Lehman 9/10

Client Attorney Privileged/Attorney Work Product/At Request of Counsel

Ben Bernanke

1. Making Sense of Lehman Through Bernanke

   Oct 8, 2015 | Bloomberg View

   By Mark Gilbert
   
   
   I confess to being slightly obsessed with the schizophrenic zig-zagging by the U.S. authorities that arguably made the credit crisis much, much worse. The feds underwrote the bailout of Bear Stearns, then let Lehman Brothers become the biggest bankruptcy in U.S. history, and the very next day rescued American International Group, and leaving the world of finance bewildered and confused
2. Charlie Rose Talks to Ben Bernanke

   Oct 8, 2015 | Bloomberg Business

   By Charlie Rose
   
   
   The big headline from your book, The Courage to Act, is that you and Hank Paulson couldn’t save Lehman Brothers but obfuscated about it.

Jeb Bush

3. Jeb Bush Criticized 'Ridiculous' Wall Street Payouts; Now Is Backed By Big Banks

   Oct 8, 2015 | International Business Times

   By Andrew Perez
   
   
   After Bush left the governor’s mansion, he joined Lehman Brothers on Wall Street, where he collected a $1.3 million salary. As he campaigns for president now, he relies extensively on support from financial executives, including those working for firms that were bailed out by the U.S. government in 2008 and 2009 during the recession.

Lehman Bonuses

4. Star Lehman Trader's $83M Bonus Claim Mostly Rejected

   Oct 8, 2015 | Law360

   By Jonathan Randles
   
   
   A New York bankruptcy judge nixed the bulk of former Lehman Brothers Inc. star trader Jonathan Hoffman's $83 million claim for bonuses he said he was entitled to, ruling Wednesday that Hoffman was already paid what he was owed by Barclays PLC when the bank acquired Lehman's brokerage business in 2008.

Client Attorney Privileged/Attorney Work Product/At Request of Counsel

Ben Bernanke

1. Making Sense of Lehman Through Bernanke

   Oct 8, 2015 | Bloomberg View

   By Mark Gilbert

   I confess to being slightly obsessed with the schizophrenic zig-zagging by the U.S. authorities that arguably made the credit crisis much, much worse. The feds underwrote the bailout of Bear Stearns, then let Lehman Brothers become the biggest bankruptcy in U.S. history, and the very next day rescued American International Group, and leaving the world of finance bewildered and confused. After reading the latest memoir on the period, I'm still not convinced the principal actors in the drama are being entirely frank about what happened behind the scenes of the real Lehman moment.

   My pain is easy to name: The overseers of finance were able to produce a $30 billion loan to persuade JPMorgan to absorb Bear Stearns. They finagled $85 billion more when AIG was heading for the cliff. But in between those two unprecedented bailouts, they say there was no possible way -- no possible way -- to avert Lehman's bankruptcy in September 2008. I find myself unwilling to suspend my disbelief and accept that narrative.

   My excuse for revisiting the affair is the arrival this week of former Federal Reserve Chairman Ben Bernanke's "The Courage to Act: A Memoir of a Crisis and Its Aftermath." I was hoping to discover the justification for the flip-flop; instead, I find myself as disappointed as I was last year by Tim Geithner's book "Stress Test." (Ignore for now that I reckon letting Bear Stearns go broke in the first place might have been a sufficiently cathartic event to lessen at least some of the carnage that occurred.)

   It isn't that Bernanke obfuscates; he deals with the issue head on in rejecting the accusation that Lehman was deliberately allowed to fail:

   I do not want the notion that Lehman's failure could have been avoided, and that its failure was consequently a policy choice, to become the received wisdom, for the simple reason that it is not true. We believed that Lehman's failure would be extraordinarily disruptive. We did everything we could think of to avoid it. The same logic led us to rescue AIG where (unlike for Lehman) our makeshift tools proved adequate.

   Bernanke's argument for why Lehman died while AIG survived can be summarized like this:Only the government had access to sufficient cash to bail out Lehman.The government wasn't willing to provide that cash.So Lehman was unsalvageable.

   Expanding the Fed's balance sheet quickly enough to rescue Lehman would have been difficult, but not impossible. Post-Lehman, the Fed was able to create an almost unlimited supply of money. Bernanke says the Fed didn't have the resources to backstop Lehman either by buying its trashed assets (as it later effectively did with the Troubled Asset Relief Program) or underwriting its takeover by a competitor (as it had already done with Bear). But check out what Bernanke says was the case in 2008 versus what the balance sheet did afterwards:PHOTOGRAPHER: GILBERT, MARK

   Geithner, who headed the New York Fed at the time all this was happening, also stressed in his book that there wasn't a deliberate decision to let Lehman go to the wall:

   The world naturally assumed we had consciously decided to teach Wall Street a lesson. We hadn't chosen to draw a line. We had been powerless, not fearless. We had tried but failed to prevent a catastrophic default.

   Both central bankers make the case that AIG had bags full of collateral, something Lehman lacked. Both also stress that the sheer size of AIG (as well as the speed of its demise) gave it the potential to trigger an economic depression, never mind recession. So the Fed held its nose and wrote a check for AIG, as Bernanke explains:

   There was some circularity here: If the loan to AIG helped stabilize financial markets, then AIG's companies and assets would likely retain enough value to help repay the loan over time. But if financial conditions went from bad to worse, driving the economy deeper into recession, then the value of AIG's assets would suffer as well. And, in that case, all bets on being repaid would be off.

   But everything Bernanke lists as the potential consequence of not stuffing AIG full of taxpayer cash -- doubts about the solvency of its financial peers, chaos in derivatives, commercial-paper losses trashing money-market funds -- had already happened after Lehman, and were equally predictable. And AIG's assets were at least as toxic and as hard to value as Lehman's; more so, maybe, since the Fed was including real assets such as AIG's insurance and airplane businesses, not just the securities it owned.  

   Moreover, the counterfactual is whether AIG would still have gone into a tailspin if Lehman hadn't gone bust. Rescuing Lehman -- however hard and expensive and controversial -- might have restored confidence and cauterized the cash bleed; instead, the hemorrhaging got worse.

   The argument that government money wasn't available to plug the holes in Lehman is also problematic. It's obvious Treasury Secretary Henry Paulson wanted a market-led solution that would see Lehman become a ward of one of its healthier peers. And it's equally obvious that a blank check from the government would diminish the chances of the private sector financing such a solution. "Tactical considerations were an important motivation" in Paulson ruling out government assistance, Bernanke says.

   But it's hard to shake the suspicion that what started as brinksmanship and a bluff morphed into something more dangerous. Given how inventive the authorities have been in the "making it up as we go along" approach to post-crisis policy, could Paulson, Bernanke and Geithner really not have found some way to keep Lehman on life support? In Paulson's own memoir, "On The Brink," he says that Geithner challenged his stance:

   Tim expressed concern about my public stand on government aid; he said that if we ended up having to help a Lehman buyer, I would lose credibility. But I was willing to say `no government assistance' to help us get a deal. If we had to reverse ourselves over the weekend, so be it.

   So the contingency of the Treasury reversing its opposition to using public money to keep Lehman afloat was, it seems, at least a possibility. And yet Lehman was still allowed to fail. And, incredibly, it seems Bernanke and Paulson conspired to, well, be economical with the truth when they testified to Congress about Lehman's dissolution:

   Paulson and I were deliberately quite vague when discussing whether we could have saved Lehman… we had agreed in advance to be vague because we were intensely concerned that acknowledging our inability to save Lehman would have hurt market confidence… our caginess about the reasons for Lehman's failure created confusion about the criteria for any future rescue.

   You might argue this is all ancient history. In a post-crisis world where regulators are trying to force financial institutions to address the too-big-to-fail problem, though, it's important that the authorities review their actions, too. That's the only way to have a coherent playbook in place for when disaster strikes again. But the nagging, uncomfortable truth is that I still don't feel like I know why Lehman was allowed to fail. 

   For article: http://www.bloombergview.com/articles/2015-10-08/revisiting-the-lehman-moment-through-ben-bernanke-s-eyes
   

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2. Charlie Rose Talks to Ben Bernanke

   Oct 8, 2015 | Bloomberg Business

   By Charlie Rose

   The big headline from your book, The Courage to Act, is that you and Hank Paulson couldn’t save Lehman Brothers but obfuscated about it.

   When Lehman failed, the financial system almost went into cardiac arrest. We were very worried about runs on other companies. So, for a few days, we agreed to be vague. We deflected questions. Whether it was the right decision, I don’t know. If we’d explained that we didn’t have the power, that would have created fear. People would say, “Who’s next?” There was a feeling that what we had done was arbitrary, that we’d decided to let Lehman fail and save AIG. The failure of Lehman was something we tried to avoid but couldn’t.

   When it came time to save AIG, you felt you had no choice?

   We had no choice. It was the world’s largest insurance company. It was connected with all the other major firms in the world. And on top of the Lehman failure, I think it would have basically brought the system down. There’s a very good chance the financial system would have gone completely into stasis. And then, even though we were able to arrest the panic, the economy took a very serious blow. And of course, we’ve still not completely recovered.

   When you rescued AIG, did you have any control over what they did with all that money?

   Oh, yes. We did. With the money we gave them, they had to meet their obligations. The basic problem was, they came to us and said, “Look, we’ve got $85 billion of collateral calls, margin calls, payments that we have to make this week. We haven’t got the cash. Lend us the cash against our firm, taking the firm as collateral, and we can make those payments.” After that, we sent people in just to make sure we understood what was going on inside the firm. So yes, we were very involved in what AIG did after they received the money.

   “There’s a very good chance the financial system would have gone completely into stasis”

   Do you think the Dodd-Frank reforms were the right response to the crisis?

   I think that with the combination of Dodd-Frank and the Basel III agreements on bank capital requirements a lot of progress has been made. I wouldn’t say every provision of Dodd-Frank meets a cost-benefit test. But I think the basic structure and goal of the reforms was to make banks a lot more self-reliant, to make particularly big banks face tougher supervision, and also to give a stability to unwind a failing bank in a way we couldn’t do with Lehman. What happened was that, when Lehman failed, it went into the usual bankruptcy process, which was very inefficient. It took years. If we had the powers then that we have now, we could have done it in a much more expedited way that would perhaps reduce the impact.

   For full article: http://www.bloomberg.com/news/articles/2015-10-08/ben-bernanke-on-lehman-s-failure-jail-for-subprime-crisis-figures

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Jeb Bush

3. Jeb Bush Criticized 'Ridiculous' Wall Street Payouts; Now Is Backed By Big Banks

   Oct 8, 2015 | International Business Times

   By Andrew Perez

   After Bush left the governor’s mansion, he joined Lehman Brothers on Wall Street, where he collected a $1.3 million salary. As he campaigns for president now, he relies extensively on support from financial executives, including those working for firms that were bailed out by the U.S. government in 2008 and 2009 during the recession. Bush's campaign has been silent on the topic of CEO pay, even as his opponents -- from Donald Trump to Hillary Clinton -- have raised the issue.

   The reforms Bush has recently proposed to make the government more accountable to the public consist primarily of tax cuts that would benefit the wealthy and promises to roll back regulations on the private sector, including the financial services industry.

   Bush has pledged to “work with Congress to repeal significant portions of the 2010 Dodd-Frank financial law.” Dodd-Frank, passed in the wake of the financial crisis, includes a rule requiring companies to give shareholders the opportunity to vote on executive pay packages. Bush’s campaign did not respond to questions from International Business Times about whether he intends to keep that provision.

   Before Lehman Brothers’ collapse, Bush worked for the investment bank as a consultant. Trump, his Republican primary opponent, has called that Lehman gig “a no-show job” and suggested it was a reward for sending the state’s pension dollars to the firm as governor.

   Bush moved from Lehman to Barclays, where he earned $2 million annually. The British banking giant, which absorbed parts of Lehman after its collapse, borrowed hundreds of billions of dollars from the U.S. Federal Reserve during the financial crisis.

   For full article: http://www.ibtimes.com/political-capital/jeb-bush-criticized-ridiculous-wall-street-payouts-now-backed-big-banks-2131986

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Lehman Bonuses

4. Star Lehman Trader's $83M Bonus Claim Mostly Rejected

   Oct 8, 2015 | Law360

   By Jonathan Randles

   A New York bankruptcy judge nixed the bulk of former Lehman Brothers Inc. star trader Jonathan Hoffman's $83 million claim for bonuses he said he was entitled to, ruling Wednesday that Hoffman was already paid what he was owed by Barclays PLC when the bank acquired Lehman's brokerage business in 2008.

   The dispute stems from the hurried sale of LBI to Barclays in the months following Lehman Brothers' collapse in September 2008. As part of the sales agreement, Barclays agreed to employ thousands of former LBI employees and pay them bonuses they earned while they were employed at Lehman.
   
   Hoffman and Chambers were longtime Lehman employees and among the group that transferred to Barclays. According to the ruling, Hoffman was “a gifted trader who generated billions of dollars in profit for Lehman over the course of his employment.” In general, Hoffman traded government bonds from developed countries. The substantial amount of profits he generated “was buoyed by the dislocated and volatile markets of 2007 and 2008,” the ruling said.

   For full article: http://www.law360.com/articles/712540/star-lehman-trader-s-83m-bonus-claim-mostly-rejected

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