Tag: Lehman Brothers

Bill Black’s eye-popping opening statement at House Fin Serv hearing on Lehman Bros. failure

Courtesy of Firedoglake.com…


Failed Wall Street Bank Has Yellowcake Stockpile


Not too long ago, the United States used to invade nationalize nations banks for a lot less.

Bloomberg News reports that thefailed Wall Street bank, Lehman Brothers, has a stockpile of as much as 500,000 pounds of uranium “yellowcake” that could theoretically is just about enough material needed to make one nuclear bomb.

The difference between this uranium-oxide and Iraq’s “yellowcake” is, of course, that Lehman’s stockpile is real. It is one of the bankrupt bank’s many assets that liquidators have been trying to offload since September.

A supply of 500,000 pounds of yellowcake is just “slightly” less than the amount needed to make one bomb, or fuel one nuclear power reactor for a year, if the latest enrichment technologies are used, said Gennady Pshakin, an Obninsk, Russia-based nonproliferation expert.

The uranium “might fetch $20 million at today’s prices of about $40.50 per pound”. Once worth $55 a pound, the commodity price of uranium has dropped for five straight months. “More than 43 million pounds of uranium-oxide concentrate, or yellowcake equivalent sold on the spot market last year, more than doubling the 2007 trading volume”.

Lehman’s “yellowcake” is being stored, in part, in oil-rich Canada. Looking back, which was a bigger threat to the United States in 2003? A neutered Iraq or a “yellowcake” stockpiling Wall Street bank?


Why I’m a little worried about the drop in oil

Can’t sleep, been thinking about the price of oil, worrying about it to be honest. Now you may be thinking “Venom, what are you crazy? A putz? A drop in the price of oil is a good thing!”  And I would reply, yes, under normal circumstances it is.  But these days, things ain’t so normal.  Actually, right now, oil is up since yesterday, but it’s been in a slide for the past week or so.

Henry Paulson: Hero of the Revolution

When the history of the early 21st century is written, we can only hope that Henry Paulson, America’s Secretary of the Treasury, will receive the praise he deserves for his role in hastening the collapse of capitalism.  While Rosa Luxemburg will always be remembered for her brilliance and courage, and Che Guevara for his daring and love for the people, Henry “Hank” Paulson will never be forgotten because of his incredible cunning in service of the revolution.

Hero of the Revolution

Paulson’s cover for his incredible mission was established by fate.  He was born into a bourgeoisie family in the famous luxury resort of Palm Beach.  They later moved with little Hank to the wealthy Chicago suburb of Barrington Hills, Illnois.  From there, he proceeded to check all the necessary boxes and jump through all the required hoops to join the American ruling class: an undergraduate degree from Dartmouth and a M.B.A. from Harvard Business School.

Too Failed To Bail

I don’t have time to even begin giving this a real analysis right now, but you need to be aware of what is happening today:

In one the most extraordinary days in Wall Street’s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.

The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.

Coming just a week after the government took control of mortgage lenders Fannie Mae and Freddie Mac, the magnitude of the industry’s reshaping is staggering: two of the most powerful firms on Wall Street, Merrill Lynch and Lehman, will disappear.

This is simply staggering.  In less than one year, Bear Stearns, Merrill Lynch, and Lehman Brothers will have simply disappeared.  To put that in some perspective, all three of these banks were founded before and survived the Great Depression.  The GSE nationalization is the largest nationalization since at least the Depression, and possibly in all of American history.  Another of Wall Street’s most venerable partnerships, Arthur Andersen, one of the five largest accounting firms in America also disappeared during the last eight years.

Someone ought to be making an attack ad right now – if this is how Republicans have governed with regards to the fortunes of Americas biggest financial firms, how can anyone in any small town or city in America believe that they will be able to make a living if they continue to govern in the future?

Why the Stock Market Going Up Means Nothing

So, after yet another rate cut by the Federal Reserve, along with better than expected earnings from Lehman Brothers today (who many feared would follow the path of Bear Stearns), the Dow rocketed up over 400 points.  Economy solved, right?

Nope.  Doesn’t mean anything.  Don’t let anyone fool you into thinking it does.

First of all, the market in equities is now a mere fraction of the size of the market in derivatives.  The assets which are toxic right now are derivatives; Collectivized Debt Obligations and Credit Default Swaps primarily.  The big problem is that everyone knows these derivatives are worth less than they thought, but no one is sure just how much less.  So, no one wants to buy them, out of the fear that the bottom is a long way off.  Compared to these assets, stocks are incredibly stable – the market should do alright, even as these assets get worse.

But second, stock prices increasing doesn’t by default mean what you might think.  For a neat example, Bear Stearns makes for a fascinating example.

The Fed-brokered JP Morgan bailout of Bear is at a share price of $2 a share, as most everyone aware of this story knows.  So why on earth did shares of Bear Stearns close at about seven dollars the day after the sale price was announced?

The big winners from the Bear Stearns acquisition are Bear’s bondholders. They came close to an event of default this weekend; if all goes according to plan, they’ll soon own nice safe debt from JP Morgan Chase. The only thing which can derail their glide path (if Krugman can mix his metaphors, so can I) would be if the deal doesn’t go through at $2 as planned.

The main thing that needs to happen for the deal to go through is that shareholders vote in favor. And the only way that bondholders can ensure yes votes for the deal is to own those shares and vote them themselves. Says Neubert: “They will eat the difference between where they buy the equity and $2.00 in order to protect much higher numbers in debt.”

There’s another reason for bondholders to buy stock above $2.

…if the deal falls apart, the value of the company might go down, all the way to zero eventually. But on the way there, volatility will be huge – and if volatility is high then the value of the equity will go up. In this sense, the equity is a hedge against the deal falling apart. If JP Morgan doesn’t buy Bear, bondholders’ bonds will fall in value – but their stock will rise, helping to offset the loss.

So, shares of Bear are going up because Bear’s bond holders are hoping those shares go down, and are planning to vote for the shares to be sold for less than they paid for them.  But the shares also make a nice hedge for them, since if the sale fails, their bonds will become worthless but their shares will go up.  But nothing about this at all speaks to any macro positive news about the state of the economy.