim management," according to yesterday's filing with the U.S. Securities and Exchange Commission. The defunct investment bank has paid all of its lawyers and advisors US$731.6-million through March 31, it said in the filing.

Read more: http://www.financialpost.com/news-sectors/story.html?id=2940947#ixzz0ly07qo4j

Almost a billion and they're not done yet?
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All my posts are just my humble opinions.  Please take with a grain of salt.  Smile

It doesn't do any good to hate anyone,
they'll end up in your family anyway...
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