# Lehman brothers



## pichao (Apr 13, 2008)

What do you think about Lehman Brothers? 

Does the crisis in the US financial system end with this, or is there more to come?


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## dwebber18 (Jun 5, 2008)

There is also a report that around 1000 regional or local banks may also fail in the remainder of the year so that will hurt a little as well. There may be more to come with Merrill but I'm sure Bank of America will just buy everyone and become the Bank of America, haha


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## jamgood (Feb 8, 2006)

www.calculatedrisk.blogspot.com


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## jbmcb (Sep 7, 2005)

It looks like pretty much all bank stocks are down - time to find those with the least amount of debt liability and buy up their stock.


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## dwebber18 (Jun 5, 2008)

Looks like Barclay's has finished talks with Lehman to purchase some of their assets and different business units. Being a broker, I saw a ridiculous amounts of buys today and then everyone getting screwed at 3pm when trading was halted. I don't think I would have touched it with a 10 foot stick, but to each his own.
https://www.reuters.com/article/mergersNews/idUSN1644330920080916


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## 16412 (Apr 1, 2005)

If you look at pre-Reagan years every year Big Old Name Companies went under. So, this is not unusual.

For the rest of your life this _Big Old Name Companies going under every year_ will probably be normal again. Why? Because, nobody has a crystal ball to see into the future. Therefore, leaders of companies don't always step in the right direction or they go to far. If your investments are scattered you won't loose much, if anything, since the other companies may have earned more. But, if you plopped all your money into one company you may loose all.


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## tskrovan (Dec 27, 2007)

It is definitely an uncertain time here in the US. Personally, if I were to invest in more bank stock, I think I would consider JP Morgan Chase


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## dwebber18 (Jun 5, 2008)

Bank of America is looking pretty good from a capital stand point and that they are broadening their base. But they may have taken on a bunch of bad assets with Countrywide and Merrill, but they will probably make it work for them. Hopefully atleast.


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## Terpoxon (Sep 28, 2006)

WA said:


> If you look at pre-Reagan years every year Big Old Name Companies went under. So, this is not unusual.
> 
> For the rest of your life this _Big Old Name Companies going under every year_ will probably be normal again. Why? Because, nobody has a crystal ball to see into the future. Therefore, leaders of companies don't always step in the right direction or they go to far. If your investments are scattered you won't loose much, if anything, since the other companies may have earned more. But, if you plopped all your money into one company you may loose all.


The Lehman chairman got paid $140 million to run the company into the ground. I would have been willing to do it for half that.


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## TMMKC (Aug 2, 2007)

Terpoxon said:


> The Lehman chairman got paid $140 million to run the company into the ground. I would have been willing to do it for half that.


Crazy. I certainly hope one of the lessons learned from this whole debacle is that executive compensation packages are so out of whack that to call these pikers "greedy" would be a vast understatement. I blame these companies' boards too, as they approve the bloated packages in the first place. From what I've read, the CEOs from Fannie and Freddie have similar sweetheart deals.

This just in....

The Fed is throwing $85 billion at AIG. Disgusting. I AM SO TIRED OF MY TAX MONEY BEING USED TO BAIL OUT PRIVATE COMPANIES.:devil:


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## playdohh22 (Dec 4, 2007)

https://www.nytimes.com/2008/09/17/business/17insure.html?_r=2&hp&oref=slogin&oref=slogin

I am not clear of what is really happening. I have not much knowledge in the economy.

So, what exactly is happening when the government bails out a company? AIG, in this case.


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## 16412 (Apr 1, 2005)

I think these ceo's should be forced to pay back all of what they make when they run companies into the ground. 

I don't understand these boards that are so gullible. They also should be forced to pay back all that they make.


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## jbmcb (Sep 7, 2005)

WA said:


> I don't understand these boards that are so gullible. They also should be forced to pay back all that they make.


It seems like the boards are usually composed of other CEO's and their friends, not the best group to be running oversight over a corporation.


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## 16412 (Apr 1, 2005)

jbmcb said:


> It seems like the boards are usually composed of other CEO's and their friends, not the best group to be running oversight over a corporation.


Yeah, they are waiting their turn again (or they are a group of ceo's patting each other on the back with these scams) to become a ceo to scam the share holders, the bond holders, the employes, etc.

What I don't get is why are the share holders so gullible and have no back bone.


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## Terpoxon (Sep 28, 2006)

https://www.cbsnews.com/stories/2008/09/17/notebook/main4455247.shtml

In fact, the government doesn't have the $85 billion needed to bailout insurance giant American International Group.

The treasury department announced this morning it would auction new debt to raise funds for the Federal Reserve's rescue plan for AIG.

Wow, it is really just amazing that this sort of thing is allowed to happen.


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## TMMKC (Aug 2, 2007)

Terpoxon said:


> Wow, it is really just amazing that this sort of thing is allowed to happen.


I agree. From what I understand, part of the deal involves AIG selling some of its meaty assets to pay off the loan. The interest rate is fairly steep too. One analyst on MSNBC today said the Fed could actually pocket $110 billion when all is settled. Regardless, this irritates me to no end.

If the Fed hadn't stepped in, what would have happened? AIG carries a lot of the liability cover for debt from the banking houses, so I can only assume AIG going insolvent would crumble the markets. As I have said before, I am not an expert on these matters. So, I will defer to fellow fora members to explain the alternative to bailing out yet another mis-managed, greedy, floundering company.


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## Karl89 (Feb 20, 2005)

Gents,

I think what will happen is that we will have to form a Resolution Mortgage Corporation to work out of this mess, just like we did with the Resolution Trust Corporation (RTC) with the S&L crisis.

The economy is shaky undoubtedly BUT.....it does say something for the resilience of the economy that we have had two investment banks disappear, AIG effectively nationalized and oil at well over 100 USD for most of the year and yet the economy has (so far) chugged along. That being said I don't think the camel's back can handle another straw. I really hope JP Morgan steps up and buys WAMU bc a WAMU collapse would wipe out the FDIC reserves.

And did anyone notice that the Russian Central Banks had to inject 45 billion USD into the Russian banking system today? Let's all party like its 1998!

A certain REM song is appropriate right about now......

Karl


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## TMMKC (Aug 2, 2007)

Karl89 said:


> A certain REM song is appropriate right about now......
> 
> Karl


"End of the World"? 

Good to hear from you, Karl.


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## Karl89 (Feb 20, 2005)

TMMKC,

Thanks.

What about "Losing My Religion"? Perhaps "Everybody Hurts"?


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## jackmccullough (May 10, 2006)

Looks like another case of lemon socialism.


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## Phinn (Apr 18, 2006)

_In fact, the government doesn't have the $85 billion needed to bailout insurance giant American International Group. _

The government doesn't have anything. It has IOUs.

The FDIC is just another shell game, like Social Security. There's nothing there, no fund of assets ready to be used to start covering people's bank accounts when more banks start failing. All the government has from the "premiums" that banks pay are IOUs, just like like what happens to your Social Security taxes. There's no "lock box" and there's no actual fund. There never was.

Who has to fail next before people get the picture? Wachovia? Chase? Citigroup?


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## Terpoxon (Sep 28, 2006)

Ron Paul made an interesting point tonight on TV. He said that with all these bailouts, the Fed is essentially bypassing Congress's appropriations powers and just printing more money to bailout these companies, potentially in violation of the Constitution.


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## 16412 (Apr 1, 2005)

Terpoxon said:


> Ron Paul made an interesting point tonight on TV. He said that with all these bailouts, the Fed is essentially bypassing Congress's appropriations powers and just printing more money to bailout these companies, potentially in violation of the Constitution.


During the beginning of this construction boom and borrowed money from other countries this was mentioned as a way of escape- super duper inflation to pay off the loans. Jimmy Carter all over again.

During inflation you do not want any bonds. When the government starts to get rid of inflation that is a good time to buy bonds.


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## Karl89 (Feb 20, 2005)

WA,

Your advice on bonds is not sound. Have you ever heard of TIPS? Foreign Bonds? Discounted commercial paper? But perhaps I am wrong - please expand upon your view of risk allocation and flight to safety......

Karl


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## 16412 (Apr 1, 2005)

Karl89 said:


> WA,
> 
> Your advice on bonds is not sound. Have you ever heard of TIPS? Foreign Bonds? Discounted commercial paper? But perhaps I am wrong - please expand upon your view of risk allocation and flight to safety......
> 
> Karl


Your right. It is not bonds and inflation but, bonds and interest rates. Foreign Bonds are depent upon what is happening in their countries, which, many times has nothing to do with the US.


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## Karl89 (Feb 20, 2005)

WA,

You have lost me. And there is a killing to be made in distressed paper now. KAMCO is setting up a fund of $1 billion USD to do just that.

Karl


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## pichao (Apr 13, 2008)

*copycat?*

It seems as if the US goverment is going create a fund that will take over "problem loans" from banks and investors.

This measure is very similar to what happened during the bank crisis in Sweden in 1992, where a fund named "securum" was created just for this purpose:

For more information:


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## Terpoxon (Sep 28, 2006)

The US government did something similar with the RTC in the 1980s after the savings and loan bailout.

This whole situation is just another ridiculous example of a situation where several groups made terrible decisions and the honest, hardworking people who play by the rules get screwed.

Thousands of people took out loans that they couldn't afford. Dozens of companies made bad loans to people who couldn't afford them, without bothering to verify assets, income, or in some cases even identities. Some companies created new kinds of loans that were incredibly risky, almost doomed to fail. The government allowed it, and even encouraged it. Mr. Magoo (former Fed chairman Alan Greenspan) actually encouraged people to take variable rate mortgages at a time when interest rates were at historic lows.

And now millions of Americans who in no way benefitted from all of these dubious transactions get to foot the bill.


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## pichao (Apr 13, 2008)

I completely agree with you.

And yes, RTC made something similar.

In the end, the taxpayers were the ones paying.

A small comfort however: The fund (securum) had sold all its assets within five years, and made the losses by the state substantially smaller.

Another question: Has the deficit in the US state budget reached a critical level, or is it still not there?


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## Terpoxon (Sep 28, 2006)

I guess it depends on what you mean by a critical level.

The current official number for the accumulated debt is somewhere in the range of $9 trillion (The actual number is more like $30 trillion- some put it as high at $100 trillion- https://www.lewrockwell.com/walker/walker34.html).

Currently something like 35-40 of tax revenue goes to just servicing the debt.

Over the last 20 years the government has spent an average of $300 billion a year in paying interest.

A good portion of the debt is in the hands of other countries- about 25%. Almost half of that number is held by Japan and China. 
https://en.wikipedia.org/wiki/United_States_public_debt#Foreign_ownership
And we are increasingly reliant on foreign countries purchasing our debt.

I've heard that the current financial mess is going to add as much as $1 trillion to the debt.

The counter-argument is that the economy has continued to grow, so the Debt-GDP ratio is the same, so we are OK. It sounds suspiciously like the argument of those that took out interest only home loans- "As long as the value of my house keeps going up, I'll be fine."

The problem, as I see it, is three things.

The US government seems to be making no effort to reduce the debt, or even balance an annual budget.

Eventually, the numbers will get so high that other countries will become skittish about buying US debt, as they have already become a bit nervous about the dollar.

Eventually, there will be an economic downturn- it may be starting now, and our ability to service the debt will become strained. (for example, high unemployment could mean a significant reduction in tax revenues.)

So, I don't know that it's at the critical point right now, but it won't take much to get it there.


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## pichao (Apr 13, 2008)

Thank you Terpoxon, it is very interesting to read your comments.

The american bank crisis really gets me into some kind of "deja vu" experience, and takes me back to 1992. 

A small comparision: The Swedish debt today is around 200 billion USD today , and reached its maximum level in 1992 with around 250 billion USD. These numbers were a large problem in 1992, but hardly today, since the economy has grown.

Since the Swedish population is only 9 million, you would have to multiply these figures by 35 to get comparable numbers. This would lead us to a number between 7 trillion to 8,75 trillions to get an equivalent. Perhaps the GNP per capita of the US is also somewhat higher.

Conclusion: At 9 trillion dollars in debt: No problem, as far as I can see. If the debt is between 30 and 100 trillion there is a real probem, and problems will occur as soon as the economy decreases.

I am not at all an economist, this is purely an amateurs point of view...


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## NewYorkBuck (May 6, 2004)

Well, as some of you already know, Lehman is my former firm. I will tell you that I hope none of you ever have to see something like this, and my reasons are not financial. This is a place I put many years of my blood, sweat, and tears into. I had many friends and memories here. It was without question the best work experience Ive ever had and the best firm I have ever worked for. Its hard for me to describe my feelings right now, but I can tell you that they are not good ones.

I was lucky - I got out at almost just the right time. Many of my friends weren't so lucky. What troubles me through all of this is that I wish some of the powers that be at the firm listened to me a little more closely. If you go back and read some of my posts from 2003-2006 on my views on the housing market, you will get an idea of the message I was sending to my firm - over and over. Unfortunately, most of my suggestions were ignored, and at one time I was directly laughed at - I suppose its not so funny now. Not that I'm trying to make myself out as the savior of Lehman Brothers, but I will stand by the statement that if my suggestions were taken a little more seriously they would still be in business right now. That is a very frustrating feeling.

Did I take a financial hit? Sure - not as bad as some, but enough that I felt it - thats just the name of the game with restricted stock. All is good though - the money I made with them was the seed capital for my new enterprise - an enterprise that I am quite happy to admit has no ties to Wall Street.

In any event - this is a sad day for me. Just feels like this is really the end of something that was a very big part of my life......


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## a4audi08 (Apr 27, 2007)

> Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency"


This is breathtaking. We apparently are no longer a nation of laws.


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## Terpoxon (Sep 28, 2006)

Is that part of the Treasury Department's edict, or is that part of the bill being reviewed by Congress? Congress does have the power to limit the jurisdiction of the federal courts, but executive departments don't.


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## johnm (Jul 12, 2005)

> Dozens of companies made bad loans to people who couldn't afford them,


I suppose thats why I feel like I'm missing something.

I see things like quotes where the president says ""I believe when it's all said and done, however, that the taxpayer is going to get a lot of that money back," he said." While that sounds great, it seems like giving a bunch of tax payer money to banks/companies that have shown themselves to have bad business practices and to be irresponsible with money isn't the best way to think you'll get it back. Its like asking a bankrupt junkie with a theft record to be my financial planner.


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## Terpoxon (Sep 28, 2006)

johnm said:


> I suppose thats why I feel like I'm missing something.
> 
> I see things like quotes where the president says ""I believe when it's all said and done, however, that the taxpayer is going to get a lot of that money back," he said." While that sounds great, it seems like giving a bunch of tax payer money to banks/companies that have shown themselves to have bad business practices and to be irresponsible with money isn't the best way to think you'll get it back. Its like asking a bankrupt junkie with a theft record to be my financial planner.


The party line on this seems to be that the government is taking over the assets of these companies and/or lending them the money, In the end, they will have to pay back the money or lose whatever viable assets they still have. It still sounds like they are getting an easy ride after being totally irresponsible.


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## Phinn (Apr 18, 2006)

> This is breathtaking. We apparently are no longer a nation of laws.


That's been true for a long time. They just don't feel much of a pressing need to hide it anymore.


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## johnm (Jul 12, 2005)

Terpoxon said:


> The party line on this seems to be that the government is taking over the assets of these companies and/or lending them the money, In the end, they will have to pay back the money or lose whatever viable assets they still have. It still sounds like they are getting an easy ride after being totally irresponsible.


It does, and in the long run I'm afraid that I don't expect any shared profits and assets taken from the failed companies to return anything similar to what the tax payers put in. The lack of judicial oversight on the plan plus its provisions to allow for the taking on for foreign debt and debt outside of mortgages seems to only compound its failings.


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