Bear Stearns hedge funds collapse
#tenyearsago
JP Morgan on Lehman's collateral
“strikes me as borderline insulting to think we would accept Lehman’s self structured and self priced CDOs to meet our margin requirements”
(@DanielaGabor)
September 10: Lehman Brothers Preliminary Earnings Call
Transcript: seekingalpha.com/amp/article/95…
(through some little details are not disclosed via @danielagabor)
($25 billion is OK but $50 billion would be better)
Meanwhile out of left field: AIG
(Tim Geithner puts it in a pile at the corner of his desk – from "Fatal Risk" @RodBoydILM)
@RodBoydILM And it wasn't just AIGFP … AIG's Securities Lending Program was just as horrible
(and a man in Omaha doesn't have a fax machine at home)
@RodBoydILM What was the Securities Lending Program? by @RodBoydILM
“It became clearer every day to AIG veterans that things were indeed going to be different under Martin Sullivan”
How did Martin Sullivan become CEO of AIG? (@RodBoydILM 2005)
@RodBoydILM A few things to add to this timeline:
August 21: Lone Star Funds, the Dallas-based private equity firm, agrees to buy IKB from KfW when the German bank collapses after having THREE bailouts
(at the center were the infamous ABACUS CDOs)
nytimes.com/2008/02/14/bus…
@RodBoydILM Goldman Sachs' ABACUS Timeline
businessinsider.com/a-timeline-of-…
ABACUS was one of several deals part of John Paulson’s push in early 2007 to increase “The Greatest Trade Ever”
(From @GZuckerman “The Greatest Trade Ever”)
July 28: Merrill Lynch announces large recapitalization and restructuring
(includes selling the Stan O'Neal CDOs to –you guessed it– Lone Star Funds at a large discount … it seems as his legacy is finally behind)
From Greg Farrell's "Crash of the Titans"
Back to the regular programming …
September 12, 6:45 pm at the New York Federal Reserve Building
The Meeting
(from @andrewrsorkin “Too Big to Fail”)
AIG is not in the agenda but ego clashes definitely are
At the center of Lehman’s problems were a series of illiquid CRE deals:
“a giant REIT with a little investment bank attached"
John Thain has been exploring alternatives but doesn’t have an emergency plan … he now faces the gravity of the situation for Merrill Lynch
(from “Crash of the Titans”)
Bank of America changes plans … no more Lehman
Negotiation moves fast since it’s not the first time that BofA and Merrill have talked
(and Stan O’Neal blew it with personal demands)
For Lehman, only Barclays remains
(From: “Too Big to Fail”)
But not for long …
“He’s not going to do it. He said he didn’t want to import our cancer.”
Another big twist to the story … Bank of America buys Merrill Lynch for $29 a share
Who pulled that fucking rabbit out of the hat? – Jamie Dimon
(“Crash of the Titans”)
Lehman’s board votes to declare bankruptcy
Well, I guess this is good-bye – Dick Fuld
(“Too Big to Fail”)
Meanwhile … AIG asks for money, lots of money
September 15, 2008
The Morning After
CEO of Goldman Sachs is in panic … remember that for what comes next
KfW Bankengruppe (again)
“Germany’s Dumbest Bank”
New York Fed, 9 am
Geithner shows up unexpectedly to a progress report on the AIG situation
(“Too Big to Fail”)
AIG Headquarters, just a block from the NY Fed, 4 pm
AIG Bailout Plan
(approved by the AIG board that same afternoon)
September 16, 2008
Meanwhile in the UK … banking chaos
BBC breaks the story that Lloyds is buying HBOS
(price will be revised and it’s not the end of it)
Lloyds HBOS
Wholesale Funding
Northern Rock, HBOS, and all the other British banks were way overextended in their funding needs
(most American retail banks don’t have this problem … they will have other problems)
The Reserve Primary Fund breaks the buck
(In Nov 2009, a district judge ordered the fund to make pro-rata distribution to all remaining shareholders. As of Dec 2014, the fund had paid out 99.1 cents per share)
The Lehman paper is an infectious disease … commercial paper is next
Barclays buys Lehman’s capital markets business for $1.75 Billion
That was fast and Barclays ended up getting what it always wanted.
Raises the Q: Was the Lehman bankruptcy necessary considering that the American banks were taking the bad bank part in the initial deal?
Busy Week
Lehman
Lehman … years later
Repo 105
nytimes.com/2010/03/12/bus…
Valukas Report on Lehman
(2200 pages)
web.stanford.edu/~jbulow/Lehman…
Redemptions everywhere
“He may have been praised for not bailing out Lehman, but he could see now that the consequences have been devastating”
(from TBTF)
Not much love for shorts on both sides of the Atlantic
Buffett is on the move
Constellation will back out of the deal in December (an offer from EDF) but it shows how the liquidity crisis was spreading beyond Wall Street
Almost exactly 10 years after the financial crash of 1998, Russian markets are once again in turmoil
TARP is coming
"There are no atheists in foxholes and no ideologues in financial crisis" – Bernanke
Why not instead inject that capital directly to the banks?
(this debate will not go away)
UK bans short selling of financials
Friday, September 19, 2008
SEC bans short selling of financials
(Boom)
What was the rationale? A few days before …
(from TBTF)
The week in money markets … redemptions everywhere
(from WSJ)
The Fed tries to stabilize the money market mutual fund industry
How convenient to “own” Fannie and Freddie
(conservatorship … I know)
Morgan Stanley rises 21%,
Goldman Sachs rises 20%
Washington Mutual rises 42%
AIG rises 43%
And since I’m traveling tomorrow … tomorrow’s frontpage
Saturday, September 20, 2008
Shock Forced Paulson's Hand
"If it doesn't pass, then heaven help us all” – Paulson on TARP
wsj.com/articles/SB122…
King Henry
Saturday, September 20, 2008
Amazingly, the American stock market ends the week higher than it had begun.
POTUS Statement
Cash for Trash – Paul Krugman
reflects all the skepticism on the initial plan
Several HFs bet on a positive return from the distressed Lehman bonds
(Narrator: they were right)
MS and GS are fighting for survival … even at the cost of long-standing relationships
(from TBTF)
During the weekend, the new "committee to save the world” pushes John Mack to make a deal … any deal
(TBTF)
Morgan Stanley reaches $9 billion deal with Mitsubishi
Deal will be renegotiated and finally be closed three weeks later
Payed with a $9 billion CHECK
(TBTF)
Monday, September 22, 2008
The End of Wall Street
Becoming a bank holding plan was an idea from Dick Fuld to save Lehman that Tim Geithner didn’t like at that time
Times have changed I guess
(TBTF)
Wednesday, September 24, 2008
Expensive capital for interesting times … Goldman didn’t doubt
(TBTF)
Friday, September 26, 2008
Sheila Bair seizes Washington Mutual
A new Aussie blogger can’t believe the whole situation
brontecapital.blogspot.com/2008/09/reckle…
The taking of Washington Mutual is also notorious for its absence in @andrewrsorkin ’s “Too Big to Fail” … Wachovia instead is followed in full detail.
That lonely paragraph though …
@andrewrsorkin September 28, 2008
Bradford & Bingley
@andrewrsorkin Hank Paulson on WaMu
@andrewrsorkin Anglo Irish
Subprime MBS and the GFC
European Banks and the GFC via @adam_tooze
@adam_tooze Some GFC charts
@adam_tooze Cleaning out the attic (1)
Cleaning out the attic (2)
Cleaning out the attic (3)
Cleaning out the attic (4)
The End
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