Sunday, October 26, 2008

Lehman's Kiting Scheme

"It turns out that Lehman, like other big dealers, was running a perfectly legal but highly risky game moving money from firm to firm. ... But when the [derivatives] contracts terminate as the result of bankruptcy, the extra collateral is supposed to be returned. ... The contracts were a big business for Lehman: When the firm went under in September, roughly 1 million derivative deals had its name on them. ... Both the BofA and the Dubai fund have filed suit against Lehman. They're not alone. Some two dozen Goldman Sachs hedge funds say in a suit that Lehman owes them 'hundreds of millions of dollars.' ... After Lehman used the collateral for its own deals with other firms, they could have used the money for their own purposes. ... By using their customers' collateral as their own collateral, Lehman and other firms could borrow more money, using the proceeds to buy the kind of high-risk securities that are now imploding", my emphasis, Matthew Goldstein and David Henry at Businessweek, 20 October 2008.

Amazing. Lehman used customer assets, which appear to be a "bailment" for its own purposes. Will anyone go to prison for this? If Joe Schmoe (JS) did something like this with his checking account, an affected bank would scream and JS would be indicted for bank fraud for "check kiting". Where were Lehman's CPAs, Ernst & Young when this went on? Doesn't the PCAOB have CPAs look at a client's "risk controls"? Well Mark Olson, what will you do about this? Call "NY Big Law" to tell you all was legal? Where was Chris Cox's SEC when this went on? I remember when WPPSS went under in 1983, some disgusted trustee said something to effect, "Well if we want justice [for the bondholders], there's only one way to get it. Strap on our sixguns, mount our horses and ride after it". The person quoted in Fortune, as having said that was a trust officer with a major NY bank, to the best of my recollection.


Anonymous said...


Bank delays hit Lehman unwinding

By Jennifer Hughes and Anousha Sakoui in London

The unwinding of Lehman Brothers’ European operations has not gone as fast as its administrators had hoped because of slow co-operation from other banks, the man in charge of the process has admitted.

Tony Lomas, lead administrator for the collapsed bank’s sprawling London-based operations, is facing pressure from hedge funds and other creditors to return client assets, but told the Financial Times the administrators were still waiting for confirmations from many of Lehman’s counterparties.

“I’d like us to be further on with the numbers by now,” said Mr Lomas, who is leading a team from PwC. “There are 97 different custodians around the world who are holding securities that either belong to us or our clients, and the returns from them are not yet complete. That means that we don’t know for certain what is out there in terms of assets.

“After six weeks you would expect that we’d have that information, but we haven’t. But it’s not for the want of trying.”

Lehman clients, led by large US hedge funds, have warned of risks to the financial system if they do not get hold of their assets soon. Last week a group met the UK Financial Services Authority and the Bank of England to discuss ways of speeding up the process, but nothing concrete came from the talks.

Although the administrators were able to quite quickly settle Lehman trades conducted via exchanges, there are billions in bilateral, over-the-counter trades outstanding with hundreds of counterparties.

Seven Star Hand said...

Hello I.A.,

So, why should all of humanity be forced to suffer and struggle any longer, now that the entire global financial system has been exposed as a mind-boggling deception, within many other deceptions? No one in their right mind would continue to be enslaved by a proven deception, which is also proven to be undeniable slavery-by-proxy !!!

The derivatives scams alone have grown to more than 10-times the entire global GDP (at last counting) and are now failing because the scam/pyramid scheme broke and exposed the deception for all to see. A significant portion of global wealth and power was created and propped-up using these and other now-proven smoke and mirrors and house of cards illusions and delusions.

These deceptions have grown many times larger than the rest of the entire world economy. Consequently, there is no way that all of the world's governments combined, who themselves borrow so-called "money" from other central-bank smoke and mirror deceptions, can solve this debacle, by using more smoke and mirrors money scams. The only solutions they are offering will take centuries to repay, if ever.

Here is Wisdom...

Anonymous said...

Hello,nice post thanks for sharing?. I just joined and I am going to catch up by reading for a while. I hope I can join in soon.