Why Lehman failed and others did not?

1)
The correct caption should be "Why Lehman Brothers was failed or allowed to fail and others did not"

There is a criminal conspiracy in the failure of Lehman Brothers. Almost all Investment Banks like Bears Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs and UBS were traveling in same boat.

Bear Stearns failed but it was taken over by JP Morgan Chase
Lehman Brothers were allowed to FAIL
Merrill Lynch was merged with Bank of America moments before it failed
AIG was taken over by the US government
Fannie Mae and Freddie mae were also taken over (Conservatorship) by US government
Morgan Stanley survived or allowed to survive and converted into bank holding company
Goldman Sach survived or allowed to survive and converted into Bank Holding Company
Citibank is living on borrowed time and it is in ICU
UBS is also in ICU
JP Morgan is also in ICU (they got $59 billions in the name of Bear Stearns to survive)

There appears to be dirty tactic in allowing the Lehman Brothers to fail. Just hours before declaring bankruptcy in UK, the Lehman Brothers reportedly transferred US$ 8 Billions to USA

The question is WHY? WHAT FOR?
The reply is:
there was a conspiracy that the Lehman Brothers, relatively smaller fry, be allowed to die and be a savior of other Investment Banks. Other IB must have sold worthless derivatives to Lehman Brothers for about $ 8 Billions to take off from their (IB's) books. Just before declaring bankruptcy, Lehman Brothers under the arrangement transferred $ 8 Billions to USA which FSA (Financial Service Authority similar to SEBI) is seeking repatriation. The Lehman executives must have been bribed heavily. Hundreds of millions of pay off is nothing compared to $ 8 Billions

Bear Stearns were declared almost bankrupt, but merged by force with JP Morgan chase so that JPMC could be given $ 59 billions in the name of take over of Bear Stearns. The BS CEO was interviewed a day before CNBC where he declared that BS was having sufficient credit lines. However, the credit lines were withdrawn overnight by JPMC (in all probability) that forced BS to become bankrupt and easy takeover target. In order that no one ask the question, the initial bid of $ 2 was raised to $ 10 - unprecedented in the history of Wall Street. If BS was allowed to file Chapter 7, then all cross obligations would have been known to the Court and general public who is who and where and how much? Paulson eliminated first competitor of Goldman Sachs.

Lehman Brothers was next. A conspiracy appear to have been hatched to let Lehman go bankrupt after it has taken over bad debts from other surviving IB like Goldman Sach. Huge sum must have been paid to Lehman executives through off shore centers. Lehman management appear to have helped other IB by buying $ 8 billions of worthless debts in the form of CDO or CDS. This is why Lehman must have sent $ 8 Billions to USA (most possibly the sellers who could be Citibank, JPMC and Goldman Sach). Paulson therefore took second wicket - Lehman Brothers - to help Goldman Sach

Merrill Lynch, the formidable IB not easy to decimate. bank of America must have been asked by Paulson & company to withdraw entire line of credit overnight running into billions of dollars. Merrill had not choice but to merge with the same bank withdrawing credit after 7 days. Merrill Lynch was a prize wicket, like Tendulkar, for Paulson to help Goldman Sach

Now, 3 leading competitors are eliminated leaving only 2 - Morgan Stanley and Goldman Sach in the fray. Morgan was not allowed to fail because Paulson wanted to convert Goldman Sach into Bank. If two firms are converted into banks, no eyebrows would be raised.

Contd part II

Kalidas, Hong Kong
24/9/2008

2)
Continuation - part II why Lehman failed and others did not

Now, same Paulson need $ 700 billions with no questions asked. He is an errand boy. His parent firm Goldman Sachs never loses money, always make money, always on right side of the trade, because they are favorably placed to receive all price sensitive information from the Treasury. for 4 years during Clinton Administration, they had Robert Rubin, also from Goldman Sach, and now they have Paulson, also from same firm.

When all were in same boat, why Lehman alone was jettisoned into sea. There is a theorem in legal books, that NECESSITY KNOWS NO LAWS. Any crime committed is pardonable. This theorem arose when some boatmen were stranded into sea. When they were in the sea for long time without any food, they killed a small boy on the same boat and all rest boatmen ate his flesh to survive. When the suit was filed in UK courts, the principle was applied NECESSITY KNOWS NO LAW. All human flesh eaters were released scot free.

After almost 100 years, same principle was applied. Instead of poor boy, it was Lehman Brothers who became the sacrificial lamb leaving others in the boat to survive. A bigger fish always eat smaller fish. So the goldfish ate the Lehman!

Kalidas, Hong Kong
24/9/2008

3)
for Khem Cho,

If US does not take right actions at right now, which is now, it may go the USSR way in less than 4 years. The present proposal is like throwing good money after bad money.

US should allow the existing banks, however large, to go into bankruptcy and avoid funding them. Instead, it should identify other smaller banks to fund with say $300 billions dollars to ease the credit crunch and make the credit available to good corporate structures.

Except for Military and Pharmaceuticals, US has lost leadership. China and India are no longer developing country. These countries can produce anything that US is able to produce in almost all industries except two mentioned above. Human intelligence is no longer monopoly of United States

China is already undeclared superpower. India may emerge one in next 10 years. Western powers are in relative decline.

Of course, world need USA - they still have the biggest buying power in private sector. Except for financial sectors, other sectors are perfectly normal. there is nothing unusual.

Collapse is limited to overleveraged financial sectors, that may have cascading effect on other sectors if only US does not generate $700 billions to finance the bankrupt ones. Good money has to be utilized for good corporates or citizens. When will US understand that?

Kalidas, Hong Kong
24/9/2008...

4)
for Guest (v8R)

Q: But I think you current post is more of a conspiracy theory
A: Yes. there appears to be. Bernanke (FED) and Cox (SEC) have been corrupted by Paulson who is calling the shots. A separate post will be made in a day or two on this specific subject.


Q: Can Paulson have interest in GS and be the treasury secretary at the same time? Even indirectly?
A: Yes. There are several ways.

Q: Are these people and big money transactions not scrutinized by US security agencies? They caught the NY Governor Eliot Spitzer based on
A: Yes, they are not scrutinized by SEC. The SEC Chief appaears to have been won over (or bought over) by Paulson. If one wants to criminalize billions of dollars of fraud, he has to look clean first, so he catches the likes of NY Governor Eliot Spitzer who was a small fry and went only to the Prostitute, the way President Clinton went to Monica. In both cases, they were laughed at and criticized, and either removed from office or floated 'Impeachment' for the President Clinton. Their honest lies did not cost any lives, and yet they were haunted by bull dogs and puritans.

President Bush on the other hand lied all the times. There were no Weapons of Mass Destructions (WMD) and yet he maintained the stance in utter defiance. His lie caused Iraq war that killed over 1 million Iraqis and also 5000 US soldiers. He agains lied for the present financial crisis, blaming foreigners for pumping money into United States (listen to his speech today - Address to the Nation). In spite of heaps of lies and lies, and causing deaths all round the globe, no one sought his impeachment in spite of 8 years of misrule, misconduct, gross negligence and unpardonable crime of waging a war on Iraq that destroyed the whole country and killed and raped millions of Iraqis and Iraqi women.

This is America, where in the name of free democracy on a coterie of people - President, FED Chairman Treasury Secretary and SEC chairman and Pentagon act with vengeance in so called 'Dictatorial Democracy'. They are all hypocrats. They really deserve what they are getting today - they earned it.

This is also America where WAR killing millions of people and their own 5000 soldiers is justified over the Seksual (replace K with X)deviation of their President. Little tool is more dangerous in America than guns, bombs and bullets, rockets and missiles (called Patriotic Missiles)

Kalidas, Hong Kong
25/9/2008

5)
for shia

Often a reputed person's stature blindfolds the reasoning ability of millions of people. They become superstitious. If you write anything against Buffet, you will be considered fool or egoistic bastard.

Mr. Buffet is a traditional investor. He does not know ABC of the exotic derivatives. Sometime ago, during Countrywide Mortgage and Bear Sterns turmoil, when the speculation rose that Mr. Buffet might invest into such distressed companies, he said he does not know how many times their balance sheets were leveraged.

This is why he mentions that Paulson plan will work. He has no idea that the collaterals are ZERO. He puts blind faith in Paulson, ex Chief of Goldman Sach, who put him in touch with GS management for stake by sharing inside info.

Some senators clamor for Warren Buffet to oversee $700 Billions that Paulson plans distribute. What will be oversee, when he has no basic idea of toxic derivatives? Buffet's expertise is ZERO to manage the $700 billion invested securities (10 times his Net worth) the way Tata took over Corus - 5 times its size and now teetering) having ZERO value.

for Goldman Sach, he made mistake again. I wrote a comment in Smartmoney. com (a Dow Jones affiliate) on 24-9-2008.

QUOTE:Comment 1
Posted By: anilselarka on September 24, 2008 at 1:16 PM
Mr. Buffet makes mistake, not in investing in Goldman Sach but his timing and manner in which his investment is structured. He is investing by way of Perpetual Preferred Shares with warrants ( we do not know whether the warrants are detachable). The perpetual Preferred Shares usually trade at significant discount in the secondary market. For instance, such shares of leading banks like HSBC or Standard Chartered Bank in Hong Kong used to trade at 25% t0 50% discount for the simple reason that there is no obligation for the issuer to redeem the shares. Goldman has only option but not obligation to redeem the shares. Mr. Buffet will lose over $1 Billion the moment the shares are offered for trading in the secondary market. If the shares are not offered to the market, then he may not lose, but the shares will be illiquid.

Further, the preferred shares do not have priority over debt papers. If the debt of the Goldman is excessive (no one knows the real debt and loss level of the Goldman), and presuming Goldman goes bankrupt, Mr. Buffet will lose everything.

What Mr. Buffet should have done is to insist on non-subordinated Convertible Bonds with 10% coupon with same maturity (normally any bond that matures for payment 50 years or later are known as Perpetual) that would have served the same purpose with better security. In the event of bankruptcy, Mr. Buffets Convertible Bonds would have priority over so called perpetual shares.

By choosing the route of Perpetual Preferred Shares, Mr. Buffet has exposed the shareholders of Berkshire Hathway to much greater risk in increasingly risky capital market. Goldman wanted to clinch the deal before the September is out or before Q3 quarter which in all probability will be disastrous for most banks, possibly including Goldman.

In short, Mr, Buffet should have chosen the route of Convertible Bonds over preferred Perpetual, and waited after digesting the Q3 results of various banks, that would start arriving in third week of October. He was a month early, and what has guided him the converted status of bank which is nothing but a enormous risk nowadays.

Let me wish well to Mr. Buffet for his untimely, unfriendly and almost illiquid investment which, if ever offered to Public, would trade immediately at 25% to 50% discount. Big people make big mistakes, it is said.

Anil Selarka, Hong Kong

Comment 2
Posted By: leibman on September 24, 2008 at 1:16 PM
anilselarka--you demonstrate very well that you are much, much smarter than Warren Buffet when it comes to investing. Congratulations! Presumably you are also much richer, too?

UNQUOTE:

Kalidas, Hong Kong
25/9/2008

6)
Gold : Initially, when the stocks go up, the gold will come down and US$ may go up
Oil: Certain elements in US Administration have assigned task of lowering Oil prices against US$ to robert Rubin (formerly Treasury Secretary and now Chairman of Citigroup) by using futures and other derivatives. This is why the oil drops down for most of the month and when it comes to settlements, they have to buy back the shorted Oil or face the compulsory delivery of Oil that they don't have. The reason Oil jumped $25 in single day last week due to Oil futures expiring on that day, that forced the shorters to buy back the contracts for September and short November by way of carry over (similar to your 'badla'). When the November settlement comes, and oil supply is as tight ever, they have to buy back the November contract and sell forward December or January (09)

In fact, the situation is similar to pre-Enron days where Enron was used to depress the oil prices same manner. I therefore believe that another Enron is in the making, of much higher scale - 20 times - that will explode in near future as soon as Arabs cut their production by 2 million barrels.

Do not believe in Greasing palm theory. This is not India.

Kalidas, Hong Kong
25/9/2008

7)
for champion224,

I do not follow Pharma and IT stocks, as they are difficult to evaluate. Ranbaxy is a good company, but there are so many patent related infringements, that we can not understand.

I avoid comments therefore.

Kalidas, Hong Kong
25/9/2008

8)
for slowhand22,

Do you watch the serial 'Saas Bhi Kabhi Bahu Thi'? The meaning applies to what you have just mentioned in your post.

If you think the Arabs and OPEC were playing the havoc and causing troubles for developing or emerging markets, ask yourself, who played havoc a few years back, when the oil prices were depressed into single digit (below $10) few years back by same Americans with the use of derivatives?

This is a game of tennis - any one player wins. In old days, the Americans won, now the Arabs or OPEC.

I have not seen the full statement of Vikram Pandit. Can you cut and paste his statement verbatim so that I can comment.

If the package of $ 700 billions are approved, Citigroup will be the biggest beneficiaries. paulson will buy $60 billions of bad debts at the price of $65 (Face value $100) in spite of market value being just 20 cents (shot up to 98 cents) and real asset backing is ZERO.

Citi group will in that case will reverse the excess provisions made with the receeipt of $ 65 and also value rest of the securities at $ 65 though asset backing is zERO

This is why Bernanke has been advocating to pay higher price ($65) instead of 'fire sale' price of just $0.20 or even ZERO.

Since the valuation is 'Mark to Market', and there is no market, both Bernanke and Paulson want to 'manipulate the market price from ZERO to $65' so that all securities are valued on that basis.

This is the biggest 'fraud on American Tax payers'. When Bernanke and Paulson want to protect the Tax payers, why do they want to use their $700 billons to buy the bad assets, now available for just 20 cents, @ $65 or 300 times more? It is their fundamental resonsibility to buy the assets at the best possible market price, not to pay 30,000% premium? Just to manipulate 'market price'? Mr. Bernanke and Mr. Paulson are therefore the biggest 'fraudsters out to make the Americans poorer' by above methods.

This will make almost all banks to come back to profit with a thump and start reporting massive profit by reversing the old provisions and providing less for new defaults.

Now you can perhaps understand why Vikram Pundit is saying what he is saying.

Rabo Bank used to be an Agricultural Bank as its base. It is the only AAA rated bank in the world. However, no one knows what is their position today, and whether they also bought CDO or other similar products. It is impossible for anyone

Kalidas, Hong Kong
25/9/2008

9)
for Richie,

Good puzzling question for many. Here are the answers ( I can not dilate on them here)

Richie:
Initially, when the stocks go up, the gold will come down and US$ may go up
Kalidas:
when you talk of $ going up, specify which stocks go up or down - US or India?
- Normally, when the stocks go up, it is known to be a measure of confidence, so the gold goes down. The $ goes up because to buy US stocks, one need to buy $. (It does not happen nowadays)

Richie:
Sir don`t you think that the current crisis is due to the lack of money in the system ?

Kalidas:
Right and wrong.
Right: The money disappeared into losses, so there is lack of money. It is like you lost 500,000 and have nothing left in the bank account.
Wrong: Every day you hear that FED prints $700 billions, FED intervenes with $900 billions, European Union inputs $650 billions (Euro 500 Bln) British Government pumps in 300 bln pounds in the form of take over and money supply

Further, these Kubers in charge of finances, have started issuing blanket guarantee for all banks. How could you stand a guarantor for some one when you do not know his status or extent of obligations?

Today, a stage has come that A Bank does not trust another bank. After few months, we will have situation that One Nation does not Trust another Nations. What will they do then?

Richie:
Don`t you think that the current rally in gold is also speculative

Kalidas: Anything one does not know and still try to meddle into it, it is called Speculation. All nations are now speculating because they promise to float/guarantee/disburse billions of paper currencies without knowing what for? This is speculative.

Gold is the only commodity which is not speculative over long run. My family bought Gold in 1961 for Rs 260/tola which is now Rs 13000/tola, that is 50 times in 50 years or 100% gain every year on simple rate basis. Property is next.

When we try to marry, we tend to speculate that the bride will be very good, she will mix up with the family, she will take care of entire family etc for which you spend rs 5 lakhs towards wedding expenses (investment). If the bride is really good enough, your stock did well and you would say that it was investment. If bride is not really that good, you would blame yourself for speculating.

The difference beween the Investment and speculation is as thin as the difference between Dawn and Day or Night; difference between DUSK and Evening or Night.

Richie:
Jab Insaan Ke paas paisa nahi hota, to kya woh sona lene nikelega kya

Kalidas: when the people distrust paper money, that you call wealth, they will go only for Gold. In second world war or partition time between India and pakistan, people fled their homes with gold, not paper currency which may not be valid in other country.

Jas Sona hi sachha paisa hai to Nakli paisa ki kya jaroorat?

Kalidas, Hong Kong
13-10-2008

10)
for sriman35

Check your numbers. Considering average return of 7.5% over 47 years, Rs 261 becomes Rs 7,813 @ 7.5% per year compounded annually
compared to Gold at Rs 13000 now, and within 2 years it could be anywhere over Rs 25000 or more due to present crisis and weakening of rupee.

Also note that if you keep the money in FD and never withdraw for 50 years, it is useless. What is the use of investment, if it can not be used.

Gold is non-interest bearing asset, and still it gave over 50% more return. further, gold is always used in India as jewellery on almost all occasions. therefore, while gold is being used for 50 years and still gave return of 100% per year on simple rate basis, the FD did not return any because the entire amount was used up while renewing. It was dead asset if we presume that way.

Further, Gold is a quality asset exchangeable anywhere in the world. supposing you went to USA and needed money there, no one will buy your rupee because it is non convertible, whereas Gold is exchagable into any currency or money in the world at any time.

If there is World War III,no one will buy paper currency like rupee - but Gold will move across the borders. Gold has universal liquidity whereas Rupee has liquidity in India.

Gold appreciated from Rs 261 to Rs 13,000 , that is, up (+) by 4,880%
Rupee depreciated from Rs 8 to Rs 48 or by Rs 44 or Down by 1100% (44/4 %) So gold appreciated by 4880% and Indian depreciated by 1100%

Don`t compare Gold with man made paper currency. Don`t you see Paulson is printing every day $100 billion. Can he produce that much gold?Soon the market will have effect on dollar - extremely bad - it will be dumped by almost all nations and rush back to gold.

Kalidas, Hong Kong
14-10-2008