Guest Post: Monetary Miscalculations From A World Captive To Models

Tyler Durden's picture

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Dr. No's picture

I can understand there is a desire to bring clarity to a chaotic event.  There are theories about moral hazard and not enough money and this and that.  The fact is someone wanted to get rich.  Someone important determined letting Lehman fold would make them richer than if they were bailed out.  This important person then told Hank Paulson to not try so hard finding a solution.  How else you explain why some are bailed out and others are not.  Simple.

Smu the Wonderhorse's picture

Bullseye.  Miscalculation my foot.

Harlequin001's picture

I think it was a screw up. I think the Fed and the Treasury did not want to be seen backing up the entire US economy and so wanted Lehman bankrupt to show this. However, so swift was the attack then on AIG and then Merrill that they knew it was a mistake, so they moved to bail AIG, Merrill and others but once filed, Lehman was too late.

I think had they been able they would have bailed Lehman retrospectively.

Major, major error.

alexanderstollznow's picture

some suggested answers:

*the bailing was done by Treasury, and they didnt have power to do so till TARP was passed, which occurred after Lehman's collapse

*those that were bailed were all banks, with viable businesses, and none of them actually was pushed to the point of funding crisis.  the bails ie TARP were precautionary. 

*as the article makes clear above, there are plain issues about the legal identities which went bankrupt, vs the entity which could have borrowed from the PDCF.  given the unending ranting about the Fed which occurs here, and everywhere else, including capitol hill, perhaps the prospect of the Fed illegally lending might have been a factor for the Fed? 

i know it is a real bitch of a fact if you want to blame the fed - again - for everything, but contrary to the common wisdom, it is actually directed and limited by legal requirements, and as anyone who has ever read the news, or watched the address formerly known as humphrey hawkins, will understand, is under a lot of scrutiny and pressure to act legally.

*contrary to the suggestion the most theories have it that Lehmah was not bailed out to make an example of avoiding moral hazard, Bernanke has stated a number of times that the Fed didnt not have the power to lend to an insolvent company.  as you would hope.  no doubt many here will dispute that, but that is the Fed's position, and presumably that of their legal advisors.

*one can criticise the (insert name of bank or governement entity here) for allegedly acting illegally, or you can critcise it for acting legally and not pragmatically, but you cant have it both ways.

Dr. No's picture

So the laws which govern the FED prevent it from bailing out insolvent companies, allow it to bail out AIG as well as buy toxic assets at face value?  huh.  doesnt really surprise me I guess.  What is surprising is people actually believe they follow the spirit or letter of the law.

Harlequin001's picture

Dr No, to be blunt, if they hadn't bailed AIG you would have no economy. Goldman would have failed as would all the banks one after another and the entire derivatives complex.

I remember the panic and late Sunday notices designed to move markets through Asia. Right or wrong, we would be living in a very different place today if they hadn't, and that doesn't just apply to the US.

tickhound's picture

..."and as anyone who has ever read the news..."

"Bernanke has stated a number of times that the Fed didnt not have the power to lend to an insolvent company"


Wasted breath... You offer nothing I can't find from filtered msm.  Your entire "thesis" should've been summarized by simply stating, "The msm and federal reserve told us so, therefore it is."

Headline should read... "Extraordinary Popular Delusion"


Dr. No's picture

contrary to the suggestion the most theories have it that Lehmah was not bailed out to make an example of avoiding moral hazard, Bernanke has stated a number of times that the Fed didnt not have the power to lend to an insolvent company.  as you would hope.  no doubt many here will dispute that, but that is the Fed's position, and presumably that of their legal advisors.


I dont beleive Lehman was allowed to fall as to make an example.  I beleive they were allowed to fall (rightfully so) because someone determiend they would be more rich with Lehman banckrupt.

Dr. No's picture

those that were bailed were all banks, with viable businesses, and none of them actually was pushed to the point of funding crisis.  the bails ie TARP were precautionary


Note to CIT shareholders: things are fine!

tickhound's picture

""It" (everything that happened then, now, and in the future) was a colossal miscalculation."

Err... Or it was all right on schedule and by design.

NotApplicable's picture

Let's see. At every step of the way, FRBNY was acting to take-down Lehman, yet the author blames it all on adherence to models? Really???

Give me a fucking break.

This article is nothing more than damage-control whitewash.

Whoever wrote this shit should be ashamed.

Raynja's picture

Exactly, there was no miscalculation or mistake, and they were not sacrificed for moral hazard. Someone wanted them gone, or at least not bought by barclays.

Maybe someone finally had all their shorts in place?

Ricky Bobby's picture

+1 The Stakes is High. To sit atop the empire is to be a GOD.

Res publica mortuus est, vivat imperium

I think I need to buy a gun's picture

Well the final 4 was packed last night,,,,these games and events continually sell out as i prepare for the worst what is going on?

Shell Game's picture

The under belly of infamy..  Lehman's old HQ should be cemented over, a sort of 'sarcophagus' if you will, and made into a memorial to dead capitalism.  Long live capitalism.

NOTW777's picture

banker creed - file BK get $

77411147's picture

Bottles and models are what we need....oh wait wrong thread.



Duuude's picture

Oh Bullshit.

Substitute PaulsonSpawn Geithner every time you read FRBNY.

Then think Squid.


nah's picture

numbers can speak truth that noone will understand


and we think afghans are disinterested retards with a global agenda

bank guy in Brussels's picture

Great article.

For those who haven't seen it, the terrific movie -

« The Last Days of Lehman Brothers »

Amazingly, you can see it online here. Totally riveting.

hedgeless_horseman's picture

Looks like we will soon see if $140 oil has something to do with crashing the economy. 

Interesting times, version 2.

tek77blu's picture

Everything QE means................................higher floors for gold and silver.

tony bonn's picture

yeah that's it - the model made me do it.....

Caviar Emptor's picture

People have already forgotten one key piece of the Lehman bankruptcy puzzle: the extreme degree of faith in orthodox market fundamentalism that was present at that time. "Markets are self-correcting, mean-reverting and rational". "The fundamentals of our economy are sound". And Paulson and Bush were the high-priests of market fundamentalism. Markets ran on freedom, according to the gospel.

What is still shocking and hard to understand from today's environment is that the prevalent mode back then was "hands-off". After LTCM, market risks were cushioned by complex layers of derivatives and hedging techniques, people believed. And technology only reduced risk. And the Fed and regulatory bodies encouraged theses practices. It's not that they were asleep at the switch so much as they regarded all the leverage and risk-taking as routine, safe practice given "the new paradigm"

We're in the topsy-turvy, through the looking glass reverse reality now where there is no official confidence in markets not to keel over and puke for almost any reason. The near-death experience of 08 changed it all. 

10kby2k's picture

Is Benny playing with his  hasbro erector set again?  or his easy bake oven?

linrom's picture

Has the Fed modeled yet the possibility that Ahmadinejad is the 12th Iman? Your supposition that you can effectively model financial outcomes has been proven repeatedly to the contrary and merely reinforces the lie that you can create something out of nothing and swindle billions for tomorrow's promises.

New American Revolution's picture

This was all and only about consolidation of 2B2Fails into fewer hands that would make those that remained standing stronger.   Survival was all about connections.    They not only ripped off America, they were ripping off one another,... up to a point.    The men that participated in this crime, beginning at the March 11, 2008 luncheon at the NY Fed; they, and those that aided and abetted the actions of these 'unprincipaled men', and their actions right through the end of 2008 were ALL involved in an 'on going criminal organization' and in violation of Federal RICO laws.    Each and everyone of them need to be indicted and brought before a court on criminal charges.    This includes Baranke, Geithner, Paulson, Dimon, Blankenfein, Fuld, et al.    In the New American Revolution, these men will be brought to justice, and I would suggest that anyone in the current Administration that would consider attempting to circumvent these coming events, consider these acts as their inclusion in these RICO charges as well as obstruction charges.    And once the Revolution has commenced, their obstruction could be construde as 'Treason'.    If I were them, I'd watch my step.

Milton Waddams's picture

So similar to Tim blaming Turbo Tax for his mistake, Ben is going to assign blame to SimCity when the global financial system collapses?

Widowmaker's picture

That's weird, shady Lehman dealings in subprime mortgages and Paulson and Geithner doing absolutely everything to eliminate true price discovery -- dripping with collusion from well before the organized "crisis."

Goldman Sachs won big front running Lehman failure, and loyaties at that place deep - right through the US treasury (tax forfeiture for everyone's fortunes).

I'd say it was much about competition, and the rest of the criminal syndicate of fraud, big-money fraud, being exposed - using the Fed as a weapon and government as a front for the opportunity to take Lehman out.  There has to be a fall guy (just one) to blame everything illegal on so that the rest could say "no one saw it coming," and always have uncertainty.

The joke is on your grandkids, their asses were bet on it and are paying the record bonuses.

Just a theory.

People need to start asking the right questions, like "Where are all the doctors that are needed?"

AldoHux_IV's picture

"The Fed is a creature of ineffective models.  Every single monetary decision is based on them."

That's it in a nutshell.

Still Life Living's picture

In March I attended the Val-Con conference sponsored by the American Bankruptcy Institute where the Chief Bankruptcy Officer (or similar title) for Lehman was on a panel (I can't remember his name and he is not listed in the program-I believe he now works for Alverez).  He discussed a number of issues associated with the bankruptcy and how he had been on the phone with Fuld, Paulson, Bernanke, etc. the night the deciders said that they were going to let Lehman go down. 

He made a statement that he said he has never seen in the press to date: that the government was very concerned that JPM would liquidate Lehman's book of $140 billion, which the feared would depress the market.  So, according to the speaker, the government purchased the Lehman book from JPM for $140 billion cash. (Note that JPM thought the book was a pile of crap because they required credit enhancements before dumping it on the government.)

And this was "long before" there was any talk of a $700 billion system-wide bailout. 

So JPM got made whole to the tune of $140 billion, and they still needed billions more from the Fed to avoid thier own insolvency?  I can't help but think that this is just the high-rollers version of survival where Lehman got voted off the island.  And the survivors got to keep the spoils.


nostromo17's picture

So if it "models" to blame then is no one accountable???

And why do these "models" somehow seem to comfort the commenters that go "yah its the models?"

If there were humans involved Lehman went because they were deep into the mortgage mess...that's who it seems the fed went about eradicating or transplanting in the case of BOAC. --Except for Goldman who was as deep as any into the mortgage mess curiously enough.


thames222's picture

Lehman was definitley set up to fall pre-emptively.  Capitalism is dead, true capitalism anyways--today's American people don't want it.