#17 I am a classical economist and will not be tempted by greed, sex, or money. HA HA

This post is three (3) days late, but I wanted to write about the death anniversary of Lehman Brothers on 15th September.

In preparation for my Monetary & Banking Institutions class (also on the 15th), I read (and scrutinized) the entire Squam Lake Report, which turns out to be very, very, good. Again, good, is subjective and I mean, compared to trash on CNN (or quasi-trash on Bloomberg), anything, and everything, is...

...good.

Back to the point, Special Investment Vehicles (SIV) were created to escape financial regulations set by both the Feds and the SEC. These (really smart) vehicles allowed high risk securities to be leveraged by Commercial Banks, otherwise not allowed because those institutions were and still are FDIC insured, to be hidden inside those "vehicles" and out of the accounting books. In fact, all that could be seen of them were in the fine print on Page 72 of their Annual Financial Report, which nobody reads anyway.

In simple words, Special Investment Vehicles (SIV) is just a really fancy name for getting around the regulations, legally. FDIC insured banks means that the Federal Deposit Insurance Corporation insures the deposits (mostly checking and saving accounts) to, prevent a bank run, increase the confidence of consumers, and encourage saving. In return, Commercial Banks were not allowed to use these deposit liabilities to invest in high-risk securities. But of course, nobody knew (or everyone pretended not to know) the true, exact, nonsensically, high risk nature of the Mortgage-Backed Securities (MBS). Thanks to P. Bush, who was not exactly the sharpest pencil in the box, he fervently advocated (for 8 years) to deregulate the Financial Markets. And we learned the truth painfully- the Feds and the SEC did not have "adequate funding" to catch these SIVs floating around, and just, simply, let them be. Great idea!

Lehman's leverage ratio was ALSO an amazing record- 33: this just means 33 units of loans/securities were backed by 1 unit of equity. And while Lehman continued hiding the true magnitude of their losses in those (invisible) SIVs, Mr. R. Fuld had another brilliant idea of playing golf all Summer, waiting for the Feds to bail him out just as they had done for Bear Sterns earlier. In lieu of golf, he really should have been looking for new loans and begging people on his knees, to refinance those securities with long-term maturities. Eventually, on this very sad day, they filed for bankruptcy protection under Chapter 11, and since they can't die again, ...

Happy Birthday Lehman!!!