Chapter 604: The End of the Road

Just when they thought everything was in place, McCarthy, head of the British Financial Services Authority, called Geithner.

McCarthy told Geithner that the British Financial Services Authority still needed to assess whether Barclays had the right capital structure to take on the risk of acquiring Lehman Brothers.

After hanging up the phone, Geithner angrily rushed into the office of Treasury Secretary Paulson and told Paulson and Cox that the British financial regulatory authorities might reject the deal.

Paulson immediately said he couldn't believe it.

He asked Cox to call McCarthy again to confirm.

After receiving the same reply, Paulson personally called British Chancellor of the Exchequer Darling, who also expressed anxiety about the potential risks of the deal. Barclays' acquisition of Lehman Brothers would pose a threat to British financial security - especially after Standard Chartered Bank had acquired Merrill Lynch.

After hanging up the phone, Paulson said harshly-

"We were fooled by the British. They don't want to import our cancer!"

At this time, he also wanted to call Bush Jr. and let the president communicate with the British Prime Minister to see if there was room for maneuver.

However, he seemed to have heard from the British Chancellor of the Exchequer that Prime Minister Brown was already aware of this matter, so he gave up the last fight.

"Why didn't we think of it before? This is fucking crazy."

At this situation that just appeared, Geithner shouted.

Paulson, Bernanke, Geithner and Wall Street giants made a serious mistake. They did not consider that the British financial regulatory authorities would reject the deal at all, and there was no second alternative.

At this time, it can be said that everyone is in danger.

The subprime mortgage crisis intensified. Bear Stearns was acquired by JPMorgan Chase under the protection of the Federal Reserve. Freddie Mac and Fannie Mae were taken over by the Treasury Department...

Financial companies realized that Lehman Brothers' toxic assets were huge and complex, which might cause financial shocks and spread to themselves.

Everyone is looking for a way out for themselves.

The US government and Wall Street financial institutions did not want to do anything or take any responsibility for Lehman Brothers, so how could Britain take the initiative to fall into the trap?

British Chancellor of the Exchequer Darling reminded Paulson on the phone before:

"We need to determine what we will take on and what the US government is willing to do."

To this, Paulson's answer was:

"Then we are helpless."

Obviously, Wall Street and the British government will respond with the same attitude.

This day was a desperate day for Lehman.

After Sunday, there was not much time left for Lehman Brothers.

Barclays Bank's acquisition of Lehman failed, and Paulson immediately realized that Lehman's bankruptcy was inevitable.

So Paulson and Bernanke, who were originally Lehman's rescuers, immediately turned into "pullers".

They urgently urged the board of directors of Lehman Brothers to file for bankruptcy as soon as possible, the sooner the better, to prevent the spread of bad market expectations.

At 1 a.m. on July 14, the board of directors of Lehman Brothers announced:

"Lehman Brothers Investment Company has applied to the federal government for Chapter 11 bankruptcy protection."

So far, the 158-year-old Lehman Brothers has created the largest investment bank bankruptcy in American history.

The company with a debt of up to $613 billion collapsed. In addition to more than 20,000 employees losing their jobs, it also triggered a chain reaction in the financial market.

On Monday morning, as soon as the stock market opened, the U.S. stock market suffered a "Black Monday" - the Dow Jones Index recorded the largest single-day drop since the "9.11" incident, and global stock markets also collapsed.

The next day, the Asia-Pacific stock markets, Japan, South Korea, China Hong Kong, and China Taiwan Province stock markets all fell by more than 5%.

So far, the global economy has encountered the Lehman moment, and the subprime mortgage crisis has eventually led to a world-class financial tsunami.

…

“We are all witnessing history, aren’t we?”

At this time, Barron had returned to New York. He was in the office of the New York branch of DS Group on Wall Street, looking at the crowds downstairs that seemed to be the same as usual, but always gave people a sense of oppression, and said lightly.

“This is indeed a rare... tense moment in my career, Your Highness.”

Beside him was Davis, the president of Standard Chartered Bank, who said with emotion:

“The collapse of Lehman Brothers is just the beginning, and I am afraid there will be a bigger tsunami next.”

“But the good news is that we are standing on the shore now, and we just need to wait for the tide to recede and pick up the prey trapped on the beach.”

Yes, after Lehman Brothers announced its bankruptcy, another good news came, that is, after taking over the previously collapsed IndyMac Bank, the Federal Deposit Insurance Corporation (FDIC) and Standard Chartered Bank are still negotiating on its acquisition of some assets of IndyMac Bank.

With Lehman Brothers’ bankruptcy, the other party may finally understand that they need to prepare to take over more bankrupt banks, so they quickly reached an agreement with Standard Chartered Bank.

Standard Chartered Bank will acquire all branches and some assets of IndyMac Bank for $1.5 billion, provided that they take over the employees of the other party.

These branches and assets of IndyMac Bank will be merged with the institutions and assets of Merrill Lynch Industrial Bank they acquired, becoming the commercial banking branch of Standard Chartered Bank in the United States.

Affected by the bankruptcy of Lehman Brothers, the only two independent investment banks in the United States, Goldman Sachs and Morgan Stanley, also encountered considerable trouble.

However, the most urgent situation was American International Group (AIG), the largest commercial insurance institution in the United States, which was involved in a large number of toxic assets, including mortgage-insured securities (CDS).

After Lehman filed for bankruptcy, mortgage defaults increased sharply, and a large number of financial institutions and counterparties that purchased such insurance filed claims with American International Group.

If it does not receive financial assistance, the company may not last for a few days or even hours.

AIG has a company called "American International Group Financial Products (AIG-FP)", which operates a large number of credit default swap derivatives (CDS). Due to the lack of supervision and the indirect reputation guarantee of AIG, customers did not ask the company to increase its trading margin, so the company has been in a light asset and high-risk operation for a long time.

The reason why it was so deeply involved in CDS was that during the previous real estate boom, from 2001 to the end of 2006, house prices in the United States continued to rise.

In AIG's view, insuring those subprime loans under such circumstances is really a risk-free money-making opportunity. At that time, in order to earn 200 to 300 million US dollars in premiums a year, the company guaranteed a large number of CDS bonds, making it the company with the largest CDS bond guarantee in the United States. Now, the repayment of CDS bond premiums alone is enough to drag the company into the abyss.

Because as mentioned earlier, in order to be able to sell more related financial derivatives, those financial companies often insure several CDO bonds... that is, they can correspond to several CDS!

According to statistics, the total value of the global CDS market in 2007 was as high as 62 trillion US dollars, far exceeding the total US GDP of 14.48 trillion US dollars that year, while the total value of US subprime mortgage bonds (CDO) was only 7 trillion US dollars!

According to statistics in the third quarter of 2007, the CDS products held by the top 25 banks in the United States were worth as much as 14 trillion US dollars.

Therefore, the default risk brought by Lehman's collapse, the financial derivative of credit default swaps alone can crush the seemingly huge financial system.

Because of the greedy Wall Street capital, the default insurance CDS that was originally intended to reduce asset risks turned into a nuclear bomb that destroyed the financial bubble.