The Last Days Of Lehman Brothers

Richard S. Fuld Jr. was under siege in mid-July. His renowned investment bank, Lehman Brothers, was barraged with questions about whether the expanding credit crisis would engulf the bank and wipe out investors.
Signs of worry abounded. The company’s shares had plummeted, its debt had been downgraded, and investors were increasingly worried about a Lehman default. It was a downward spiral that mirrored the demise of Bear Stearns(A very strong Investment Bank) four months earlier.
In the months leading up to Lehman’s downfall, the proposal was just one of many floated by Mr. Fuld as he embarked on a frenetic and increasingly desperate attempt to keep his 158-year-old investment bank alive.
To save Lehman, Mr. Fuld called blue-chip companies and discussed mergers with a competitor, the worst situation in which a company would like to be.
Mr. Fuld is likely to face some tough questions about the final months and days of Lehman, the company collapsed last month and was sold off in pieces to buyers including Barclays and Nomura.

Though Lehman was the smallest investment bank when it failed — and regulators decided it was not too big to fail — its demise set off tremors throughout the financial system that reverberate to this day. The uncertainty surrounding its billions of dollars of transactions with banks and hedge funds contributed to the freezing of credit markets that has forced governments around the globe to take steps to try to calm panicked markets, including guaranteeing bank deposits.
Lehman executives complain bitterly that any chance of keeping the firm alive began to dissipate rapidly just after Labor Day when JPMorgan Chase, which handled Lehman’s trades, came calling for more money. Lehman had put down securities it believed were worth $6 billion during the summer to assuage the bank’s concerns that its trades were risky. But JPMorgan thought those securities had deteriorated in value, and asked for $5 billion in cash or liquid assets.

So we can say that JPM had assets but conspired against Lehman's dislocating a very big International Firm.

Questions have been ploughing around Fed bank as it brought reforms to save Banks like Morgans and Goldmans(although the same remidies were required to stabilize Lehamns).

So as to keep up in market Lehman officials approached many banks including Ping An International and HSBC.
Lehman also proposed to sell some of its assets to Mr. Warren Buffet who actually bought some assets of Goldman Sachs, but rejected the deal as policy said by Buffet was unacceptable..

At last it can only be summed to say that if due steps would have been taken the Lehman's would have been in the market with the market more stable then it is now....................

Short Selling BANNED!!!

On September 19th, the U.S. Treasury Secretary Paulson issued a statement in which he said that the Federal government “must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy”. He called it the ‘Troubled Asset Relief Program’. Many have taken to abbreviating to TARP and from there, it is a short leap of imagination to call it a TRAP.

But, even before the bill is passed and its ramifications known, stock markets around the globe heaved a sigh of relief and rallied hard towards the end of week. It is a delightful irony that most markets showed a flat profile from Friday, September 12th to Friday, September 19th at the end of an unprecedented week. It is not so much the news of the proposed U.S. government bailout that stock market investors welcomed. The squeeze on short-sellers that regulators around the world applied worked its magic.

Short-selling banned but SEC created the conditions

Bulls are taken by their horns but I do not know how bears are tamed. Try banning short selling. Well that is what authorities in the U.S. and the UK did on Thursday. UK banned all short-selling of financial stocks up to January 2009. The Securities and Exchange Commission (SEC) in the US banned all naked short-selling in all stocks. Hedge funds have to swear under oath their short positions. Canada, Germany, Ireland, Holland, Taiwan and some others have joined.

That is a shame!! There was no reason for many authorities to impose restrictions on short-selling. It is not only unprecedented but also largely unnecessary.

Forgotten in this persecution of short-sellers is a matter of tiny detail that in 2004, the SEC made two important changes to its rules on the amount of leverage that broker-dealers could take on.
One, it removed the discounts it applied on the assets that these institutions own, in calculating their net capital.
Two, it allowed five broker-dealers to increase their leverage from 12:1 to 40:1. Those five were Merrill, Lehman Bear Stearns, Goldman and Morgan Stanley. Four of them are not around any more. Goldman has reduced itself to a mere Retail Bank.

It is not clear what role the institutions themselves played in this rule change. It appears that the retribution for the egregious errors of the regulators and the regulated entities would be paid by the shortsellers who seek to throw a spotlight on such behaviour. Strange are the turns that American capitalism has taken in the last few years.

Banning short-selling is to akin to "blaming the mirror for the ugly image". But then, these days, one is a suspect capitalist if one does not cheerlead rising asset prices even if the means are not exactly fair.

Any recovery in global equities and the U.S. dollar would eventually turn out to be a comic interlude in an, otherwise, tragic drama except that the comic interlude could last long enough to make us all feel like we were watching a new play all over again.