EXCERPT FROM NEW BOOK “THE CRIME OF OUR TIME: THE LEHMAN LIQUIDATION”

September 14th, 2009 - by: danny

FINANCIAL CRISIS UPDATE: THE LEHMAN LIQUIDATION

Now for something different than the usual parade of important stories I try to dig up and share every day.

Instead, I am using the occasion of the anniversary of Lehman’s fall to give you a preview of a new book that I have been working on this summer. It’s called THE CRIME OF OUR TIME treating this crisis as a crime story. It’s a companion to a new Film PLUNDER: The Crime of Our Time that I am also finishing. (It’s hard to make a film about the financial crisis with a financial crisis!)

This is a selection from a chapter on the fall of Lehman Brothers. I feel a special hostility to LB because I worked across the street from their former building, with its ostentatious signage and army of security guards. I had to suffer through its noisy construction by American Express Shearson and then its overdone remodeling by the Lehmanites.

I am looking for some folks who might have experience in publicity and distribution to help me get this book and argument out. Despite having written l0 books, I am still having trouble getting my work out there.

Share your reactions, suggestions and offers of help with me at dissector@mediachannel.org

FIRST EXCERPT FROM THE CRIME OF OUR TIME: THE LEHMAN LIQUIDATION

The consequences of Lehman’s collapse were catastrophic
for many doing business with the over-leveraged institution.

Peter Siris commented in New York’s Daily News: “Lehman,
like Bear, Fannie and Freddie, had too much leverage. Think of
a homeowner with a 96% mortgage and credit card bills. If the
value of the house declines only 5%, the homeowner is wiped
out. The total leverage of companies like Lehman is difficult to
calculate, but it is not unlike that of a highly over-leveraged
homeowner. Small declines in the value of its assets jeopardize
its solvency.

“Further, it is likely that Lehman and other financial insti-
tutions did not take a hard enough look at the value of its
assets when they reported quarterly results and paid hand-
some bonuses in previous years. Many of these assets were too
complicated to value, but management always has an incen-
tive to paint a rosy picture. Just as people deluded themselves
with the value of their homes, financial institutions like Leh-
man deluded themselves with the value of their assets.”
Could all this pressure on Lehman have been orchestrated
by still unknown shadowy players? Web of Debt author Ellen
Brown, who writes about the economy, says so on Huffington
Post.

According to Representative Paul Kanjorski, speaking on
C-SPAN in January 2009, the collapse of Lehman Brothers
precipitated a $550 billion run on the money market funds on
Thursday, September 18. This was the dire news that Treasury
Secretary Henry Paulson presented to Congress behind closed
doors, prompting Congressional approval of Paulson’s $700
billion bank bailout despite deep misgivings. It was the sort
of “shock therapy” discussed by Naomi Klein in her book,
The Shock Doctrine, in which a major crisis prompts hasty emer-
gency action involving the relinquishment of rights or funds
that would otherwise be difficult to pry loose from the citi-
zenry.

Like the “bombing” of Lehman stock on September 11,
the $550 billion money market run was suspicious. The stock
market had plunged when Lehman filed for bankruptcy on
September 15, but it actually went up on September 16. Why
did the money market wait until September 18 to collapse? A
report by the Joint Economic Committee pointed to the fact
that the $62 billion Reserve Primary Fund had “broken the
buck” (fallen below a stable $1 per share) due to its Lehman
investments; but that had occurred on September 15, and the
fund had suspended redemptions for the following week.
What dire reversal happened on September 17? According
to the SEC, it was another record day for illegal naked short
selling. Failed trades climbed to 49.7 million — 23% of Lehman
trades.

This is another financial crisis mystery suggesting that most
media accounts missed what else was going on. The Indepen-
dent of London reported that the reasons for Washington’s
decision not to step in is still not clear, “It’s unconscionable
what they did — or more accurately what they didn’t do,” says
Joseph Stiglitz, Nobel prize-winning economist and professor
at Columbia University. “They didn’t do their homework. Peo-
ple were talking about the failure of Lehman Brothers from the
moment of the failure of Bear Stearns in March, or before, and
they didn’t do a thing. If they knew there was systemic risk,
why didn’t they do anything about it?”

With Lehman, as with mortgage lending giants Fannie
Mae, Freddie Mac and others, the meltdown hit the com-
mon stockholders hardest, while debt holders escaped largely
unscathed.

Many in the industry were “astonished,” reported the “Dr.
Housing Bubble blog, http://www.doctorhousingbubble.com:
This astonishing news comes during a weekend when most
of the market on Friday was expecting that someone would
surely come to the table to help the firm. Whether it was a
private purchase or a government sponsored bailout like
what occurred with Bear Stearns and J.P. Morgan, bankrupt-
cy was not expected by many. Early talks indicated that Bank
of America and Barclays were in close talks to take over the
troubled investment bank. The Federal Reserve which aided
in helping the Bear Stearns deal and the U.S. Treasury which
just last weekend entered into the biggest bailout known
to humankind by aiding Fannie Mae and Freddie Mac both
seemed unwilling to come to the aid of Lehman Brothers. I
am sure as time goes on more and more details will emerge
as to why this occurred Ã¢â‚¬Â¦ It is unprecedented that in only six
months, 3 of the top 5 investment houses on Wall Street are
no longer in their previous form.

Few in the media could agree on what led to Lehman’s
liquidation. Writing in Newsweek, Liaquat Ahamed ended up
blaming politicians:

It has become conventional wisdom: the signal event of the
current crisis, the transformative moment when things truly
really began to spin out of control, was the government’s deci-
sion to let Lehman Brothers fail. But when one looks closely
at what happened in the weeks after the bank’s fall — by any
measure the most turbulent and dramatic period in the last
75 years of financial history — Lehman’s collapse was not in
fact to blame for pushing global markets and the economy
over the edge. Sure, it was a shock. But the Fed’s response
was sufficiently imaginative, far-reaching and aggressive
to mitigate most of the knock-on effects. Instead it was the
political battle in Congress, which ensued over the bank bail-
out package, that really caused the meltdown.

Yet at the same time, and this reality was not the focus of
most of the media attention. According to the Housing blog,
Doctor Housing Bubble, Lehman Brothers was heavily invest-
ed in fraudulent subprime paper:

Lehman could not resist the subprime markets. In August
of 2007 Lehman closed its subprime lender BNC Mortgage,
which left 1,200 positions gone. This clearly was only the
beginning for Lehman and their mortgage and credit prob-
lems. In 2008 Lehman was posting unprecedented losses.
For the most part their problems arose from holding onto
lower grade tranches and holding on too long to subprime
mortgages. It is up in the air whether they held onto to these
assets because of a foolish investment move or whether
there simply wasn’t a market for these assets. For the 2nd
quarter the firm had $2.8 billion in losses and was forced to
liquidate $6 billion in assets. It is simply stunning to see the
stock movement for the firm Ã¢â‚¬Â¦ It is easy to lose perspective
of what really is going on. You need to remember that debt is
at the center of all this.

Debt may have been at the center, but real people lived in
the homes the firm borrowed against. What happened to them
seemed to be of little concern to the bankers and the media.
Paulson opposed a bailout publicly on the grounds of “mor-
al hazard,” arguing that Lehman should not be rewarded for
its mistakes.

But as the crisis accelerated, and more firms were put at risk
of insolvency, that argument disappeared.

Max Wolff put it this way in our conversation: “On Septem-
ber 15th, we were told some heavily ideological story about
letting some companies fall, letting the market do its thing,
not bailing everybody out. And Lehman was allowed with its
23,000 employees to collapse which sent cataclysm and shock
waves through the global markets, and began the giant Sep-
tember-October sell-off which was apocalyptical and makes
this the second worst year in the history of stock markets.
“But then, the very next morning we got $85b of the even-
tual 150 billion dollars for the bailout of AIG. So they weren’t
even able to run their ‘no-moral hazard, we let the failure fall
story’ for even 24 full hours before they went to the rescue
of another firm. And this creates anger and hostility for years
with people thinking that government regulators are pick-
ing winners and losers, and they have a ‘catch as-catch-can
patchwork response’ which leaves some people protected and
others free to fall to their deaths. And it was very bad for con-
fidence, very bad for the markets and very bad for any notion
of fairness and equity in the market.”

Over, the next ten days, the insurance titan AIG was not
allowed to fail, bailed out by the Federal Reserve to the tune
of $85 billion. (AIG paid off claims by Goldman Sachs at l00%
on the dollar to the tune of $50 billion.)

The FDIC then seized America’s largest Savings & Loan
institution, Washington Mutual, and sold its assets to JPMor-
gan Chase. The two major Wall Street firms left standing vol-
untarily changed their status from investment banks to bank
holding companies.

There was a bittersweet reaction on Wall Street according
to Bloomberg News:

Fuld’s defense of the 158-year-old firm ended when Barclays
Plc. and Bank of America Corp. walked away from buyout
talks, forcing the company to file for bankruptcy.

Over 14 years, Fuld, 62, turned a money-losing, bond trad-
ing shop into a full-service investment bank. He won acclaim
from Wall Street leaders such as Lazard Ltd. chief Bruce Was-
serstein, who on June 4 called him “very able.” Fuld joined
the circle of CEOs sought-after by boards, such as the New
York Federal Reserve’s. Fuld ultimately gambled almost four
times the firm’s shareholder equity last year on mortgage
securities that he insisted were “hedged by other bets.”

“It makes me rather sad to see this organization brought to
its knees as the result of what I’ll call a lack of control, poor
management of internal risk and ultimate self-interest,” said
Walter Gerasimowicz, who worked at Lehman as an invest-
ment strategist and now heads Meditron Asset Management
in New York. His firm manages $1 billion and doesn’t own
any Lehman shares.

Lehman had tried to escape from its subprime obsession. In
August 2007 it fired 1200 employees working in their sub-
prime bond department. At the same time, it was still trying
to profit from it. A bank official told CNN then “that turmoil in
the subprime mortgage business is likely to persist but that
could open up some opportunities for the firm.”

Lehman had been no stranger to controversy and lawsuits.
The City of Chicago accused Lehman of violating a local ordi-
nance prohibiting the city from doing business with compa-
nies that had financed the slave trade. Lehman was forced to
apologize. There were investigations and lawsuits growing out
of Lehman’s involvement with Enron. There were suits alleg-
ing fraud according to The White Collar Crimes blog monitor-
ing securities fraud suggesting “that the bankers’ relationship
with Enron enabled the commission of Lehman Brothers stock
fraud, since Lehman Brothers had inside knowledge of the
partnerships and internal financial issues at Enron.”

The New York Times said that its residential real estate
business was also flawed writing: “Many factors, of course,
contributed to Lehman’s demise. Near the end, it carried $25
billion in toxic residential mortgages. It was wildly over lever-
aged. And the federal government made the fateful decision
not to rescue Lehman from its mistakes.”

New Jersey’s Attorney General Anne Milgram accused for-
mer Lehman execs of “defrauding the state’s pension funds by
misrepresenting Lehman’s real estate exposure.” New lawsuits
have been filed in connection with the firms lending and real
estate practices.

The hardly poor Mr. Fuld became a laughing stock and worse.
The Business and Media institute reported: “While
former Lehman CEO Richard Fuld was testifying before the
House Oversight Committee Oct. 6, CNBC reported he had
been punched in the face at the Lehman Brothers gym after it
was announced the firm was going bankrupt.

From two very senior sources — one incredibly senior source
— that he went to the gym after Ã¢â‚¬Â¦ Lehman was announced
as going under. He was on a treadmill with a heart monitor
on. Someone was in the corner, pumping iron and he walked
over and he knocked him out cold. And frankly after having
watched this, I’d have done the same too.

Lehman filed for bankruptcy in September 2008. Its assets
were later snatched up for a relative song by the British bank
Barclays for $1.35 billion, which included Lehman’s Midtown
Manhattan office tower supposedly worth $960 million. The
firm only paid a third of that when they acquired the building
from American Express Shearson.

Later, in a move to limit his personal liability by transferring
ownership of a home, Fuld “sold” a multi-million dollar man-
sion in Florida to his own wife for just $10.

Fuld’s leadership and Lehman’s bankruptcy has led to a
flood of lawsuits. Wealth Daily reported a few weeks later:
Just in the last few weeks, the San Mateo County (California)
Investment Pool formally filed suit against Fuld, Callahan and
other top Lehman execs, seeking reimbursement for finan-
cial losses after Lehman’s fall to bankruptcy. The San Mateo
lawsuit is among the first in the country to go after Lehman’s
top brass Ã¢â‚¬Â¦ and the $1 billion-plus in bonuses they were
able to siphon off before the firm tanked.

According to the lawsuit, the Lehman case “represents the
worst example of fraud committed by modern-day robber bar-
ons of Wall Street, who targeted public entities to finance their
risky practices and then paid themselves hundreds of millions of
dollars in compensation while their companies deteriorated.In the
aftermath of his company’s collapse, Deal Maker magazine reported:

“Lest we forget, it’s not just “masters of the universe” who
suffered when Lehman went down last week. DealBreaker
has informed us that Bella, the Lehman Brothers guard dog,
is also now out of a job — and a home. Would the Fed have
let Lehman fail if they knew that there was a puppy at stake?
Would they? We think not, because everyone loves dogs
more than people.

A year after Lehman’s fall, Dick Fuld, once known as “the
gorilla of Wall Street” was still not willing to answer ques-
tions from the press. London’s Telegraph reported his hard-line
response to the issues that were raised:

“You know what, people are saying all sorts of crap and it’s a
shame that they don’t know the truth, but they’re not going
to get it from me … I’ve been pummeled, I’ve been dumped
on, and it’s all going to happen again. I can handle it. You
know what, let them line up Ã¢â‚¬Â¦ You know what, my mother
loves me. And you know what, my family loves me and I’ve
got a few close friends who understand what happened and
that’s all I need.”

From The CRIME OF OUR TIME BY DANNY SCHECHTER

And you know what: you now know a bit more than you knew before.

Produced with Tony Sutton of ColdType.Net

This book is not for sale yet but send me $20 to Globalvision 575 8th Ave, #2200, NY NY 10018 and I will email you the first edition PDF of this original 270 page book to you.

ANOTHER VIEW–FINANCIAL TIMES

Lehman was allowed to die naturally, but injuries elsewhere have been masked by ultra-low interest rates, state aid, opaque balance sheets, rising equity markets and an overheating China. If these palliatives end, there could well be another Lehman

The News Dissector