Lehman Brothers Declares Bankruptcy
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Steve Verdon | Monday, September 15, 2008 |
Lehman Brothers Holdings Inc. has declared bankruptcy. Why? Well they decided to get all gung-ho on the real estate bubble and backed quite a bit in sub-prime mortgages? How much? I don’t know, but in its bankruptcy filing Lehman lists debts totalling $613 billion.
Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Chief Executive Officer Richard Fuld, who turned the New York-based firm into the biggest underwriter of mortgage-backed securities at the top of the U.S. real estate market, joins his counterparts at Bear Stearns Cos., Merrill Lynch & Co. and more than 10 banks that couldn’t survive this year’s credit crunch.
“There is likely to be a domino effect as other firms and individuals who relied on Lehman for financing feel the effects of its meltdown,” said Charles “Chuck” Tatelbaum, a bankruptcy lawyer with Adorno & Yoss in Florida and former editor of the American Bankruptcy Institute Journal. “The whole thing is frankly frightening for the U.S. economy.”
Surprisingly, Treasury Secretary Paulson declined to use tax payer funds to bail out Lehman.
In Other News:
The Dow has also fallen 266 points and Treasuries are going up as investors are looking for a safe haven for the time being. Bank of America is also offering to buy Merrill Lynch.
About the Author: Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.
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Will anyone call the Democrats to account for their reckless loosening of mortage standards in the 1990's?
Here is a 1997 leftist article praising the Democrats and the Clinton administration in particular for forcing banks to offer loans to people who were not qualified by traditional standards.
Baffling quotes (emphasis mine):
In fact, the CRA is one of the most remarkable success stories of the 1990s. Under strong pressure from a second wave of grassroots activism that began ten years ago, many banks have recognized the potential for profitable business in neighborhoods that they had written off without a second thought not so long ago.
... CRA opponents claimed that it requires risky loans that could undermine a bank's profitability and threaten its survival. Actually, the reverse is closer to the truth. The 1980s were marked by massive speculative lending to wealthy real estate developers and get-rich-quick schemers that resulted in the failure of more than two thousand banks and S&Ls. Yet not a single bank failure has been caused by making too many bad loans to disadvantaged borrowers.
Recently, Federal Reserve Board researchers found "no evidence of lower profitability" at banks that specialize in mortgage lending to lower-income borrowers and neighborhoods and, in a nationwide survey by the Kansas City Fed, 98% of banks reported that their CRA lending was profitable. A recent investigation by the Comptroller of the Currency found that affordable home loans had "the same level of losses" as standard mortgages.
...
The swell of grassroots support overwhelmed pressure from industry lobbyists and produced unanimous opposition by congressional Democrats to every proposal that would have weakened CRA. In addition, the Clinton administration never wavered from an early pledge to veto any bill containing such provisions.
I want to know who those congressional Democrats were. I want names.
I'd pay good money to know what Joe Biden said at the time about this. Surely the Congressional Record can shed some light on this shadowy subject...
Alan; Quite so.
