Tagged: Lehman demise

Recession in U.S. Was Even Worse Than Estimated, Revisions Show

Bloomberg | Jul 30, 2010 | 10:07 PM GMT+0530

The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to revised figures. The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the Commerce Department said today in Washington. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942. “We do tend to get bigger revisions at turning points in the economy,” Steven Landefeld, director of the Commerce Department’s Bureau of Economic Analysis, said in a press conference this week. On the more positive side, “in the past, we’ve tended to undershoot the recovery” as well, he said.

The data better explain why the jobless rate doubled, reaching a 26-year high of 10.1 percent in October, and has been slow to subside. The government also boosted personal income levels for each of the past three years, propelling the savings rate higher and signaling households are further along the process of repairing finances. The rebound from the recession has been more subdued in the last six months of 2009, as the economy grew at an average 3.3 annual pace from July 2009 through December, instead of the 3.9 percent previously projected. By comparison, growth averaged 7.2 percent in the two quarters following the 1981-82 recession, during which the economy contracted just 2.9 percent.

Lehman Collapse

The worst quarter of the current economic slump is now the final three months of 2008, in the immediate aftermath of the collapse of Lehman Brothers Holdings Inc., rather than the first quarter of 2009. GDP shrank at a 6.8 percent pace from October to December 2008, exceeding the prior estimate of 5.4 percent, making it the deepest quarterly drop since 1980. The new data showed the peak of the last expansion occurred in the fourth quarter of 2007 rather than the second quarter of 2008. The figures are more in sync with the recession chronology prescribed by the National Bureau of Economic Research, the accepted arbiter of U.S. business cycles. The Cambridge, Massachusetts-based private group determined the slump began in December 2007, and has yet to announce when it ended. Consumer purchases, which account for 70 percent of the economy, were cut for each of the past three years, with the biggest reduction taking place last year. Less spending on services than previously estimated, including financial services and auto repair, was responsible for the change.  

Continue reading


The inside scoop on Lehman’s collapse

Reuters | Fri Apr 2, 2010 | 1:28am IST

Lehman Brothers A literary genre to emerge from the financial crisis is the Big Bank Biography, led by "The Partnership," Charles Ellis’ history of Goldman Sachs, and several tales of the end of Bear Stearns & Co. Add to this list Vicky Ward’s "The Devil’s Casino," an inside account of the egos and rivalries that guided Lehman Brothers from the 1980s to its catastrophic end in 2008. The story couldn’t be more timely, coming as investigations allege gory new details of its fall such as how top executives hid borrowing. Ward’s book is rich on details, like CEO Dick Fuld’s aversion to Casual Friday (the end of Western Civilization, as he saw it) but almost empty on the firm’s storied first 100 years. As Ward, a contributing editor at Vanity Fair, explains, that story has been told elsewhere. Her book takes off from 50 pages of an official history that was commissioned by the firm in 2003.

The pages were never published because so many executives painted negative portraits of Fuld and offered so many disparate accounts that the firm’s own writers could not weave a clean tale for public consumption. They got that one right. In Ward’s hands, the notes become a gold mine of gossip and the basis for further revealing interviews. Affairs poison friendships. Money changes priorities. And the wives of top executives gripe how hard it was to pack for a retreat featuring hiking by day and fancy dinners by    

Continue reading

Examiner sees accounting gimmicks in Lehman demise

Reuters | 2010 8:37am IST | Fri Mar 12

Lehman Brothers Lehman Brothers Holdings Inc used accounting gimmicks and had been insolvent for weeks before it filed for bankruptcy in September 2008, but there was not extensive wrongdoing, a court-appointed examiner has found. In a 2,200 – page report made public on Thursday, examiner Anton Valukas, chairman of law firm Jenner & Block, reported the results of his more than year-long investigation into who could be blamed for the firm’s collapse, which deepened the global financial crisis. The examiner said that while some of Lehman’s management’s decisions "can be questioned in retrospect" and the firm’s valuation procedures for its assets "may have been wanting," those responsible for the firm had used their business judgment and were largely not liable for the firm’s collapse.

However, he said that Lehman, which is now liquidating for the benefit of creditors, could have claims against former Lehman chief executive Dick Fuld and chief financial officers Chris O’Meara, Erin Callan and Ian Lowitt for negligence or breach of fiduciary duty. The examiner said there was also sufficient evidence to support a possible claim that the firm’s auditor, Ernst & Young, had been "negligent" and that Lehman could pursue claims against the firm for "professional malpractice." He did not find that Lehman’s directors had explicitly violated their fiduciary duty, but said that Wall Street paid a large role in causing an acute liquidity crisis at Lehman in its final days. The examiner suggested Lehman may also be able to pursue claims against banks like JPMorgan and Citigroup for taking some $16 billion in collateral out of Lehman’s coffers as it struggled to stay afloat.   

Continue reading