Friday, September 12, 2008

Lehmann Splits in 2 Brothers

It is now almost imminent that Lehman Borthers will join the growing list of victims from the sub-prime crisis. ""The NYT Reports say that ailing firm is considering a proposal to split the bank into a "good" bank and a "bad" one. The proposal would essentially involve placing about $30 billion of troublesome commercial mortgages and real estate that it owns into a new publicly traded company — the "bad" bank. The rest of Lehman — the "good" one — would then be able to carry on with the help of a cash infusion from one or more investors"".(Sources:Economic Times) The logic behind the proposal - NYT writes, "Creating the separate company, the thinking goes, would strengthen the confidence of people who do business with Lehman every day — other banks, hedge funds and institutions like pension funds — thereby encouraging them to continue doing business with the firm. Shareholders, who would own shares of both the real estate portfolio and the new unencumbered Lehman, could bet on whether the commercial real estate market recovers or gets worse and sell its "bad bank" shares".The logic is self-evident.

The only problem is that in the real world, it rarely ever gets translated into results. Something else happens. Stripped off all the jargon, is this not precisely the definition of "asset stripping"? Privatizing the gains, while socializing the losses? The "smart" investors and promoters get away with their profits intact, leaving the "dumb" others to shoulder the debt burdens? Or set the stage for the private equity directory to swoop down and takeover the weak assets at knock away prices, and then experiment with even more impenetrable and complex financial engineering?

4 comments:

sanky said...

awsum work........

ankit said...

sub prime crisis was going to get lehmann, and any which ways from the past two quarters, LB had been undergoing losses..

what i am really interested in, is if the sub-prime crisis will get to india and how?

can i get a blog post on that?!

Get Ready To Communicate Globally said...

Thanx Ankit for that comment
I will be writing on that topic
The topic u entitled is somewhat a backdoor product in India!!Recognizing the impact of black money on market even piracy to sme extent it would be difficult to have sp over here

I will look on to it..

Ravi Thanvi said...

Good blog.. Nice posts.. Keep up the good work..!! :)