Sunday, September 14, 2008
May you live in interesting times
With Lehman apparently preparing their filing bankruptcies, financial institutions all over the world are assessing and planning for their counterparty risk.
One of the obvious areas is the 'netting' process, widely discussed in the news.
Less obvious, but equally interesting, is securities lending. Investors with lending programs to Lehman and Neuberger will have the right to buy-in loaned collateral without notice. The problem is they can create a 'short squeeze' doing so.
If the process begins, you could see the most widely shorted securities suddenly move upwards. Paradoxically, a good short squeeze in financial institutions is just what the market needs right now.
One thing is for certain. Tomorrow is going to be an interesting day to watch the tape.
In addition to Lehman, there is WaMu, AIG and the possible BofA Merrill merger.
Sorry no links. I have to get back to my own conference calls.
UPDATE: Merrill BofA merger reality. AIG refusing too give over control, asking for help from Fed in the form of a $40B credit line. FUN!
One of the obvious areas is the 'netting' process, widely discussed in the news.
Less obvious, but equally interesting, is securities lending. Investors with lending programs to Lehman and Neuberger will have the right to buy-in loaned collateral without notice. The problem is they can create a 'short squeeze' doing so.
If the process begins, you could see the most widely shorted securities suddenly move upwards. Paradoxically, a good short squeeze in financial institutions is just what the market needs right now.
One thing is for certain. Tomorrow is going to be an interesting day to watch the tape.
In addition to Lehman, there is WaMu, AIG and the possible BofA Merrill merger.
Sorry no links. I have to get back to my own conference calls.
UPDATE: Merrill BofA merger reality. AIG refusing too give over control, asking for help from Fed in the form of a $40B credit line. FUN!
2 Comments:
By 
Steve M. Galbraith, at
Sun Sep 14, 09:33:00 PM:
Creative destructionism isn't pretty, is it?
Let's hope the destructionism ends soon and the creativity picks up.
Although I guess they go hand-in-hand. Can't have one without the other.
By 
, at
Tue Sep 16, 03:38:00 PM:
Sure, Lehman's employees are separated risk from reward without concern for the damage they were doing. But, I hope that does not mean that, when they are unemployed and unemployable, they won't still get their million dollar bonuses.
