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 applying for bankruptcy directly.

Applying for bankruptcy directly means that the company will die completely and there will be no room for maneuver. The only way left is to be liquidated and closed...

Applying for bankruptcy protection means that the company can reorganize its business in the next few months, try its best to make profits again - the bankrupt company can still operate as usual, the company's management will continue to be responsible for the company's daily business, and its stocks and bonds will continue to be traded in the market.

So after Lehman Brothers announced that it had applied for bankruptcy protection, they began to sell some of its assets to obtain funds to fill the "hole".

On July 16, Barclays Bank, 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), the largest securities company in Japan, signed an agreement with Lehman Brothers on July 21 to acquire Lehman's Asia-Pacific business (except South Korea).

The next day, Standard Chartered Bank announced that it would acquire Lehman Brothers' business in Europe and the Middle East.

Then on July 28, United Energy Group said that its subsidiary British Gas Network had agreed to acquire its subsidiary Eagle Energy Partners I, L.P. from Lehman Brothers.

This move is aimed at optimizing the gas supply business of United Energy Group.

On the same day, private equity companies Bain Capital LLC and Hellman \u0026 Friedman LLC reached an agreement with Lehman Brothers to invest $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 and torn apart in less than three weeks.

At this point, Lehman Brothers finally fell to the bottom and could never see the light of day again.

However, shortly after Lehman Brothers declared bankruptcy protection, on July 15, the Federal Reserve announced that it would use the special authorization obtained after the stock market crash in 1929 to provide an emergency loan of $85 billion to American International Group (AIG), which was on the verge of bankruptcy.

In exchange, the U.S. government acquired 79.9% of the shares of the largest insurance company in the United States.

Barron did not expect that the United States would invest in rescuing American International Group.

As early as when Lehman Brothers declared bankruptcy protection, he had 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 a luxury house on the top floor of the Woolworth Building in Manhattan:

"Shorting Lehman Brothers will be the most successful one, because the United States' previous rescue of large institutions such as Fannie Mae and Freddie Mac and Bear Stearns made Lehman Brothers' CEO Fuld too confident. He believed that when things got out of control, Lehman Brothers would also get government assistance..."

"Indeed, I heard that Lehman Brothers was not eager in the negotiations before, and even a little perfunctory..."

Ivanta asked incredulously:

"Although this attitude will annoy the government, will they really change their attitude and let the current crisis go?"

" That won't happen. In fact, Paulson and his team need to find a company with enough weight to "kill the chicken to scare the monkey" and give those Wall Street bankers a warning, so that they understand that the government will not always clean up their messes. Unfortunately, Lehman Brothers was the one that was finally chosen..."

Take a deep breath, Ivanta said thoughtfully:

"Similarly, this can also reduce the public's criticism of the Party because of the overly active rescue of those bankers?"

"Indeed, after all, this year's election may not be so easy for the Party."

...

Just as Barron and Ivanta talked about, the collapse of Lehman Brothers and the actions of the United States have 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, a large number of people have criticized the official takeover of Bear Stearns, "Two Houses", and American International Group.

The crisis of Bear Stearns broke out before Lehman. Bear Stearns held a large number of mortgage-backed securities, and investors paid a large amount of cash, which led to the depletion of cash reserves and the company was on the verge of bankruptcy.

At that time, New York Fed Chairman Geithner discovered this systemic risk and immediately reported it to the Fed.

The Fed and the Treasury Department jointly intervened, and the Federal Reserve urgently supported JPMorgan Chase's acquisition of Bear Stearns with $30 billion in "bottom line".

However, it was this action of the US government that sent a rescue signal to the market.

Next, Treasury Secretary Paulson directly took over the "two houses" that had long been caught in the vortex - Freddie Mac and Fannie Mae.

The specific plan is that the Treasury Department will inject capital into Freddie Mac and Fannie Mae and acquire related preferred stocks; relevant government regulatory agencies will take over the daily operations of the institutions and appoint new leaders at the same time.

Fannie Mae and Freddie Mac are the two largest mortgage companies in the United States. They used to be agencies under the federal government. Although they were privatized later, they have long received government subsidies.

Therefore, in the minds of the American people, the "two houses" have received implicit guarantees from the federal government.

But for Paulson, facing the problems of the "two houses", there is no choice but to rescue them.

Paulson said:

"Fannie Mae's problems have exposed the financial market to systemic risks. Taking over these two institutions is the "best means" to protect the market and taxpayers at present."

However, Paulson's takeover of the "two houses" has triggered moral risks in the market.

At the same time, a large number of critics believe that taxpayers' money should not be used to rescue these greedy bigwigs.

At that time, the Wall Street Journal said:

"If the federal government agencies rescued Lehman Brothers after rescuing Bear Stearns and Fannie Mae, it would be tantamount to indicating that the government would cover all institutions in crisis. This policy of the federal government will encourage more reckless risk-taking."

So, when it was Lehman Brothers' turn next, Paulson's attitude reversed, which is understandable.

At first, almost everyone, including Lehman CEO Fuld, believed that Paulson would not stand by and watch the company die.

However, this time, Paulson's attitude was extremely firm, insisting from beginning to end that the Treasury would not provide funds to rescue Lehman Brothers.

Why did Paulson save Bear Stearns, Freddie Mac, and Fannie Mae, but let Lehman die?

In fact, Paulson did not sit idly by.

However, his strategy was no longer to directly rescue, but to force Wall Street to pay to tide over the difficulties.

However, activating the power of the market to resolve the systemic risks of the market is certainly an ideal way, but the differences are far beyond Paulson's expectations.

Paulson and Bernanke both realized that the previous rescue of Bear Stearns and the "two houses" had triggered moral risks in the market and encountered overwhelming criticism.

This time they insisted on not letting moral risks spread, and also tried to make a financial institution bankrupt to set an example.

After confirming that the bankruptcy of Lehman Brothers was inevitable, Paulson and Bernanke made a detailed report to Bush Jr.

Bush's attitude is that he does not want to see Lehman Brothers go bankrupt, but he respects Paulson's approach and does not want the Treasury to take over Lehman Brothers directly.

Because this year is an election year, if Bush overemphasizes government aid, it will certainly not be conducive to the Elephant Party's continued victory in the election.

Shortly before Lehman filed for bankruptcy, the Elephant Party clearly announced in its campaign manifesto:

"We do not support government aid to private institutions."

Previously, the government's intervention in Bear Stearns, especially the Treasury's takeover of the "two houses", put Paulson and Bush in controversy.

So, from an external perspective, Lehman Brothers was unlucky and became a victim of political and market games at this juncture.

But it cannot be ignored that with this consequence, Lehman Brothers itself has a bigger problem.