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Will Disclosure In Lehman Bankruptcy Case Lead To Lawsuit Against Federal Reserve?
Reporters at the WSJ have uncovered something very intriguing while they were combing through the billing records of Jenner and Block, whose chairman, Anton Valukas is currently moonlighting as the examiner of the Lehman Bankruptcy Case. In J&B's August fee statement, the firm discloses information that as part of its estate recoupment process, it has been contemplating suing none other than the Federal Reserve.
During its final days Lehman was a revolving door for Fed cash coming in (and promptly leaving) as the situation demanded. Whether borrowing at the Fed's discount window against garbage collateral (no doubt consisting of worthless toxic commercial real estate - yet, we will never know: the Fed has just appealed the decision to disclose who/what/why got access to its processing of taxpayer bailout funding, which likely means that unless some Second Circuit/SCOTUS judge finds it deep in his/her soul that representing the American public is more important than siding with Wall Street as always, that information will never see the light of day), using the TAF program, or otherwise, Lehman ended up gobbling an ungodly amount of cash from the Fed which was subsequently imporperly yanked by the Chairman, instead of being used to satisfy pari passu creditor claims. According to the WSJ:
The New York Fed lent Lehman $46.2 billion in cash and Treasury
securities for $50.6 billion in collateral, according to Federal
Reserve affidavits filed in bankruptcy court. As a result of Lehman's
sale to Barclays
PLC following its bankruptcy, the New York Fed was later paid back in
cash, with the Treasury securities returned. Lehman's broker-dealer
also borrowed tens of billions of dollars from the Fed in the period
from Sept. 11 through Sept. 15 last year.
This is all fine and great, however where the issue lies is whether there was an improper superposition of the Fed relative to all other creditors of the firm. If, in fact, the Fed recouped any money at a point after the bankruptcy process was initiated (and potentially even before the instant of filing), Jenner can file a preference claim against the Federal Reserve. The suit would, in theory imply that there was an action of "avoidance" by the Fed to be considered a preferred creditor without legal justification or reason.
It is obvious why the Fed would have wanted to avoid this: General Unsecured Claims and unsecured Notes issued by Lehman Brothers traded down from 90 cents on the dollar in the days prior to September 15 all the way to 10 cents on the dollar in the week following. Had the Fed's assets become commingled in the GUC pool, it would have seen a loss of nearly $40 billion of taxpayer money. However, the Fed's gain is other creditors' loss.
Which is why the revelations observed going thru J&B's billing statement are quite stunning, as they highlight that while Valukas has as yet not started any actual legal proceedings, which would claim there was a preference action by the Fed impairing other Lehman creditors, it is surely contemplating such.
Zero Hedge presents below relevant sections from the May Billing Statement filed by Jenner & Block in bankruptcy court. We hope Congressmen Ron Paul and Alan Grayson notice these potential legal overtures and promptly contact Mr. Valukas' office to determine what the process of any legal action may currently be and why it hasn't been made public yet, especially if the Fed has been found in breach of preference.
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5/21, "CS" meets with, among others, J. Epstein.
Um, what's Jeff Epstein hafta do with all of this, I thought he was a former Bear guy?
nuts... no cheap chinese jiffy markers used on these blackouts...
09/01/09 Researched 4 office supply stores for non opaque ink markers. $1,200.00
09/02/09 Chemical and phototonic lab analysis to ensure complete blackout. $1,975.00
09/03/09 Review and inspection of redacted material. $3,800.00
Solid black line to cover criminal activity? Priceless!
Something at Goldman Sachs really stinks!
On board---English Sirs and Lords!
With plenty of anti-silver money links!
Investors screaming with raw vocal chords!
Bunch of lousy central bank rat finks!
Barclays in London across the waves,
Owns biggest percent of Goldman Sachs!
And runs a silver ETF, someone raves,
Ready to hit silver prices like fireman’s ax!
Low silver prices are what Britain craves!
Paulson & Jeffrey---diseased Wall Street leeches!
FED, CFTC, Treasury & COMEX wanting to hide stats!
Everywhere---that’s how far the corruption reaches!
But comes the delivery defaults---they are cornered rats!
When the trap is sprung, the rodent screeches!
Silver users, where you gonna get metal from?
From Goldman Sachs---or from naked shorts?
Can’t use silver you don’t have---a rule of thumb!
Think about it as your wild face contorts!
Without silver, what will you fools become?
Ted & Carl question the dirty CFTC!
We know they’re stuck with telling lies!
Presenting fruit from a poisonous tree!
Covered with gnawing Beelzebub flies!
Sliver prices will scream like a banshee!
Slamming gold & silver to make the dollar look better!
That’s the biggest reason for price attacks!
Nearing the day that no derivatives can fetter,
Precious metals, rabid monkey’s on their backs!
Pin stripe suit jumps from building, leaves suicide letter!
http://www.silver-investor.com/charlessavoie/cs_aug06_the_thief.htm
have a great weekend!
Hey Floydian, thats better than a redbull turbo for breakfast. You ever visit,www.goldmansachs666.com
Where do you find this shit?
I certainly don't know the answer to that, but I suspect some really good people out there who care about the mess we are in are feeding some info to ZH. I certainly hope that this is the case because it is going to take insiders coming out to stop the insanity.
And, if you are one of those folks, thank you. And, if you are one of those folks who needs to get something off your chest, try "tips at zerohedge dot com"
I tried to explain to a former colleague in London a couple months ago how the Fed had orchestrated the Lehman failure over a six month run-up, started from Bear Stearns failure in March. I explained how everything that could be liquidated from Lehman's proprietary and custody (e.g. prime brokerage) portfolios internationally was sold off (leading the sharp collapse of equity markets in Russia, E. Europe and Asia where Lehman was strongest). The cash was streamed up to the New York parent, and then to counterparties in the US as surplus margin on OTC derivatives. When Lehman's plug was finally pulled, all the US players and US clients were whole - many in surplus - and all the losses were foreign.
This is how the Fed always does it. Pay attention. Learn. Foreign investors are only there to be reemed.
So the Fed paid themselves in full too. No surprise. They must figure they earned it.
All major insolvencies in the US are orchestrated and carefully timed. A bank can't fail without FDIC approval, as the FDIC is liquidator. An investment bank can't fail without SIPIC approval, as SIPIC is liquidator. Neither one wants excess losses, so the run up is used to import any loose assets and export losses to foreigners.
I said as much before the Lehman failure here:
It would be a welcome development if more people understood how the process of national finance in the US and its international ramifications actually worked. Thanks for this bit of illuminating discourse. I am sure that everyone from the holders of Lehman mini bonds to those that used Lehman in The City in several institutional ways wished they understood their situation better as well. The fact remains the games are still being played, as you discuss. Perhaps some of the coins issued from the AIG fiasco were designed to smooth over some feathers while primarily serving other purposes.
All The Best
BTW, if I recall isn't the discrepancy between what Barclay's paid and what Lehman now say the assets were worth almost the same as the discrepancy in fed loans to assets identified in this piece?
"So the Fed paid themselves in full too. No surprise. They must figure they earned it."
It's even worse than that. It's the Fed's money. They want it back. Simple as that. Laws and due process are for the little people.
Make no mistake about it. If the "Audit the Fed" gains any real traction, the Fed will crash the market. They can, and will, do so by simply removing some liquidity and them directing their stooges to do so as well.
No conspiracy theory, no hysteria, just a simple calculation of what they can do and will do if their back's are against the wall. After all, we ARE talking about a criminal enterprise here, right? No one would question if the Mafia or North Korea would do this if given the means, the opportunity and the desire.
LB...thank you for your insights. Please keep commenting here, it is appreciated.
i think you have this slightly off when you say "all the losses were foreign"
for balance sheet reasons, they have their long stock off balance sheet - in London. Against this, they have short futures and derivatives on the US balance sheet. When the shit hit the fan, the cord was cut between the two - and European regulators liquidated the long stock, as you said. markets got slammed. then, remember on Thursday when the market ripped? I was told by someone close to the situation that this was their short futures and options positions being covered in the US markets.
side question - since i know a lot of people here love bankruptcy law: what is so bizarre about the Fed extending LEH emergency credit with the demand that they be paid back first? super senior credit, in other words? Can they not do that? the alternative is that the thing (LEH) collapses in a giant shit show and everyone gets even less in the end.
With one exception that's not material to this discussion, every obligation incurred pre-bankruptcy becomes simply an unsecured or a secured obligation once the bankruptcy is filed. With respect to pre-bankrutpcy obligations, the law doesn't really pay any attention to anything except the security. It's only after the bankruptcy is filed that you could enter into something that's deemed a superpriority, and that needs the court's blessing and some degree of an evidentiary showing that it's necessary to obtain the credit.
yes, awesome post like all the rest, thank you LB!
Just wondering.... can you actualy sue the FED ? Is it a legal entity ?
Yes you can sue the Fed. BUT it depends on what you're suing for or about because, as a private company that was created under the Federal Reserve Act of 1913, it's a so-called quasi government agency. They can, and have numerous times in the past, simply asked the court(s) for dismissal because they are (supposedly) acting in the public good.
How can anybody expect to fix a fetid system based on racketeering?
More good reasons to de-couple.
Thanks for your insightful input LB. Any chance of you blogging again?
More generally, it appears more and more obvious that the so-called Fed is a GS subsidiary.
The fed is a private company, and this is a smoking gun. If this isn't taken mainstream, and if this alone isn't enough reason to raid all offices and cease the control of the private owners, then our country really has no hope...naturally an audit would uncover this and more, but this is enough.
Grayson's recent display about healthcare made him look loonie which then leaves the last hope, Ron Paul, and this evidence will finally show the verity of Dr. Paul's honest desire to expose this criminal enterprise.
If anyone can read this article without being sick at their soul, either they don't have a soul, or they just misread.
The general public will not care about this. In fact, the general public would be pleased if they understood this. Why should tax dollars that were loaned to Lehman to try to keep them solvent and protect the financial system and not for investmentpurposes be commingled with investor's money and lost (I know it's that pesky law thing). If anything, the outrage over a Lehman loss would be what would have gotten the Fed in trouble.
It is amazing how alot of things get weighed in the public opinion court...people are talking about the BAC lack of disclosure to the shareholders as if somehow that is 'OK because in the end, the market is up and everyone is living happily ever after'--there is no legality, and no right for a criminal act to be written off by what the public does or does not understand...the Federal Reserve has no right to do anything within that 90 day window that was unusual, and this is a HUGE SMOKING GUN TO ILLUSTRATE A DAY IN THE LIFE AT THE FED AND THEIR CRIMINAL OPERATION...
wait, does the Fed care about "losses"?
Exactly. Fed notes are liabilities to the Fed. Nothing costs them "money". LB's comments here make a little more sense, the Fed wanted to keep Lehman assets in the US.
The biggest questions I have are:
(1) who was running on Lehman and why?
(2) When did Bernanke and Paulson know about it?
(3) When did Bernanke and Paulson know about AIG?
(4) What did they know about ML and Wachovia?
(5) Why did State Street get so much money? (I know TD wrote about this months ago, but I feel like it's gone dark for awhile)
If you make a claim that the Fed or Treasury "orchestrated" anything, then what people know when they know it is key. I'm still in the "these guys are just a bunch of morons" camp.
A down and dirty non-billable Google search indicates that the Federal Reserve does NOT have sovereign immunity. Sue the bastards!
http://ftp.resource.org/courts.gov/c/F2/680/680.F2d.1239.80-5905.html
One correction: J&B cannot, as the Examiner, initiate any legal proceedings against the Fed or anyone else. They will make recommendations to the bankruptcy court. The post-bankrupt Lehman entity, which is already suing Barclay's and JP Morgan Chase, could bring suit, as could the creditors through the creditor's committee.
The good thing is that the results of their examination will ultimately become a public record by law.
For what it's worth, it wouldn't be a preference action. Those relate only to pre-petition transfers. It would be similar, though, seeking avoidance of an unauthorized post-petition transfer. Same mechanism.
At the 341 meeting (which was a farce in its own right, since, contrary to the Bankruptcy Rules, no one was under oath and the meeting was not held within 60 days of the filing), Bryan Marsal commented that they had segregated vast amounts of data at A&M's Dallas facility, for purposes of determining the propriety of actions of the Fed, JPM and DTCC in the days immediately surrounding the filing.
Presumably, it would be the debtors or the Creditors Committee that would actually initiate the action. I haven't looked closely at the order defining the scope of the Examiner's role, but examiners usually don't have the power to sue.
obviously there are two sides to finding out whether the fed loaned uncollateralized taxpayer coupons to lehman. one is suing the fed. the other way is to ask fuld (or the cfo) whether the loans were collateralized or not.
is there a third way?
A complimentary piece from Karl Denninger
http://market-ticker.org/archives/1484-So-THATS-Where-The-Money-Went!.html
"Remember folks, we are repeatedly told by The Fed that all loans they make are backed by sufficient collateral to prevent loss and are "haircut" to provide them with a margin against potential loss.
If this is in fact true then there was no reason for The NY Fed or Federal Reserve to receive any sort of "preference" payment (unlawful though such a payment would be), as the proper and expected thing to do is simply to seize the collateral they have possession of and sell it!"