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Who can ensure that the nightmare won’t happen again?A YEAR ago on September 15th Lehman Brothers International (Europe)—LBIE, the London subsidiary of Lehman Brothers Holdings, New York—closed for business, leaving 839,000 failed transactions totalling billions of dollars hanging in the air. PricewaterhouseCoopers (PWC), the administrator, is still trying to sort out most of them, which relate to over 100 separate units of LBIE. It has managed to pay claims of around $13 billion (GBP8 billion) but wants the American parent to settle up to $100 billion more. That may result i
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n litigation, says Tony Lomas, a partner at PWC.In the global Lehman debacle, the British authorities and claimants on the London entity drew the short straw. Lehman Brothers Inc, the broker-dealer in New York, was a relatively simple company. It siphoned billions from the global group days before it went bust. The American authorities then gave it until September 19th to settle its trades. Many of its clients’ assets were insured. Barclays, a British bank, bought the business and took over its customer positions, ensuring continuity. ...
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Two books make a case for looking back before forging aheadA Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers. By Lawrence G. McDonald and Patrick Robinson. Crown Business; 368 pages; $27. Ebury Press; GBP7.99. Buy from Amazon.com, Amazon.co.ukThis Time is Different: Eight Centuries of Financial Folly. By Carmen M. Reinhart and Kenneth Rogoff. Princeton University Press; 496 pages; $35 and GBP19.95. Buy from Amazon.com, Amazon.co.uk ...
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Wall Street has staged a surprisingly strong recovery from its meltdown a year ago. But it will not return to business as usualAT THE press of a button, the double doors sweep open. Welcome to the office in downtown Manhattan of Lloyd Blankfein, chief executive of Goldman Sachs. A couple of years ago, such smooth gadgetry would have seemed a fitting symbol of the power of Wall Street. These days it stirs more sinister thoughts: of a screen villain rather than a hero of high finance. As it happens, it is rumoured that an institution not unlike Goldman will appear unflatteringly in Oliver Stone
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’s sequel to “Wall Street”, due in cinemas next spring.Economists continue to debate the ultimate causes of the collapse of Lehman Brothers, Wall Street’s fourth-biggest firm, a year ago on September 15th, and of the havoc that followed. The public and most politicians, however, are clear: the blame lies with bankers, venal and incompetent in equal measure. “It’s like pre-Thatcher Britain out there,” sighs the head of a New York bank. At a hearing in February a congressman addressed JPMorgan Chase’s boss, Jamie Dimon, as “Mr Demon”. Deliberate or not, it captured the mood. ...
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Ireland’s toxic-asset plan makes a good fist of a bad situationEVEN at the height of the boom, when bankers everywhere were partying harder than they should have been, those in Ireland were crowding the punchbowl like teenagers with no parents in charge. Instead of letting them suffer a painful hangover, the government has decided to hand over the analgesics. On September 16th Brian Lenihan, the Irish finance minister, gave details of a plan to take bad loans with a face value of about €77 billion ($113 billion) off the balance-sheets of the country’s biggest banks. If the pl
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an passes, these will go to a new agency, called the National Asset Management Agency (NAMA), in return for €54 billion in government-backed bonds. ...
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Can governments bolster confidence that they will act to prevent a debt spiral?A YEAR on from the collapse of Lehman Brothers, the world economy is turning the corner. The plunge in output at the end of last year and in the early months of 2009 has been arrested. The economies of America, Britain and the euro area now seem to be growing again. Policymakers are cautious and in no hurry to withdraw stimulus. The European Central Bank (ECB), for instance, will again offer unlimited one-year loans to banks at its main interest rate, of 1%, on September 30th. Still, with the worst economic news now
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behind them, officials are under increasing pressure to explain how they will reverse course when the time comes. That task is particularly hard when it comes to the public finances. Fragile economies need support from fiscal policy, but it is harder for finance ministries than central bankers to promise credibly to be strict in future when they are so liberal today. ...
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Jeffrey Peek keeps his jobWho better to extricate us from this mess than the man who led us into it? That is the curious logic at CIT, a small-business lender in America that is fighting to avoid bankruptcy. In a filing with the Securities & Exchange Commission on September 4th it emerged that CIT has given its boss, Jeffrey Peek, a sheepish pat on the back and a year’s contract extension to turn the firm round. Removing him in the midst of a restructuring effort would have brought some disruption, perhaps, but also fresh thinking. That would be no bad thing, given that Mr Peek’
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;s big strategic move was an atrociously timed push into subprime mortgages and student loans, backed by flimsy wholesale funding. Rewarding such failure, even while taking away Mr Peek’s tax perks and use of corporate jets, merely adds to the firm’s list of blunders. ...
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Expect big talk on pay—and not much else—from the upcoming G20 meetingPITTSBURGH, the host of the next G20 summit on September 24th, is known as the “city of bridges”. Anyone watching the build-up to the meeting may have already concluded that they will lead to nowhere. The warm-up event, a meeting of finance ministers and central bankers in London on September 4th, produced a fog of contradictory statements by multiple politicians, some from the same countries.Depending on whom you listened to, capital requirements will get tougher quickly—or very gradually, to p
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revent banks shrinking their loan books. Bonuses will be governed by strict formulas—or by broad principles. Accounting rules will be made more forward-looking—or loosened to prevent big losses coming all at once. ...
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Wall Street's biggest investment bank failure, eighteen years prior to the downfall of Lehman BrothersIN THE end Drexel Burnham Lambert proved as much a creation of Mr Michael Milken as were so many of the former junk-bond king's nouveau riche clients. The once high-flying Drexel is now bust, just over a year after it pleaded guilty to six felonies and paid $650m in fines, and only eight months after Mr Milken resigned when he was served by the federal government with 98 indictments for criminal fraud.The demise of this always-controversial investment bank, which made $1.1 billion in pre-tax p
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rofit in 1986, was shockingly swift even by the fickle standards of Wall Street. At the end of 1989 Drexel said it had $800m in equity. Yet on February 13th its holding company could not come up with $100m to pay off short-term loans falling due. This default, said Drexel in a terse (under) statement, "could result in other defaults". ...
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The causes of the overexpansion of the finance industryIT MAY be a year since the fall of Lehman Brothers, but the main questions about the future of the finance industry have yet to be settled. Perhaps the biggest of the lot is whether the industry has become too big for the good of the economy. Adair Turner, head of Britain’s regulator, the Financial Services Authority, recently suggested another way of addressing this question by saying some banking activities were “socially useless”. The phrase rightly implies that some of its operations are “socially useful”
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. After all, a year ago, it was feared that if the banking system collapsed, the whole economy would break down. ...
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Greetings once again, Everyone!
As expected, The Bank of Canada held Rates at 0.25% in which the future Forecast to keep this Level through the middle of 2010 is a somewhat surprising consideration in terms of looking that “Far into The Future” for a Central Bank Entity.
We are quite accustomed in our present Climate to see [...]