Chapter 605 The Abandoned Lehman Brothers
It should be pointed out that Lehman Brothers applied for bankruptcy protection under Act 11, which is different from directly applying for bankruptcy.
Directly filing for bankruptcy means that the company will immediately die without any room for maneuver. The only way left is to be liquidated and closed...
And filing for bankruptcy protection means that the company can In the coming months, the business will be restructured, a dead horse will be treated as a living horse, and the dead horse will be used as a living horse doctor to strive for profitability again - the bankrupt company can still operate as usual, the company's management will continue to be responsible for the company's day-to-day business, and its stocks and bonds will continue to trade in the market.
So after Lehman Brothers announced it was filing for bankruptcy protection, they began to sell some of their assets to obtain funds to fill the "hole."
On July 16, Barclays, the third largest bank in the UK, invested US$1.75 billion to acquire Lehman Brothers' New York headquarters, two data centers and some trading assets.
Nomura Holdings Inc. (NMR), Japan’s largest securities company, signed an agreement with Lehman Brothers on July 21 to acquire Lehman’s Asia-Pacific business (excluding South Korea).
The next day, Standard Chartered Bank announced that it would acquire Lehman Brothers' business in Europe and the Middle East.
Then United Energy Group said on July 28 that its subsidiary British Gas Pipeline Network had agreed to acquire subsidiary Eagle Energy Partners I, L.P. from Lehman Brothers.
This move aims to optimize the gas supply business of United Energy Group.
On the same day, private capital operating companies Bain Capital LLC and Hellman & Friedman LLC reached an agreement with Lehman Brothers to invest US$2.15 billion to acquire most of Lehman Brothers' investment management businesses, including Neuberger Berman.
On August 1, Nomura Holdings signed an agreement with Lehman for the second time, agreeing to acquire Lehman Brothers’ Indian back-office business.
The once glorious Lehman Brothers had been dismembered to pieces in less than three weeks and was beyond recognition.
At this point, Lehman Brothers finally hit rock bottom and would never see the light of day again.
However, not long after Lehman Brothers declared bankruptcy protection, on July 15, the Federal Reserve announced that it would use the special authorization obtained after the 1929 stock market crash to provide financial services to American International Group (AIG), which was on the verge of bankruptcy. provided $85 billion in emergency loans.
In exchange, the U.S. government received 79.9% of the shares of the largest insurance company in the United States.
American's decision to fund the rescue of American International Group did not exceed Barron's expectations.
As early as when Lehman Brothers declared bankruptcy protection, he had already sent people to communicate with Barclays Bank and other institutions to "take what they need" from the assets owned by Lehman Brothers.
At that time, he said to Ivanta, who came to New York and lived in the penthouse of the Woolworth Building in Manhattan:
"Short selling Lehman Brothers will be The most successful one was because the U.S. rescued big institutions such as Fannie and Freddie and Bear Stearns before, which made Lehman Brothers CEO Fuld too emboldened. He believed that when the situation got out of hand, Lehman Brothers would also get help. Government bailout..."
"Indeed, I heard that Lehman Brothers did not act urgently in the negotiations before, and was even a little perfunctory..."
Ivanta asked incredulously:
"Although this kind of This attitude will irritate the government, but will they really change their attitude and let the current crisis go?"
"That's not the case. In fact, Paulson and the others need to find a company with enough weight. , come to 'kill the chicken to scare the monkey', and give those Wall Street bankers a slap in the face, so that they understand that the government will not always wipe their butts. Unfortunately, Lehman Brothers is the one who was finally selected..."
Taking a deep breath, Ivanta said thoughtfully:
"Similarly, can this also alleviate the public's criticism of the object party for being too active in bailing out bankers?"
"Indeed, after all, this year's general election may not be so easy for the object party."
......
As Barron and Ivanta talked about, the collapse of Lehman Brothers and the actions of the United States caused various controversies.
Some people pointed out why US Treasury Secretary Paulson or Federal Reserve Chairman Bernanke did not directly rescue Lehman Brothers?
In addition, there are also a large number of people who have criticized the official takeover of Bear Stearns, Fannie and Freddie, and American International Group.
Bear Stearns had already experienced a crisis before Lehman. Bear Stearns held a large number of mortgage-backed securities, and investors cashed in a large amount of cash, causing the cash reserves to dry up and the company to be on the verge of bankruptcy.
At that time, New York Fed Chairman Geithner discovered this systemic risk and immediately reported it to the Federal Reserve.
The Federal Reserve and the Treasury jointly intervened, and the Federal Reserve provided emergency support of US$30 billion to support JPMorgan Chase's acquisition of Bear Stearns.
However, it was this action by the US government that sent a rescue signal to the market. Next, Treasury Secretary Paulson directly took over Freddie Mac and Fannie Mae, two companies that had already been caught in the whirlpool.
The specific plan is for the Ministry of Finance to inject capital into Freddie Mac and Fannie Mae and acquire related preferred shares; relevant government regulatory agencies will take over the daily business of the institutions and appoint new leaders at the same time.
Freddie Mac and Fannie Mae are the two largest residential mortgage companies in the United States. They were once agencies under the federal government. Although they were later privatized, they have long received government subsidies.
So, in the minds of the American people, Fannie and Freddie have received an implicit guarantee from the federal government.
But for Paulson, facing the problem of "Front and Freddie", there is no other choice but to rescue.
Paulson said:
"Fannie Mae's problems have exposed the financial market to systemic risks, and taking over these two institutions is the current 'best means' to protect the market and taxpayers."
However, Paulson’s takeover of Fannie and Freddie triggered moral hazard in the market.
At the same time, a large number of critics believe that taxpayers' money should not be used to bail out these greedy bosses.
The Wall Street Journal said at the time:
“If federal agencies bail out Lehman Brothers after bailing out Bear Stearns and Fannie Mae, it will be tantamount to showing that the government will provide bailout for all institutions in crisis. This policy of the federal government will encourage more recklessness. Risk-taking behavior with consequences.”
So, when it was Lehman Brothers’ turn next, it is understandable that Paulson’s attitude reversed.
At the beginning, almost everyone, including Lehman CEO Fuld, believed that Paulson would not ignore the situation.
However, this time, Paulson’s attitude was extremely firm, insisting from beginning to end that the Treasury Department would not fund the bailout of Lehman Brothers.
Why did Paulson save Bear Stearns, Freddie Mac, and Fannie Mae, but only let Lehman die?
In fact, Paulson is not sitting idly by.
However, his strategy is no longer direct rescue, but to force Wall Street to spend money to tide over the difficulties.
However, activating market forces to resolve systemic risks in the market is certainly an ideal approach, but the differences are far beyond Paulson's expectations.
Both Paulson and Bernanke realized that the previous bailouts of Bear Stearns and Fannie and Freddie had caused moral hazard in the market and also encountered overwhelming criticism.
This time they insisted on not letting moral hazard spread, and at the same time tried to bankrupt a financial institution to serve as a warning to others.
After confirming that the bankruptcy of Lehman Brothers was inevitable, Paulson and Bernanke made detailed reports to George W. Bush.
Bush's attitude was that he did not want to see Lehman Brothers go bankrupt, but he respected Paulson's approach and did not want the Treasury Department to directly take over Lehman Brothers.
Because this is an election year, if George W. Bush overemphasizes government assistance, it will definitely be detrimental to the Elephant Party’s continued victory in the election.
Not long before Lehman filed for bankruptcy, the Elephant Party clearly declared in its campaign platform:
“We do not support the government’s bailout of private institutions.”
Previously, the government's intervention in Bear Stearns, especially the Treasury Department's takeover of Fannie and Freddie, caused Paulson and George W. Bush to be criticized.
So, from the perspective of external factors, Lehman Brothers was in bad luck, and it happened to be a victim of the game between politics and the market at this juncture.
But what cannot be ignored is that, with this consequence, Lehman Brothers’ own problems are even bigger.
(End of this chapter)