• Barclays seals Lehman deal
    Posted by on September 16th, 2008 at 10:40 am

    From the FT:

    Lehman Brothers on Tuesday reached a deal to sell certain parts of its business to Barclays, which had been in talks over the weekend to buy the entire investment bank before it filed for bankruptcy protection on Monday.
    The two parties reached a deal in the early New York morning, though the exact Lehman businesses involved, and the price at which they will be sold, remained unclear. A deal could be accompanied by a small capital raising by the UK lender.
    People close to the matter said it was likely that the deal centered around Lehman’s core US broker-dealer operations, which perform securities underwriting tasks, provide merger advice to lucrative clients, and conduct trading.

  • Thanks Eliot
    Posted by on September 16th, 2008 at 10:29 am

    Larry Ribstein has a great post on the failure of SOX. Weren’t all those controls there to protect us?

    Remember when SOX was supposed to, at enormous cost, expose the weaknesses and risks lurking in companies so they could be addressed to avoid another Enron? As Tom Kirkendall and I have been observing for awhile: fat lot of good SOX did. Could we please think about that when we try to regulate in the wake of this catastrophe?
    And while we’re at it, let’s think about yesterday afternoon’s market plummet. That happened (and it’s likely to continue this morning) because AIG, facing catastrophic downgrades of its securities, needs 70 billion by tomorrow to avoid bankruptcy.
    Should we worry about that? Here’s what the WSJ has to say:
    The company, whose stock fell 61% yesterday, is such a big player in insuring risk for institutions around the world that its failure could shake the global financial system. much of its exposure is related to credit default swaps, insurancelike contracts tied to corporate defaults. * * * The market for credit default swaps is immense, trading against about $62 trillion of debt. Some participants in the largely unregulated market worry that the default of a major player such as AIG could trigger chaos. * * *
    [T]he firm is used by many companies world-wide to manage a range of risks, including exposure to investments in subprime mortgages. Its demise would potentially make it harder or more expensive for businesses to control their risks.
    How did this happen? Well it’s worth speculating that it had something to do with AIG being left without its long-time leader, Hank Greenberg, for which we can thank Eliot Spitzer. As I’ve noted, per the WSJ (last May):
    A careful and lengthy look at the evidence available so far . . . suggests that the AIG case, like so many others that Mr. Spitzer brought, was an example of prosecutorial excess. Instead of uncovering some great fraud by a titan of industry, its main result has been to damage the company, and harm innocent managers and shareholders. * * *Trading above $72 in February 2005 before it was Spitzerized, AIG shares closed yesterday at $39.57. The company’s directors defend themselves by saying Mr. Spitzer gave them little choice but to dismiss Mr. Greenberg. Whether that was true at the time, they – and Mr. Spitzer – owe an apology to AIG shareholders.

  • In Retrospect
    Posted by on September 16th, 2008 at 10:25 am

    The $10 BSC got in March is looking pretty good. Lehman’s big mistake was being too small and too late. If they blew up bigger and earlier, they’d probably be in much better shape today. (It would be hard to be in worse shape.)

  • Now They Tell Us
    Posted by on September 16th, 2008 at 10:15 am

    WaMu Rating Lowered to Junk by S&P on Mortgage Losses

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  • The Bubble Isn’t All Bush’s Fault
    Posted by on September 16th, 2008 at 10:08 am

    I just don’t get the argument that the credit bubble is the fault of George Bush, or free market ideology. People toss around the words “more regulation” as if that’s the obvious cure. Sure, if we restricted the number of people who got mortgages, I assume the bubble would have been averted. But who would have been the first person barred from getting a mortgage? The message I’m getting from this crisis is not that government should do more, but it’s really how little the government can do.

  • Oil is Down Again
    Posted by on September 16th, 2008 at 9:51 am

    As far as impacting the overall economy, Lehman’s downfall doesn’t mean very much. In the larger scheme of things, Lehman was never really a big company. The media always like to use the, how will this effect Main Street angle. Simply put, it won’t.
    But what will impact Americans is the plunge in oil. I see that oil is down sharply again and is now below $92. I remember way, way back when we would have thought $92 for oil was expensive. For example, the beginning of the year.
    In my very unsophisticated analysis, I think gold is due for a big fall.

  • Goldman’s Net Plunges
    Posted by on September 16th, 2008 at 9:44 am

    The market is rattled again this morning as Goldman Sachs (GS) reported a major earnings decline. For their third quarter, Goldman earned $1.81 a share which beat Wall Street’s consensus of $1.73. This is a major shortfall compared with the $6.13 a share it made for last year’s third quarter.
    I’m seeing a lot of scary headlines (Goldman Sachs net plunges 70 percent) but some perspective is needed. Goldman is still making a lot of money, just not the absurd amounts seen in 2006 and 2007. GS’s profits are up 25% in the last three years. Annualized, that’s not a huge increase, but it’s still up.

  • The Fed’s Suez Crisis
    Posted by on September 15th, 2008 at 3:10 pm

    Something that struck me about Lehman’s demise is how little power the Federal Reserve really has. Don’t get me wrong, the Fed is darn powerful, but it’s not all-knowing and all-seeing, despite what some folks think. The Fed is powerful because people think it’s powerful.
    Analysts hang on every word in a statement or testimony, but in the case of Lehman Brothers (LEH), the Fed really couldn’t do much. Wall Street basically stood up to the Fed and the central bank was exposed. Since Bear was the first, the Fed can open its mouth and get its way. But the Fed can’t make the weaker argument the stronger, and that’s what was needed with Lehman.
    I’d say the Lehman story was a combination of too much debt—at one time they were leverage 40-to-1, they didn’t know what they owned, and they refused to listen to any criticism. To top it off, they had horrible luck too. That’s not a good combination.
    With Level 3 assets (these are basically assets that can’t be priced easily so we have to trust Lehman for the price), Lehman once claim they their Level 3 stuff was up 9%, even though the market was down by 10%. When people called them on it, Lehman got mad and blamed the shorts. That’s just arrogance. Then they spent something like $22 billion on Archstone? I mean, what the hell? Talk about the wrong price, the wrong industry at the wrong time. Aside from that, it was a great deal!
    Einhirn and other shorts said they didn’t know what their stuff was worth and they were undercapitalized. Fuld & Co. just refused to listen. I don’t think they’re crooks at all, they sincerely believed in what they were doing. Until the end, the company was offering assurance to investors.
    With Bear and Lehman we often heard about counterparty risk. Well, that theory got shot down with Lehman. I’m going to go on the idea that the reason there wasn’t a deal for Lehman is that no one wanted one. If someone wanted, it would have happened. Novel thinking I know. But it tells us that the Street is hardly concerned about counterparty risk. JPM was concerned about with Bear because it was mostly their risk.
    I heard Hank Paulson talk about bringing stability to the markets. Yeah, right. That’s basically like the flea giving orders to the dog. The Fed and the Treasury do not have this thing contained. If the housing market recovers, then the problem goes away. It’s as simple as that.

  • Eddy TV
    Posted by on September 15th, 2008 at 2:40 pm

    I was just on Britain’s SkyTV discussing Lehman’s implosion. If I can find the video, I’ll post it here.

  • 91-Day Treasuries
    Posted by on September 15th, 2008 at 11:03 am

    The yield on the 91-day Treasury basically got chopped in half today. At one point, the yield got down to 0.67%.10-year Treasury futures had their best one-day gain in nearly 20 years. Now if I can only remember what happened in October 1987.