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Government stimulus packages are funded with future tax revenue. It is natural that tax money is viewed by the paying public as funds that should be spent within each country. Government bailout money to transnational financial institutions is likely to be used globally. Every government is now engaged in a race to maximize national multiplier effects of its stimulus programs. Thus while all governments are paying lip service to resist protectionism against movement of goods, few have faced up to the new form of financial protectionism practiced by transnational institutions.
The transfer of funds from London to New York by Lehman Brothers during the early hours of its bankruptcy filing is an example of the problem of financial nationalism. Scores of hedge funds that had hundreds of millions of dollars in cash and other securities parked with Lehman's prime brokerage operation in London have had their accounts frozen and the funds transferred to New York, leaving the United Kingdom with less money to settle the bankrupt firm's liabilities.
A number of hedge funds filed formal objections with the New York bankruptcy court and at least one fund, New York-based Bay Harbor Management, filed a legal challenge to the court's hastily approved sale of Lehman's brokerage arm to Barclays Capital.
A subsequent and even more troubling scenario arose from legal disputes on the estimated $1 trillion in market value exposure of derivatives transactions that Lehman had entered into on behalf of itself and its customers. At least three lawsuits are known to have been filed alleging that nearly $600 million in collateral posted by some of Lehman's trading partners in derivatives transactions had not been returned as required and had disappeared from the UK as the bankruptcy process unfolded in New York.
The Bank of America (BoA) is seeking to recover nearly $500 million the bank "posted as collateral to "support derivative transactions between BoA and the respective Lehman Entities,'' according to a lawsuit filed in New York State Supreme Court that alleges the accounts at Lehman that held the collateral were "frozen'' when the investment house filed for bankruptcy on September 15, 2008. BoA contends that Lehman "wrongfully refused'' to return the collateral in violation of its agreement as a trading counterparty.
The dispute was expected to be the first of many since it is not uncommon for derivative transactions to be part of tangled web, in which trading counterparties are on the hook to make payments to other trading counterparties with whom they have no direct agreements. A derivative is a sophisticated contractual agreement that is dependent on the performance of the notional value of an underlying security, such as a bond, a stock or a commodity.
The dispute between BoA and Lehman stemmed from the fateful decision by Lehman officials in New York to transfer $8 billion in cash from the firm's London offices on the eve of the bankruptcy filing before funds were frozen in London. The $8 billion cash and securities sweep left Lehman's London offices with no money to pay employees or to provide cash to hedge funds that made use of the firm's overseas prime brokerage operations.
The list of hedge funds entangled in the Lehman bankruptcy kept growing by the day following bankruptcy filling. Besides Bay Harbor, the list of hedge funds caught in the great $8 billion cash transfer include GLG Partners, Newport Global Opportunities Fund, Amber Capital and Harbinger Capital Partners. Texas-based Newport Global, a nearly $700 million fund with close ties to private equity giant Providence Equity Partners, got squeezed when Lehman officials apparently failed to comply with the funds' request to move all its assets to Credit Suisse.
Newport, which used Lehman as a prime broker, notified Lehman on September 10, 2008, five days before bankruptcy filling, to transfer assets held by Lehman's London affiliate to Credit Suisse. Newport executives had believed the transfer was completed and were shocked to learn that the assets were never moved before Lehman filed for bankruptcy. As a result, Newport's assets were frozen in the wake of the $8 billion transfer. In court papers, Newport says "If these assets are not located and recovered immediately, there is the very real specter of serious and irreparable harm to not only the funds, but also to their respective investors."
from Henry C K Liu's http://www.atimes.com/atimes/China_B.../KD01Cb01.html
The transfer of funds from London to New York by Lehman Brothers during the early hours of its bankruptcy filing is an example of the problem of financial nationalism. Scores of hedge funds that had hundreds of millions of dollars in cash and other securities parked with Lehman's prime brokerage operation in London have had their accounts frozen and the funds transferred to New York, leaving the United Kingdom with less money to settle the bankrupt firm's liabilities.
A number of hedge funds filed formal objections with the New York bankruptcy court and at least one fund, New York-based Bay Harbor Management, filed a legal challenge to the court's hastily approved sale of Lehman's brokerage arm to Barclays Capital.
A subsequent and even more troubling scenario arose from legal disputes on the estimated $1 trillion in market value exposure of derivatives transactions that Lehman had entered into on behalf of itself and its customers. At least three lawsuits are known to have been filed alleging that nearly $600 million in collateral posted by some of Lehman's trading partners in derivatives transactions had not been returned as required and had disappeared from the UK as the bankruptcy process unfolded in New York.
The Bank of America (BoA) is seeking to recover nearly $500 million the bank "posted as collateral to "support derivative transactions between BoA and the respective Lehman Entities,'' according to a lawsuit filed in New York State Supreme Court that alleges the accounts at Lehman that held the collateral were "frozen'' when the investment house filed for bankruptcy on September 15, 2008. BoA contends that Lehman "wrongfully refused'' to return the collateral in violation of its agreement as a trading counterparty.
The dispute was expected to be the first of many since it is not uncommon for derivative transactions to be part of tangled web, in which trading counterparties are on the hook to make payments to other trading counterparties with whom they have no direct agreements. A derivative is a sophisticated contractual agreement that is dependent on the performance of the notional value of an underlying security, such as a bond, a stock or a commodity.
The dispute between BoA and Lehman stemmed from the fateful decision by Lehman officials in New York to transfer $8 billion in cash from the firm's London offices on the eve of the bankruptcy filing before funds were frozen in London. The $8 billion cash and securities sweep left Lehman's London offices with no money to pay employees or to provide cash to hedge funds that made use of the firm's overseas prime brokerage operations.
The list of hedge funds entangled in the Lehman bankruptcy kept growing by the day following bankruptcy filling. Besides Bay Harbor, the list of hedge funds caught in the great $8 billion cash transfer include GLG Partners, Newport Global Opportunities Fund, Amber Capital and Harbinger Capital Partners. Texas-based Newport Global, a nearly $700 million fund with close ties to private equity giant Providence Equity Partners, got squeezed when Lehman officials apparently failed to comply with the funds' request to move all its assets to Credit Suisse.
Newport, which used Lehman as a prime broker, notified Lehman on September 10, 2008, five days before bankruptcy filling, to transfer assets held by Lehman's London affiliate to Credit Suisse. Newport executives had believed the transfer was completed and were shocked to learn that the assets were never moved before Lehman filed for bankruptcy. As a result, Newport's assets were frozen in the wake of the $8 billion transfer. In court papers, Newport says "If these assets are not located and recovered immediately, there is the very real specter of serious and irreparable harm to not only the funds, but also to their respective investors."
from Henry C K Liu's http://www.atimes.com/atimes/China_B.../KD01Cb01.html
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