xcel
10-09-2008, 09:44 AM
Enron may look tame compared with this: a fight over billions of dollars posted as collateral, then used in a tangled web of deals (http://www.businessweek.com/magazine/content/08_42/b4104000160047.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis)
http://www.cleanmpg.com/photos/data/501/Lehman_Brothers.jpgMatthew Goldstein and David Henry - Business Week - Oct. 8, 2008
Shearson/Lehman, one of the big gamblers...
Our $’s are being spent to clean up these guys shenanigans :mad: -- Ed.
In 2003, legendary investor Warren E. Buffett called derivatives "weapons of mass destruction." Buffett predicted that the complex financial instruments would morph, mutate, and multiply "until some event makes their toxicity clear." The failure of Lehman Brothers may have been the disaster he imagined.
How lethal was the investment bank's derivatives portfolio? Just look at the long line of banks, hedge funds, and other big investors trying to get their money back. Lehman's bankruptcy threw into jeopardy derivative deals with a staggering 8,000 different firms that had paid Lehman billions of dollars in collateral. Now some trading partners are calling on state and federal courts to reclaim their assets, which have been frozen since the Sept. 15 bankruptcy filing. It will be a "very awesome task to try to unwind all of that," says Lehman's lead bankruptcy attorney, Harvey R. Miller, a partner at Weil, Gotshal & Manges.
It turns out that Lehman, like other big dealers, was running a perfectly legal but highly risky game moving money from firm to firm. It used the collateral from one trading partner to fund more deals with other firms. The same $100 million collected in one deal can be used for many other transactions. "Firms basically can use [the money] as their own collateral for anything they want," says Kenneth Kettering, a former derivatives lawyer and currently a professor at New York Law School. But when the contracts terminate as the result of bankruptcy, the extra collateral is supposed to be returned… http://www.businessweek.com/magazine/content/08_42/b4104000160047.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis
http://www.cleanmpg.com/photos/data/501/Lehman_Brothers.jpgMatthew Goldstein and David Henry - Business Week - Oct. 8, 2008
Shearson/Lehman, one of the big gamblers...
Our $’s are being spent to clean up these guys shenanigans :mad: -- Ed.
In 2003, legendary investor Warren E. Buffett called derivatives "weapons of mass destruction." Buffett predicted that the complex financial instruments would morph, mutate, and multiply "until some event makes their toxicity clear." The failure of Lehman Brothers may have been the disaster he imagined.
How lethal was the investment bank's derivatives portfolio? Just look at the long line of banks, hedge funds, and other big investors trying to get their money back. Lehman's bankruptcy threw into jeopardy derivative deals with a staggering 8,000 different firms that had paid Lehman billions of dollars in collateral. Now some trading partners are calling on state and federal courts to reclaim their assets, which have been frozen since the Sept. 15 bankruptcy filing. It will be a "very awesome task to try to unwind all of that," says Lehman's lead bankruptcy attorney, Harvey R. Miller, a partner at Weil, Gotshal & Manges.
It turns out that Lehman, like other big dealers, was running a perfectly legal but highly risky game moving money from firm to firm. It used the collateral from one trading partner to fund more deals with other firms. The same $100 million collected in one deal can be used for many other transactions. "Firms basically can use [the money] as their own collateral for anything they want," says Kenneth Kettering, a former derivatives lawyer and currently a professor at New York Law School. But when the contracts terminate as the result of bankruptcy, the extra collateral is supposed to be returned… http://www.businessweek.com/magazine/content/08_42/b4104000160047.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis