Lehman Brothers Collapse

[manshimajin]

Sorry to bang on about it, but if Barclays acquired the company that employed these people rather than the business within the company, they are stuck with the liability. Almost without exception, big business organises itself into a number of subsidiary companies to shelter risk from other parts of the business, each of which is a separate legal entity.... In a situation like this, buying the company is the quickest way to complete the transaction as all that is involved in the actual transaction is a transfer of shares, but it can be risky as liabilities may crawl out of the woodwork after you have completed the transaction because you have not had the time to complete your extensive due diligence....Putting it simply, if you are selling you would want to sell the company as everything goes with it, but if you are buying you would rather negotiate to buy the underlying business assets and leave unwanted liabilities....I suppose my point is that Barclays may have little choice but to make these payments.

Glad, like you I don't want to bang on about this but I find it incredible that banks are asking for taxpayer support at the same time that they are paying billions in bonuses to people in failed companies. Like you I don't know the ownership structures in Lehmans, or whether the staff are employed for example through a separate 'services' company or other legal structures that protect labiities on Group wind-up. I got the impression from the media that it was the whole Lehmans Group that had been declared bankrupt.

 

As a contrasting example - I am in Cork at the moment and a local factory has also gone bankrupt. A UK company has offered to takeover the business. It has offered employees their jobs back subject to them signing a new contract with a massive reduction in salaries.

 

If I was a Barclays shareholder I would be very nervous about this type of payment without due diligence. I would also want to see the legal advice and some information on who would be getting bonuses and what performance benchmarks they had achieved. But then I'm a Grumpy Old Man who does not like the ethics of the finance sector.

[When Skies Are Grey]

Fortis Bank next to be "nationalised"

 

I wonder if that will have any impact on the local Fortis offices.....

[ai_Droid]

Fortis Bank next to be "nationalised"

I wonder if that will have any impact on the local Fortis offices.....

 

As I read it, only the Dutch parts of the bank are to be nationalised. The offshore part is being sold.

 

Not sure where the various local offices fit in.

[When Skies Are Grey]

Fortis Bank next to be "nationalised"

I wonder if that will have any impact on the local Fortis offices.....

 

As I read it, only the Dutch parts of the bank are to be nationalised. The offshore part is being sold.

 

Not sure where the various local offices fit in.

 

As I understand it the NL Govt have taken up the Banking side of things and the "non-core" business is being hived off.....

 

Indicative of the state of things though when all run for cover...

 

Thank God we still have our other industries of mining, textiles, steel, farming and shipbuilding to fall back on....oh wait a sec.....

[ai_Droid]

Thank God we still have our other industries of mining, textiles, steel, farming and shipbuilding to fall back on....oh wait a sec.....

 

Consumers aren't without blame here you know?

[When Skies Are Grey]

Totally agree with you....we all want cheaper goods and then complain when all the jobs making those goods are farmed out to the Far East and sub-continent. Financial myopia at its worst.....

[The Old Git]

It's a worrying time - I'm genuinely concerned that we are seeing a round of beggar-my-neighbour actions by national governments which simply exaserbate the situation.

 

The world's entire credit system is genuinely at risk - Iceland has asked its pension schemes to repatriate overseas funds, Ireland, Germany et al by unilaterally acting are creating huge disruption.

 

It makes the European Union, with its fondness for common policies, look at bit pathetic. Nice to see that naked self interest soon kicks in with a "bugger the rest of you" attitude when things get a bit tough.

[pongo]

It's a worrying time - I'm genuinely concerned that we are seeing a round of beggar-my-neighbour actions by national governments ... The so-called Summit this weekend has been shown to be a farce with Brown, Merkel and Sarcozy saying fine platitudes about concerted action, but then totally ignoring them and unilaterally making policy as they go along.

 

What The Germans Did

 

My official sources tell me that the German government is not legislating to formally increase protection for savers.

What Angela Merkel did, they say, was give a "political" commitment that no German savers would lose a penny - which is more-or-less identical to the commitment given by our Chancellor of the Exchequer, Alistair Darling

But the horse has already bolted - in that this morning the Danes have given an unlimited guarantee to their savers and the Swedes have massively increased the level of protection they offer. Whether the German or British governments like it, there does appear to be a clear trend towards almost total protection for European retail depositors.

[Mutley]

Fortis Bank next to be "nationalised"

I wonder if that will have any impact on the local Fortis offices.....

 

As I read it, only the Dutch parts of the bank are to be nationalised. The offshore part is being sold.

 

Not sure where the various local offices fit in.

 

Not quite right. The local Fortis offices here (Intertrust & PFS) are part of the "Dutch Fortis" and will remain part of that which is nationalised. The Belgian part of Fortis has it's own deal with the Belgian Govt and Paribas.

[Chinahand]

Thought this was an interesting free-market reply to those saying regulation is the way to solve the crisis - it admits that capitalism is based on greed - but warns that government regulation will be distorted and exploited by corporations to their benefit - they should be going bust but here comes the nice government to allow them to continue to keep making money out of losses.

 

An Open Letter to my Friends on the Left

 

... Many of you have rightly criticized the ethanol mandate, which made it profitable for corn growers to switch from growing corn for food to corn for fuel, leading to higher food prices worldwide. What's interesting is that you rightly blamed the policy and did not blame greed and the profit motive! The current financial mess is precisely analogous.

 

No free market economist thinks "greed is always good." What we think is good are institutions that play to the self-interest of private actors by rewarding them for serving the public, not just themselves. We believe that's what genuinely free markets do. Market exchanges are mutually beneficial.

 

When the law messes up by either poorly defining the rules of the game or trying to override them through regulation, self-interested behavior is no longer economically mutually beneficial. The private sector then profits by serving narrow political ends rather than serving the public. In such cases, greed leads to bad consequences. But it's bad not because it's greed/self-interest rather because the institutional context within which it operates channels self-interest in socially unproductive ways.

 

... This was a wonderful game they were playing and the financial markets were happy to have Fannie and Freddie as voracious buyers of their risky loans, knowing that US taxpayer dollars were always there if needed. The history of business regulation in the US is the history of firms using regulation for their own purposes, regardless of the public interest patina over the top of them. This is precisely what happened in the housing market. And it's also why calls for more regulation and more intervention are so misguided: they have failed before and will fail again because those with the profits on the line are the ones who have the resources and access to power to ensure that the game is rigged in their favor.

 

I know, my friends, that you are concerned about corporate power. So am I. So are many of my free-market economist colleagues. We simply believe, and we think history is on our side, that the best check against corporate power is the competitve marketplace and the power of the consumer dollar (framed, of course, by legal prohibitions on force and fraud). Competition plays mean, nasty corporations off against each other in a contest to serve us. Yes, they still have power, but its negative effects are lessened. It is when corporations can use the state to rig the rules in their favor that the negative effects of their power become magnified, precisely because it has the force of the state behind it. The current mess shows this as well as anything ever has, once you realize just what a large role the state played. If you really want to reduce the power of corporations, don't give them access to the state by expanding the state's regulatory powers. That's precisely what they want, as the current battle over the $700 billion booty amply demonstrates.

 

While if you've got an hour to spare this link provides a really detailed video lecture on the issues, plus some really good graphics to put things in perspecive.

[Sebrof]

Sorry to bang on about it, but if Barclays acquired the company that employed these people rather than the business within the company, they are stuck with the liability. Almost without exception, big business organises itself into a number of subsidiary companies to shelter risk from other parts of the business, each of which is a separate legal entity.... In a situation like this, buying the company is the quickest way to complete the transaction as all that is involved in the actual transaction is a transfer of shares, but it can be risky as liabilities may crawl out of the woodwork after you have completed the transaction because you have not had the time to complete your extensive due diligence....Putting it simply, if you are selling you would want to sell the company as everything goes with it, but if you are buying you would rather negotiate to buy the underlying business assets and leave unwanted liabilities....I suppose my point is that Barclays may have little choice but to make these payments.

Glad, like you I don't want to bang on about this but I find it incredible that banks are asking for taxpayer support at the same time that they are paying billions in bonuses to people in failed companies. Like you I don't know the ownership structures in Lehmans, or whether the staff are employed for example through a separate 'services' company or other legal structures that protect labiities on Group wind-up. I got the impression from the media that it was the whole Lehmans Group that had been declared bankrupt.

 

Barclays had the choice (I presume) of buying the company (which no doubt came with all sorts of useful assets, licences, contracts, etc., as well as liabilities like staff bonuses) or just buying bits if the company went down. They made a decision to buy the company. It may well have been a very good decision, but without knowing all the details, nobody can say.

 

S

[Snaipyr]

As a contrasting example - I am in Cork at the moment and a local factory has also gone bankrupt. A UK company has offered to takeover the business. It has offered employees their jobs back subject to them signing a new contract with a massive reduction in salaries.

 

But then I'm a Grumpy Old Man who does not like the ethics of the finance sector.

 

And I'm a grumpy old woman who doesn't like the ethics of battery-farmed chickens!

[Gladys]

Sorry to bang on about it, but if Barclays acquired the company that employed these people rather than the business within the company, they are stuck with the liability. Almost without exception, big business organises itself into a number of subsidiary companies to shelter risk from other parts of the business, each of which is a separate legal entity.... In a situation like this, buying the company is the quickest way to complete the transaction as all that is involved in the actual transaction is a transfer of shares, but it can be risky as liabilities may crawl out of the woodwork after you have completed the transaction because you have not had the time to complete your extensive due diligence....Putting it simply, if you are selling you would want to sell the company as everything goes with it, but if you are buying you would rather negotiate to buy the underlying business assets and leave unwanted liabilities....I suppose my point is that Barclays may have little choice but to make these payments.

Glad, like you I don't want to bang on about this but I find it incredible that banks are asking for taxpayer support at the same time that they are paying billions in bonuses to people in failed companies. Like you I don't know the ownership structures in Lehmans, or whether the staff are employed for example through a separate 'services' company or other legal structures that protect labiities on Group wind-up. I got the impression from the media that it was the whole Lehmans Group that had been declared bankrupt.

 

Barclays had the choice (I presume) of buying the company (which no doubt came with all sorts of useful assets, licences, contracts, etc., as well as liabilities like staff bonuses) or just buying bits if the company went down. They made a decision to buy the company. It may well have been a very good decision, but without knowing all the details, nobody can say.

 

S

 

Sorry again for banging on, but it would be inconceivable that Lehmans was just one company, much more likely it was made up of several companies making up the group, under a parent company in the US that on consolidation was found to be in trouble. Each company is a distinct entity in its own right, if the parent is in trouble then all the companies in the group are up for grabs as assets of the parent, but there could, and probably were, subsidiaries that had value and it is those that Barclays acquired. Looking at the time frame, there probably was only the choice of buying the subsidiaries, rather than buying the assets within the subsidiaries.

 

To give an analogy, you have a car that is pretty well on its last legs. You want rid, so offer it for sale. Someone may buy the car, including the engine, gear box, wings, door panels, Cd player, etc, any one of which may be in great nick and worth rescuing by the purchaser, or it may be worth the purchaser just running the car into the ground, or spending more to restore it to perfect working order. In any case, the purchaser has bought the car with all its good bits and bad bits and the obligation, if you like, to put the bad bits right by mending them or disposing of them. Same if you bought a company, it depends where in the corporate ownership chain you buy, but the principle is the same.

 

Alternatively, you may just sell bits of the car, like the engine, gear box, etc, the buyer has the best bits, again with perhaps a little more expenditure to be done to bring them up to scratch, but the buyer never gets a complete car and as the seller you still have the rusting hulk to deal with.

 

Manshimajin, the latter scenario is probably what happened in your Cork example. But the fact is that Barclays have not asked for government assistance, they have relieved a government (may be US, may be UK) from that possibility.

[Amadeus]

Not the first, and sadly probably not the last

 

Father kills family and himself, despondent over financial losses

 

Karthik Rajaram was found dead in his Porter Ranch home along with his wife, mother-in-law and 3 sons. Neighbors and coworkers say he was a loving father, but 'very intense' and at times unstable. Karthik Rajaram had fallen hard.

 

The 45-year-old Porter Ranch financial manager who once made more than $1.2 million in a London-based venture fund had lost his job. His luck playing the stock market ran out.

 

On Sept. 16, he bought a gun. He wrote two suicide notes and a last will and testament. And then, sometime between Saturday night and Monday morning, he killed his wife, mother-in-law and three sons, and took his own life.

[slinkydevil]

Not the first, and sadly probably not the last

 

Father kills family and himself, despondent over financial losses

 

I'd probably feel sorry for him if he hadn't take his wife and kids with him. Why do that?