Posts filed under “Derivatives”
“It wasn’t a mistake to let Lehman fail, it was a mistake to let it live so long.”
-Ann Rutledge, a principal with New York-based R&R Consulting and the co-author of two books on structured finance.
I am continually astounded by the many missed opportunities you Humans have to learn valuable life lessons. Perplexingly, you manage to not only miss the causes of major events, but to draw the wrong lesson from your experiences. It is curious to me how such an oft clever species can frequently be so dense.
The most recent example of this is the latest revelation from the rotting carcass of Lehman Brothers.
No, the collapse of Lehman Brothers is not what “plunged the economy into the worst financial crisis since the 1930s” any more than the first trailer destroyed by a tornado caused the rest of the trailer park to be demolished.
Bloomberg News, one of the most astute gatherers of business intel, could write something so ignorant is simply mind boggling to me. It reveals how easy it is to push a false narrative, and how valuable a commodity the Truth itself is.
To anyone who wants to understand how Lehman Brothers committed suicide, there are plenty of books on the subject. But today’s revelation shows exactly how corrupt the organization was. Starting with Dick Fuld, who majored in arrogance at Pompous U, to the criminal enterprise that was their CFO/accounting division.
Repo 105s — moving billions of dollars off balance sheet each quarter to hide their true financial state from investors, creditors, and the SEC — were bad enough. Now we learn that the criminality at Lehman Brothers went so far as to make “$3 billion in loans to itself in transactions that even today would elude the Dodd-Frank law designed to prevent such financial alchemy.”
This revelation teaches us that any firm that is hellbent on committing suicide, that flouts ordinary accounting rules, that goes to extremes to misrepresent their financial conditions, can accomplish that.
Laws against murder won’t stop a serial killer, but they should allow the criminal justice system to bring them to justice. The purpose of regulations cannot stop someone like Lehman’s Dick Fuld or AIG’s Joseph J. Cassano. They exist to provide guidelines of acceptable behavior to the rest of us, and to bring cretins to justice when they are caught on their murderous sprees.
I am still waiting for some Justice from the serial killers’ ball of 2007-09 . . .
Dick Fuld’s Fantastic Revisionism ! (September 2010)
Lehman Failed Lending to Itself in Alchemy Eluding Dodd-Frank
Christine Richard and Bob Ivry
Bloomberg, March 11 2011
The phrase I was looking for in the last post was “I’ll be gone. You’ll be gone.”
Iain Bryson was the first who suggested it, and I then tracked it down to a few sources, the first of which was Jonathan A. Knee’s “Accidental Investment Banker.”
Its also mentioned in this 2009 video:
Transcript after the jump
I like Charlie Gasparino. I really do. He used to be a sharp elbowed, hard nosed WSJ reporter that dug for stories. Blood on the Street: The Sensational Inside Story of How Wall Street Analysts Duped a Generation of Investors remains a great read. But like many pundits on the right, he simply has a…Read More
Percent Change SEC Staff Workload: 1991 – 2000 Chart sourced via GAO analysis of SEC data > If you can’t stop the legislation, you can defund it. That is what our Chart of the Day shows, the net impact of defunding regulation. As we previously discussed 1 year ago (SEC: Defective by Design?), there has…Read More
A mere technicality, my good man! WSJ: “Banks and hedge funds are trading credit-default swaps, which make payments to holders of General Motors bonds in the event of a default. But GM canceled $40 billion of debt in bankruptcy and has pledged to cut its remaining $4.6 billion bank loan to the bone this year….Read More
I have to take issue with William Cohan’s Op-Ed, How Goldman Killed A.I.G. First off, let me start out by saying that these are two bad actors; there are no “good guys” here. Second, let me remind the reader that AIG under-wrote $3 trillion worth of derivatives, a massive high-risk exposure — and collected $3…Read More
“This is the first I have heard about it. It’s not a very good report.” -Joseph E. Stiglitz, Nobel-winning economist > Dealbook: “A new study backed by pro-business groups takes a harsh stance on rules intended to bring transparency to the $600 billion derivatives market. The report, published on Monday, claims that proposed regulation could…Read More
Long before the 2008-09 credit crisis and collapse, one of the strongest warnings about the dangers of derivatives came from Satyajit Das.
I am about halfway thru, and I can tell you it reads more like a crime novel than a financial book.
“Traders, Guns & Money is very fresh history, just two years old. Das picks apart the new machinery of the mega-trillion-dollar derivatives market, the one economists say might be next to collapse on our heads. And I’m with him, I really am. The guy has a thing for ridiculous puns and also for pitiable characters. We meet a couple of noodle makers who wreck their company on a deal no one but Das seems to understand. But by the end of his book, you’ll get the deal too, I promise.” – All Things Considered, NPR, October 15, 2008
“WHETHER you are an investor, an observer of financial markets, or even an investment professional, Satyajit Das’s Traders, Guns & Money should prove an entertaining, eye-opening read. –The Business Times, Singapore, September 27, 2008
“With the financial crisis tightening its chokehold on global banks, Das’ forewarnings – outlined in his 2006 book Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – are looking rather timely. Still, some in the industry initially scoffed at his warnings.” – The Toronto Star, September 23, 2008
“The sexier side of finance … at last … a convincing picture of what life is like in today’s modern financial industry. Traders Guns and Money by Satyajit Das not only has a catchy title, it actually manages to entertain, educate and inform.” Corporate Financier, July 2006
“A must read for all CEOs, CFOs, Bankers and anyone who cares about what banks are doing with their money.” – Finance Asia, May 2006
“… true rarity: a derivatives book that keeps your attention all the way through. ” FOW April 2006
“… a scalpel of a book” – Financial Engineering News, July 2006
“A distincly timely book… This makes fascinating reading…. A good crib sheet for how the whole derivatives game works. ” – Financial Times, May 2006
“Das is especially good on structured products and on the recently fashionable world of structured credit… a diverting read” – Financial World, July 2006
“a worthwhile read for anyone with connection to the financial world” – World Finance, July 2006
“The murky and complex world of finances and derivatives is scrupulously and frantically told in this brilliant narrative. … This is a collection and recollection of exquisite financial tales well worth your time.’ Convergence, September 2006
“…a fascinating and compelling insight into the world of derivatives… [TGM has] a page turning quality more reminiscent of a John Grisham novel than a dissertation on derivatives.” – FINASIA, October 2006
“An absorbing accessible primer… scoots along at a blistering pace” – Wilmott Magazine, December 2006
“part thriller, part expose… will be useful for anyone with connection to finance…will tell you some of the truth of what really does go on.” Society of Business Economists Book Review – Jan 07
If the flash audio fails to load, go here
Chapter 2 after the jump
Q: Why do Burger King Franchisees care about derivatives reform? A: huh ? > NPR discusses what a Bloomberg reporter found: Last summer, one still unnamed company hired a PR firm to launch a “grassroots letter writing campaign” on derivatives reform. The PR firm hired a contractor, who hired a subcontractor in Arkansas. And instead…Read More
Discuss. UPDATING: In the deep, dark recesses of my mind, I knew this chart was the result of accounting changes. But I more or less spaced when I was going through charts at FRED and decided this was discussion-worthy even though I really did know better. I apologize to all for the brain fart; I’ll…Read More