Lehman, its NOT going well!

[Finster]

Re: Lehman, its NOT going well!

come on. If LEH goes BK, they go BK. Why have we gotten to the point in our world where everyone is scared sh&%less of a company going BK?

That can't be true! Haven't you heard, over and over again, how wonderfully "resilient" our economy is??? :rolleyes:

[Boat52]

Re: Lehman, its NOT going well!

China and Japan stock markets are closed on Monday. Provides more time for solution.

PIMCO is very large holder of Lehman debt. Gross very quiet on this one, I wonder why? Paulson really owes him for buying GSE debt when others were selling. Of course PIMCO made big bucks on the trade. Can't see Paulson letting him down now, that's not how it works on the Street.

Other big players in the past are mum....Griffin at Citadel, Ackerman at Deutsche Bank.

I expect dark horse solution rather than white knight.

[rj1]

Re: Lehman, its NOT going well!

everyone:

come on. If LEH goes BK, they go BK. Why have we gotten to the point in our world where everyone is scared sh&%less of a company going BK?

Everyone's afraid of all the bad stuff on Lehman's books coming back to them.

[Supercilious]

Re: Lehman, its NOT going well!

Everyone's afraid of all the bad stuff on Lehman's books coming back to them.

Yup, that's why Fuld hired the bankruptcy layers : "You don't want to help and saying Lehman is worthless? Fine. I declare bankruptcy"

I imagine a very kindergartenish atmosphere in the negotiation meetings

[don]

Re: Lehman, its NOT going well!

Lehman Heads Toward Brink as Barclays Ends Talks

By BEN WHITE and JENNY ANDERSON 36 minutes ago
Barclays, considered the leading contender for Lehman Brothers, said it could not reach a deal, and Lehman appeared headed toward liquidation.



http://www.nytimes.com/2008/09/15/bu...lehman.html?hp

[Jim Nickerson]

Re: Lehman, its NOT going well!

http://online.wsj.com/article/SB1221..._us_whats_news

According to people familiar with the situation, a stumbling block is the request that Barclays obtain shareholder approval before it agrees to cover Lehman's contracts with other financial firms. But organizing a shareholder vote would take days if not weeks. U.S. regulators are likely to have known this, raising a question about why this provision emerged late in the talks.

The main stumbling block for any Barclays deal is a reluctance by U.S. regulators to financially back an acquisition or the creation of a so-called "bad bank" to wind down Lehman's assets.

Some people involved in the discussions say Barclays concerns could be addressed, and this was high-stakes brinksmanship. The British bank could still return and with the pressure building on the government to find a solution, a threat to not return to the talks could help Barclays' stance.

Bank of America Corp., the other leading bidder on Friday, had indicated by Sunday morning that it wasn't interested in a transaction without government support.

[don]

Re: Lehman, its NOT going well!

With everyone in the room wearing flag pins in their lapels.

[Honzajs119]

Re: Lehman, its NOT going well!

Copied from another discussion:

Gramps2:

Accounting has ALWAYS been an art, not a science. You cannot look at book value or P/E ratios as if they were some sort of precise measurement. At best, they are a snapshot of a moving target. At worst, they are nothing more than artifacts of accounting rules.

People have been debating the merits of "mark to market" and "cost basis" literally for centuries (the concepts were the same, the names sometimes changed).

Mark to market gained popularity precisely because cost basis does not reflect impaired value unless and until management "recognizes" it. Plenty of CEOs have inflated earnings by simply delaying that "recognition&quot... Mark to market regained popularity because CEOs would pretend acquisitions were successful -- there are many instances from the 1980s were a CEO overpaid for another company (creating enormous amounts of "goodwill"), but when it became obvious that the acquisition wasn't paying for itself, CEOs refused to write down the worthless good will.

Now the pendulum has swung to the opposite extreme, and people are rehashing all the complaints against mark to market.

But as investors, we shouldn't get ourselves tangled up in accounting minutia. We have to look at the underlying business(es) and understand what is going on.

You have no doubt read about all the homes being foreclosed upon all over the country? The even larger number of people who are behind on mortgage payments? You must have read how home prices as a multiple of income are STILL many times higher than historical "norms". These people are not paying (and probably cannot pay).

If they cannot pay, that means the folks on the other side of the transaction-- the people who own the mortgage securities-- are not getting paid. Lehman (and the rest) paid money up front to buy the mortgages (ultimately they lent the money to the homeowners) -- and now they are not going to be paid back.

That means they have billions in losses... it doesnt matter if you look at it on a cost basis or a mark to market basis -- they have massive losses either way.

Lehman's problems are compounded because they bought those mortgages at extreme leverage. And many of the mortgages are in securitized forms that are very illiquid -- making them difficult to price even if you are a mortgage securities analyst/trader.

That is why Lehman (and many other banks) are insolvent -- whether you use cost basis or mark to market accounting.

There are hundreds of investors with a lot of cash and a lot of smart analysts working for them who would sweep in and buy Lehman on the cheap if they were truly solvent.

...

there are a lot of problems with the "Spinco" idea
(1) You have to be able to place a "real" value on the spun off assets. That involves some sort of price discovery (aka "mark to market"). By definition, there is no widespread agreement on the value of these assets -- meaning it will be almost impossible to make "Spinco" be bankruptcy remote. The creditors of "Spinco" will have a firm legal claim on the assets of the surviving portion of the company.

(2) The market value of many of these companies suggest that the losses on "Spinco" exceed the positive value on the otherwise surviving businesses. That's a fancy way of saying the remainder of Lehman isn't going to survive

(3) There is no way to create a stable system in which the rewards go to the lucky / politically connected -- but the costs are born by "the system" (aka the taxpayers). Whether anyone wants to admit it, the parts of Lehman that might survive benefited tremendously from the parts that are now causing its demise. Why should the "surviving" parts benefit doing good times, but not suffer during bad times? And why on Earth are the rest of us responsible for their mistakes?

Every little hot dog vendor on the street is not "too big to fail". No matter how entangled Lehman is with the rest of the street -- everyone has known about the Lehman problem for months. Any firm that did not control their exposure over those months deserves to fail.

Arguably some of the most prominent firms on Wall Street 30 years ago were names like White & Co, EF Hutton, Loeb, Salomon Brothers, and Paine Webber. They were all as important in their day as Lehman or Morgan Stanley is to today's market. They are all gone -- and the world did not end. Drexel Burnham failed almost overnight, and again the world did not end. Even the junk bond market is still alive and well. The world will miss Lehman and many others that will soon fail -- but life will go on.

There will be a disruption when Lehman fails, but it won't bring down any well managed firm... The CEOs of the other companies are **SUPPOSED** to be doing daily credit analysis on all their counterparties. They have all had months to adjust to the current crisis. If they haven't adjusted, if they aren't doing their jobs, then they deserve the fate of any business that isn't doing its job.

Things will stabilize when trust and confidence is restored to the system -- not when a bunch of government bureaucrats and central economic planners pick and chose which firms will survive or fail based on politics.

Firms that don't do their job well have always failed -- except in crony capitalist economies where government props them up. Consumers and taxpayers are always worse off when this happens.

The best solution to this problem is the one the U.S. suggested (and almost imposed) on Asia 10-15 years ago... Don't prop up bad businesses; instead let new entrepreneurs step in and meet consumer demands. Get government spending under control.

Lots of people have tried to blame free markets for this crisis... but if we were more honest: it was the Fed that lowered interest rates too far. It was Alan Greenspan (the Fed again) that recommended everyone switch to adjustable rate mortgages, and it was bank regulators that failed to regulate banks on liar loans and abysmally poor (non existent?) risk management practices. Government's push to promote home ownership -- at any price-- was a big part of the problem. Fannie Mae and Freddie Mac are both political entities sponsored by the government.

If taxpayers go and bail out the failed companies (which we really cannot afford to do anyways) -- it means the same geniuses that caused this problem remain in business to mess things up again and again. The economy needs new companies with new ideas and better management -- those new companies will never come to be if they have to compete against government/taxpayer subsidized ponzi schemes. Part of the reason why Fannie and Freddie got so oversized is because they had implied government backing and could borrow money 80 basis points cheaper than the competition (and according to a Federal Reserve study, less than 25bp of that was passed along to homeowners).

People always want to take action and "do something!!!" -- but sometimes the best thing to do is nothing. Have a little patience. This too shall pass.

[jk]

Re: Lehman, its NOT going well!

Wall Street Braces for Lehman Bankruptcy with Special Trading Session


Sham-Wow!


Wall Street Prepares for Potential Lehman Bankruptcy
By Craig Torres
September 14, 2008 15:19 EDT

Sept. 14 (Bloomberg) -- Wall Street prepared for a potential Lehman Brothers Holdings Inc. bankruptcy after Barclays Plc said it pulled out of talks to buy the firm and the government indicated it wouldn't provide funds in a resolution.

Banks and brokers today held a session for netting derivatives transactions with Lehman, or canceling trades that offset each other, in case the New York-based firm files for bankruptcy before midnight New York time.

``The purpose of this session is to reduce risk associated with a potential Lehman Brothers Inc. bankruptcy filing,'' the International Swaps and Derivatives Association said in a statement today. The ISDA includes 218 banks, brokerages, insurance companies and other financial institutions from the U.S. and abroad.

The step indicates that Wall Street lacks confidence that three days of talks to find a buyer for Lehman, held at the Federal Reserve Bank of New York, will be successful. Treasury Secretary Henry Paulson, who has led the talks with New York Fed President Timothy Geithner, was adamant two days ago against using taxpayer funds in a resolution.

The fourth-largest securities firm until the past week, Lehman has thousands of such trades in credit, equity, commodity, interest rates and currency derivatives.

``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.''

The announcement came after Barclays, the U.K.'s third- biggest bank, said it abandoned talks to buy Lehman, contending it couldn't obtain guarantees to protect against potential losses at the U.S. securities firm.


http://jessescrossroadscafe.blogspot.com/

[Finster]

Re: Lehman, its NOT going well!

Bloomberg is now reporting that both Barclay's and Bank Of America have withdrawn from buyout talks. The Dow futures opened up a few minutes ago down 300 points.

[LargoWinch]

Re: Lehman, its NOT going well!

Finster; do you ever relax on Sundays? (kidding)

Thanks for the update!

[Jim Nickerson]

Re: Lehman, its NOT going well!

Bloomberg is now reporting that both Barclay's and Bank Of America have withdrawn from buyout talks. The Dow futures opened up a few minutes ago down 300 points.

That cuts through a lot of BS at least for the moment.

[Supercilious]

Re: Lehman, its NOT going well!

Don't worry. Nothing will happen. There is a miraculous thingie called a credit default swap. If Lehman goes bankrupt because a load of CDO's are worth next to nothing the credit default swaps will cover that loss. Merril, Goldman, JPM will cover that loss and take possession of the mound of CDO's (selling them for a good profit ). If Merrill or Goldman go belly up because they cannot cover the loss, they are also covered by credit default swaps, and other banks will cover the losses.

There are $70 trillion credit default swaps out there. This huge derivative market cannot collapse like a house of cards ..... isn't it so ?

It seems Fuld has just pushed the nuclear button ....

[Supercilious]

Re: Lehman, its NOT going well!

A NYT blog says it's going to be bankruptcy:

http://dealbook.blogs.nytimes.com/20...cy-protection/

According to people briefed on the matter, Lehman Brothers will file for bankruptcy protection on Sunday night, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.


Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.

[rj1]

Re: Lehman, its NOT going well!

I take it the Asian markets just opened. Gold shot up something like $12 vertically when it opened per Kitco.

forex.com:

Market closed Friday for EUR/USD at about $1.422, up to $1.431 not long after open. (negative for dollar)

At the open at 5pm, USD/JPY went from 107.94 straight down to 105.75. It's recovered half of that back.