One paragraph on the Lehman bankruptcy

by on December 29, 2010 at 8:23 am in Economics, Law | Permalink

Do you know the old saying "A picture is worth a thousand words"?  How about a new saying: "197 words is worth a thousand words"?:

To take one example: Lehman’s holding company (LBHI) filed for bankruptcy, but at the last minute its US broker-dealer (LBI) was kept out of bankruptcy by the NY Fed. The problem was that no one knew about this – most people thought LBI had filed too. Lehman had all sorts of problems getting employees to even show up for work; JPMorgan, which was LBI’s clearing bank, unilaterally shut off LBI’s access to its accounts for several days, and actually started seizing assets of LBI’s prime brokerage clients (a huge no-no); clearinghouses improperly limited LBI’s trading activity; the NSCC mistakenly seized a large amount of LBI’s customer securities; Lehman’s European broker-dealer (LBIE) stopped payments to LBI’s omnibus account even though LBI continued to make payments to LBIE; incoming customer securities to LBI weren’t getting properly segregated; counterparties simply stopped posting collateral they owed on OTC derivatives with LBI; and so on. That first week, the biggest challenge was simply getting someone at Lehman on the phone. (I saw a 63-year-old senior partner do a fist-pump you’d have to see to believe when he finally got an account executive at Lehman on the phone. Unquestionably the highlight of my week.)

The full article is here, hat tip goes to Matt Yglesias.

babar December 29, 2010 at 4:29 am

Tyler, you should have this blog on your RSS feed. He posts very good stuff from a practitioner's perspective. He posts infrequently, so it won't take a lot of your time.

Andrew December 29, 2010 at 10:15 am

That sounds like a deliberate process to me.

Maybe it could use a smidge of streamlining. The government could participate since they were in no way involved the first time. What could possibly go wrong?

Red Bull Hats December 30, 2010 at 6:42 pm

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