Did JPM Cash Call Bring Down Lehman ?
This continues to become ever more interesting . . .
"Lehman Brothers Holdings Inc.'s main lender and clearing agent, JPMorgan Chase & Co., caused the liquidity crisis that led to Lehman's collapse, creditors said.
JPMorgan had more than $17 billion of Lehman's cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank ``froze'' Lehman's account, the creditors claimed.
JPMorgan, the biggest U.S. bank by deposits, financed Lehman's brokerage operations with daily advances, while money market funds and other short-term lenders provided overnight loans, according to bankruptcy court documents. When JPMorgan shut Lehman off from funds, Lehman ``suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,'' according to the filing.
The creditors asked the judge in charge of the case to let them interview a witness and request relevant documents from JPMorgan and to pursue possible legal claims. U.S. Bankruptcy Judge James M. Peck is scheduled to hold a hearing Oct. 16 on that request, the creditors said."
The Times of London added:
"Lehman’s collapse is fast emerging as the single biggest event of the credit crunch, sparking a number of unexpected effects. The unravelling of the firm’s prime brokerage operations has already forced a number of hedge funds out of business."
Stay tuned -- this charge may have legs . . .
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UPDATE: October 5, 2008 10:38am
Ron Kirby notes: "I wrote about a very strange occurrence – the reporting of J.P. Morgan “transferring” 138 billion dollars to Lehman, after Lehman had already filed for Chapter 11 bankruptcy early last Monday morning...It is highly likely [or a certainty on my planet] that J.P. Morgan was INSOLVENT and was “BAILED OUT” last Monday, September 15, to the tune of 138 billion dollars. This would explain why the Fed and Treasury dictated that Lehman fail – to disguise or otherwise obfuscate the recapitalization of or illicit transfer of 138 billion to A MUCH SICKER, TEETERING ENTITY, J.P. Morgan Chase."
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Sources:
Lehman Cash Crunch Caused by Lender JPMorgan, Creditors Say
Linda Sandler and Jeff St.Onge
Bloomberg, Oct. 4 2008
http://www.bloomberg.com/apps/news?pid=20601109&sid=aOBEg1wAitck&
JP Morgan ‘brought down’ Lehman Brothers
Iain Dey and Danny Fortson
The Sunday Times, October 5, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4882281.ece
Sunday, October 05, 2008 | 09:00 AM | Permalink
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JP Morgan, the company, sits on how many Trillions in WMD-like derivatives? Holy too big to fail!
Posted by: Steve Barry | Oct 5, 2008 9:20:13 AM
JPM, is one of the Central Bag-Men in this version3.2 of Economy Ramp n'Crash.
it's too telling that Wii has replaced We, in the People's imagination..
Posted by: Mark E Hoffer | Oct 5, 2008 9:28:23 AM
This is nonsense. Do you think the Fed did not know about this when they were talking to all big CEOs of Wall Street befor the collapse of Lehman. I don't trust Bloomberg News. Trust only WSJ. This story does not have any legs. It has only ass.
~~~
BR: Dude, you have this exactly backwards. Bloomberg News exists only to sell the bloomberg temrinals. They have zero political pretense.
Can you say that about the WSJ or the NYT?
Get a clue.
Posted by: bret | Oct 5, 2008 9:28:36 AM
The boys are just consolidating their power, that's all. Nothing to see here. Move along, please.
Posted by: lost | Oct 5, 2008 9:42:22 AM
When reading Bloomberg article there is nothing interpretative but quantitative information on LEH liquidity position by maturities, that is very short term funding against collateral by JP Morgan when the other lenders were funding longer maturities.
You do not reach JPM funding position where you can pull the plug by chance.
Central banks should have applied this policy a long time ago when they have been providing funding against well known poor quality assets .
Yes there is a collusion, it remains to be seen who are the parties.
Posted by: Philippe | Oct 5, 2008 9:51:23 AM
"Trust only WSJ."
So you only believe Murdock, eh? You have got to be kidding.
Posted by: me | Oct 5, 2008 10:12:58 AM
Barry,
Do you think Morgan Stanley will be the next penny stock? Especially on Thursday when the short ban is lifted.
Posted by: Mike | Oct 5, 2008 10:23:11 AM
re: Update..note my reference to version3.2
This isn't the First time that JPM has been 'bailed', that 'bank' has been Broken for many moon.
version3.6 may be more accurate, than the, merely, poetic '3.2'
Posted by: Mark E Hoffer | Oct 5, 2008 10:54:27 AM
A couple of thoughts...
bsneath,
I have been waiting to hear that Jefferson County, Alabama has filed bankruptcy. I expected them to be the first. I am surprised they have managed to hold on this long. They are probably getting short-term funding from Investment Bankers since they have a big black eye on getting Jefferson County into their financial mess in the 1st place. A recurring theme I might add.
In regard to the larger financial mess, we need (1) a wide-scale breakup/divestiture of financial institutions/assets deemed too large to fail, (2) much more serious and robust regulation of financial institutions, (3) full disclosure of operations for all regulated parts of the business.
IMO, we are stupid as citizens if we do not undo some of the consolidations and mergers that have taken place over the last 25 years with the blessing of Wall Street & the US Government. We now have fewer financial institutions which aren't stronger they are weaker and cost us dearly for less innovation and higher fees. We got no benefit from these mergers. Bank fees have gone up substantially over the years. This is a proven fact. This is a defacto failed experiment that now must be unwound.
More (smaller) financial institutions will give us more innovation & lower cost products. Don't give me the "we can't compete on a global scale without larger institutions". Do you think we are more competitive now? We are now at the mercy of the rest of the world for money we don't have in order to finance our fucking national debt. That's not being competive, that's what I call unbridled greed! Reel these bastards in. Game over!!
Posted by: BG | Oct 5, 2008 10:55:20 AM
I am inclined to agree with bsneath on this issue today and I think we will see some coordinated intervention very soon. We are getting close to releasing an irreversible event that would result in a massive increase in unemployment. I am not anxious to see this despite a certain intellectual curiosity about what a real crash might look like.
Earlier on in this crisis, BR pointed out and many of us agreed that Bernanke had cut rates too far. If he had stopped at 3% he would have had more ammunition now when he really needs it. No options here except to cut rates and I agree 100bps would be much more likely to alter psychology here than 50bps. It's time for the big bazooka.
Posted by: leftback | Oct 5, 2008 10:56:28 AM
This article, not a gloomy gus or a pollyanna, gives a little thought today about how the banking crisis here is the far bigger player than the decreasing equity markets...I thought the facts presented were well thought out.
http://business.timesonline.co.uk/tol/business/economics/article4880829.ece
THE DEPRESSION OF 2008.
The article is not as somber as its title...(quite as somber, anyway...)
Posted by: Bruce in Tennessee | Oct 5, 2008 10:57:48 AM
I can't help but appreciate the irony; I'm sitting on hold with the furniture delivery company awaiting a new living room set this morning, and "Another One Bites the Dust" is their current hold-music.
Posted by: CPJ | Oct 5, 2008 10:59:52 AM
The consequences of hubris are not altered by Central Bank monetary interventions, nor is the false gradiosity of nationalism ratified by increased debt. Collapse of Empire may be postponed by paper but the final outcome remains unaltered.
Temporary artificial fixes must be abandoned, and we must look deeper into the causes of our failure. The answer is that we have all allowed this to happen.
American exceptionalism is now and has always been a myth. The only thing exceptional about America is the size of its debt. This is the reality we must face while discarding the false religion that we somehow have a God-given right to alter the world into our image.
There is no instant gratification cure for this crisis; there are no magic beans; Puff has sadly slipped into his cave.
We have tilted - Game Over.
Posted by: Winston Munn | Oct 5, 2008 11:03:35 AM
If journalism has any capability left, this appears to be the story of the decade. There's enough recklessness here to suggest any of a number of illicit actions to warrant a solution. Might be years though before the tale is told.
Posted by: barkingtribe | Oct 5, 2008 11:08:04 AM
If journalism has any capability left, this appears to be the story of the decade. There's enough recklessness here to suggest any of a number of illicit actions to warrant a solution. Might be years though before the tale is told.
Posted by: barkingtribe | Oct 5, 2008 11:08:51 AM
There are any number of banks that must be teetering on the brink of failure. The one that is scaring me the most at the moment is C because of the size and complexity of its operations.
Reading some of this weekend's posts it is clear that we are at a very interesting juncture with respect to the deflation v reflation debate, with the movement of the $ reflecting who is in charge on any given day.
So it's Mish (deflation crushes all interventions) v Peter Schiff (currency devaluation drives reflation), and both have a lot of great arguments. What sayest thou, Barry?
Posted by: lefback | Oct 5, 2008 11:12:30 AM
BG:
Agree with your post. One of the cornerstones of functioning capitalism is competition, and we have just seen a massive amount of potential competition erased this year.
Thank you Hank.
Posted by: Bruce in Tennessee | Oct 5, 2008 11:13:35 AM
I wonder how much of this is really related to Bears Stearns assets? Did the Fed tell JPM "you take over this BSC trash, we'll be there for you if any of it gets too hairy".
Posted by: ABC | Oct 5, 2008 11:18:52 AM
Simply, People should heed Winston's sagacity. And, take appropriate measures, thereby.
It could help, going fwd:, to reconstitute the former field of Inquiry, once, known as: Political Economy. Mere Finance, alone, is a fable/illusion; True Subtraction by Distraction, it, by itself, never adds up.
Though, seeing how this is TBP, it isn't about 'money', it's about Power, the more, the better, for even Fewer, better still.
Forget your fortunes, it is, our Fortunes, that are at stake.
And, to continue to repeat myself, Patrick Henry taught us all the Political Triangulation we need to know.
Sadly, we better get down wth it, b/c that's what's up..
Posted by: Mark E Hoffer | Oct 5, 2008 11:19:42 AM
Banks are not and may not pass any interest rate decrease to their clients as their marginal cost of funding is more driven by Euribor (5.5 % p.a) and Libor rates showing an abated upwards slope.
Banks earnings are getting slimmer by the day with an inverted yield curve that is de facto readable through above euribor Libor rates.
The banks solvency and credit issues may hardly be improved through central banks interest rates policy,and confidence in the sector will only be restored with an improvement of the quality of their assets.
It is time to remember that Banks are only worth for their deposits base and loans to deposits is a more precise measure of their sustainability.
Posted by: Philippe | Oct 5, 2008 11:23:10 AM
I believe it is important at this time in history to keep a close eye on something that Ron Kirby pointed out in his piece:
“President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”
There is grave danger in these trying days that National Security will be defined as Party Security or Elite Security.
As Mark Hoffer so rightly pointed out - this is all about power.
Posted by: Winston Munn | Oct 5, 2008 11:30:17 AM
Bruce in TN and Steve Barry:
I agree completely with your thesis that the credit bubble has burst and debt has to contract. I don't necessarily agree that this will (or should) happen all at once in a catastrophic event, without intervention. However high QID might go, I think we would not want to see the social consequences that would be attached to it.
That's the way I am trading this for the time being (in expectation of intervention), although I respect your argument and have no underlying disagreement with your philosophy that debt ratios must revert to the mean.
Bruce, are you taking this week's bet? I know I am really out on a limb this week, practically the only contrarian.
Posted by: leftback | Oct 5, 2008 11:32:51 AM
I think Warren Buffet's "investments" along with the unraveling of the Cit/Wachovia marriage show that Citi is outside of Paulson's Circle of Trust. Pandit is not a Goldman guy, and I think Citi is on Goldman's Menu. They can use the TARP as an M and A tool by dumping bad C assets into it. Wells, with their buy in to the circle of trust, will also use the TARP to offload Wachovia junk. This is merely a stay of execution by a NY judge.
p.s. The short ban end on the eve of the Day of Atonement!
Posted by: njdoc | Oct 5, 2008 11:39:20 AM
Leftback,
I will wager again this week that we end Friday lower than we end Monday. (S&P 500)..
The markets are ready for a dead cat bounce, but I expect initial claims on the 9th to bring us back down...
YOU ARE ON!
Posted by: Bruce in Tennessee | Oct 5, 2008 11:48:01 AM
It's becoming more and more obvious just how rampant criminal activity has been on Wall Street. I'm sure the real culprits will never be charged becuase that would probably bring it all down.
Posted by: Jeff M. | Oct 5, 2008 11:56:26 AM
