The Six Hundred Forty One Million Dollar Carcass
by ilene - March 16th, 2010 7:25 pm
Joshua M Brown, The Reformed Broker, happy to spread the wealth around…
The Six Hundred Forty One Million Dollar Carcass
Buried in a story about how what’s left of Lehman Brothers is looking to emerge from Chapter 11, there was an astounding statistic that I’ll ask you to savor like the last suckle of a Werther’s Original…
From Reuters:
Lehman has paid $641.9 million in U.S. professional fees since it filed for bankruptcy, according to a January 2010 report.
Hilarious. Lehman Brothers was the biggest bankruptcy filing in history – so why shouldn’t the "clean up effort" be the biggest legal and advisory bonanza in history as well?
Everyone got involved – restructuring firms, bankruptcy trustees, law firms of every stripe, sushi chefs, PR firms, jugglers and stilt-walkers and fire eaters, consultants, advisors, tax experts, witch doctors, real estate appraisers, hairdressers, financial engineers, secretaries, bassoonists etc.
What a Norman Rockwell moment for America – just picture this hideous tableaux – bespoke-suited and bespectacled millionaires sifting through the carrion offal of disgraced-but-still-filthy-rich billionaires while the rest of American Business looks on without a line of credit or a paying customer in sight.
Just like Walt Disney imagineered it for Main Street USA.
$641 million in fees generated during Chapter 11? Hell, that’s a stimulus plan in and of itself! Who can we bring to its knees next quarter? Can we incinerate another hundred billion dollar company so that the bourgeoisie can snort those ashes off a conference table, too?
Someone’s gotta do it, so I’m not mad at the restructo-vulture complex. In fact, to the contrary, I’m glad to see that we haven’t found a way to offshore the jobs of corporate undertakers just yet.
Still got one booming industry left, then. Cool.
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Excessive Use of Repo 105 is White Collar Crime
by ilene - March 13th, 2010 8:40 pm
Excessive Use of Repo 105 is White Collar Crime
Courtesy of Joshua M Brown, The Reformed Broker
I won’t bore anyone with a two page dissembling of Lehman‘s use of Repo 105 which we learned about from the report on its demise this week. Rather, this post will simply be a sledgehammer that slams the obvious into the side of the blogosphere.
For the uninitiated, the scam that was being perpetrated by Lehman Bros senior execs and their auditors isn’t a new one, it was just pulled off on a massive scale, costing investors and the economy dearly.
Repo 105 was an accounting trick that allowed Lehman to temporarily shift $50 billion in liability off of their balance sheet just in time to show investors a quarterly report demonstrating reduced leverage. Once the quarter was closed, Lehman would then repurchase (repo) that debt back onto its balance sheet. And they did this several times.
This window dressing allowed the company to fake solvency and sucker in investors, both in the stock market and, the company had hoped, from the sovereign wealth funds it was flirting with.
They would hide tens of billions of dollars temporarily and then trot out "Rock Star CFO" Erin Callan to lie to the world on television about how everything in Lehmanland was just fine.
Auditors Ernst & Young, the Lehman Bros Board of Directors and especially the Senior Executives who signed off on this practice have committed a crime. This is securities fraud. Their culpability ranges from negligence to outright thievery. It may be Ivy League caliber securities fraud, but it is fraud nonetheless. And if technology or industrial executives had engaged in this exact same behavior, they’d be in court defending themselves right now.
Not much more to it.
Now we’ll see if Sarbanes-Oxley has any actual teeth or if it turns out to have only been an Enron band-aid all along.
Read Also:
Lehman Report May Point Way For Criminal Charges (Reuters)
Lehman Report Points Way To Plaintiffs, Not Prison (BusinessWeek)
Accounting Fraud, Short-Sellers & The SEC (TBP)
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How Lehman, With The Fed’s Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility
by ilene - March 13th, 2010 2:44 pm
How Lehman, With The Fed’s Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility
Courtesy of Tyler Durden
Five months ago, Zero Hedge observed the nuances of the Federal Reserve’s Primary Dealer Credit Facility (PDCF) and concluded that this artificial liquidity boosting construct was nothing more than yet another scam to allow banks to extract ever more money from taxpayers, with the complicit blessing of the Federal Reserve Board Of New York (as the original piece also provided an in-depth discussion of the triparty repo market which is now a parallel to the buzzword of the day in the form of Lehman’s "Repo 105" off balance sheet contraption, it should serve as a useful refresher course to anyone who wishes to understand why while Repo 105 with its $50 billion in liability contingency may have been an issue, the true Repo market, with over $3 trillion of likely just as toxic assets, is where the real pain in the future will come from). The PDCF would allow assets of declining and even inexistent value to be pledged as collateral, thus making sure that taxpayer cash was funneled into sham institutions holding predominantly toxic assets, and whose viability was and is limited, yet still is backed by the Fed, which to this day continues to pour our money into them. Today, with a tip from the NYT’s Eric Dash, we demonstrate just how grossly negligent the Federal Reserve was when it came to Lehman’s abuse of the PDCF, and how the trail of slime of Lehman’s increasingly obvious manipulation of its books goes to the very top of the Federal Reserve Bank of New York, and its then governor – a very much complicit Tim Geithner.
1. The Liquidity Conundrum And the PDCF
In our original piece, we posited the following observation on the Fed’s constant involvement in liquidity provisioning, particularly in the context of the repo market:
Here is the liquidity crunch in its full flow-chart glory:
- If can not obtain short-term (overnight or term) funding in repo market, go to Eurodollar market
- If can not obtain short-term funding in Eurodollar market (LIBOR), go to asset sales
- If asset sales are impossible due to lack bids, illiquid markets, and collateral consists of toxic MBS and CCC-rated junk bonds, yet margin calls are streaming and repo counterparties are demanding their
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site
