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Silences say it all
By Julian Delasantellis
It is the next to the last weekend of summer, and I'm not out in the sunshine
raking leaves or mulching the grass clippings; I'm not even watching American
football with beer and corn chips. Thanks to the miracles of my broadband
Internet connection, I can sit in front of my computer terminal all weekend, a
cyber-attendee as the deathbed of yet another victim of the world financial
crises, this time, the 158-year-old honored and respected Wall Street bond
trading house Lehman Brothers, morphs into the street barricades for the most
revolutionary changes in the structure of American finance since the Panic of
New Century Financial, Countrywide, Bear Stearns, Fannie Mae and Freddie Mac -
the phone is never silent these days for those who dig the graves of anyone who
once had anything even
remotely to do with American housing finance. In early April (see
A risk-free revolution, Asia Times Online, April 2, 2008), I explained
how Lehman Brothers might be the next to succumb to the deleveraging tsunami
that had just claimed Bear Stearns; Chan Akya on at the weekend (see
Pareto's Bazooka, Asia Times Online, September 13), explained that the
previous US government rescues of Bear and Fannie/Freddie, had, in and of
themselves, sealed Lehman's fate. Its stock, which had traded as high as US$86
per share in February, 2007, closed Friday under $4. There was a general
understanding that, if some sort of rescue package was not announced by the
opening of Asian trading on Sunday evening New York time, the circling hungry
sharks/shorts would make a quick meal out of Lehman by days end.
But just as the war cries of the bloodthirsty savages rose to a fever pitch,
the cavalry announced they were sleeping in this weekend. As I postulated late
August (see Tough
love's fatal attraction, Asia Times Online, August 27), the growing
public relations kerfuffle over Wall Street millionaires always expecting a
"rescue" when things go bad, versus hundreds of thousands of beleaguered US
homeowners now making their way through the courts to foreclosure and forced
eviction able to rely on no such protection, meant that US Treasury Secretary
Henry Paulson was just itching to prove that the next victim of the financial
crisis was, indeed, not "too big to fail". No government largesse was to be
provided to the next victim; it would be left to the market's tender, or more
likely rapacious, mercies. An old saying has that "if you can't be good, be
lucky"; Lehman, in stuffing its books with toxic mortgage-backed securities,
and then needing a government bailout precisely when they had gone out of
style, was neither.
After the markets closed on Friday , both the New York Times and the Financial
Times reported that Paulson had gotten together some of the great names of US
finance capital, men like John Mack of Morgan Stanley; John Thain of Merrill
Lynch; Vikram Pandit of Citigroup; Lloyd Blankfein of Goldman Sachs; and Jamie
Dimon of JPMorgan Chase - in essence, the heads of the five New York families
of finance, that night for the "I'm gonna make them an offer they can't refuse"
At the Bastille-like redoubt of the Federal Reserve Bank of New York in Lower
Manhattan (the thieves' target in 1995's Die Hard With a Vengeance),
Paulson, along with Securities and Exchange Commission chairman Christopher Cox
and New York Fed president Timothy Geithner, did their best to scare the great
houses of American money sufficiently to pony up a bunch of billions.
On its web site that night, the NY Times reported that Geithner told them that
"an industry solution was needed, no matter what, and that it was not about any
individual bank, according to two people briefed on the meeting but who did not
attend. They said he told them that if the industry failed to solve the problem
their individual banks might be next."
Why were the banks being so pokey? They weren't in March, when the Bear Stearns
rescue package was announced. But then, the government was opening its heart,
and, more importantly, its wallet to the street, promising to take around $30
billion of bad loans off the hands of any suitor, in this case JP Morgan, which
bought Bear. Now it seemed like the both the government's heart and its fist
were tightly clenched, and without the promise of a dowry rich with government
cash, nobody wanted to take Lehman and its highly besmirched virtue home to
meet mother, or even worse, their stockholders.
Come Saturday and the writers on the rescue beat experienced the misfortune
unique to the paid scribe - to have to fill up print and computer screens with
what's happening, when, basically, nothing was happening.
The Financial Times ran reports that China's sovereign wealth fund, the China
Investment Corporation, was ponying up to the bar to be a rescue participant;
somewhat surprising, considering the billions that SWFs have lost over the past
year trying to call the bottom in the stocks of the financial sector. In the
end, China sat this hand out.
The Wall Street Journal's Deal Journal blog gave a bit of flavor as to what the
event looked like from the street, as America's ruling financial technocrats
and regulators, who, if they had been doing their jobs these past few years,
would not be having to work overtime on yet another rescue weekend, struggled
to make up for lost time:
"You never know when they're going to finish," said one of the several drivers
standing near the black sedans that shuttle finance's highest ranking
executives to their next appointments. Aides and government officials walked
occasionally from the building's entrance to a nearby office tower. A man with
a t-shirt that said "George's" wheeled in a tray of sandwiches and mixed fruit.
"Executives walked into the Fed dressed casually. One man entered in jogging
clothes. JP Morgan executive Steve Black and Steve Cutler, JP Morgan's general
counsel, left the building early Saturday afternoon in a black sedan. Mr Cutler
was carrying a manila envelope thick with papers. He exited through the heavily
guarded garage entrance at the corner of William Street and Maiden Lane,
declining to comment on the talks.
"JPM's Mr Black returned to the Fed at 3:05 pm. He had a Bluetooth device in
his ear and was wearing blue jeans, brown loafers, a sea green shirt and a blue
blazer with gold buttons.
"Also visiting the building was Barclays executive Bob Diamond, flanked by two
or three others. He entered at the Fed's employee entrance on Maiden Lane,
wearing a blazer, no tie, and carrying a briefcase.
"Outside, it was a normal late summer day in lower Manhattan, with a tour bus
rolling slowly by the construction on Nassau Street. A group of men in Mets
hats took pictures while a young woman walked by in a t-shirt that said
"Asexuals party hardest".
"Fed staffers walked back and forth from their offices with coffee, and guards
whistled at a reporter, motioning to stop taking pictures. Couples walking
dogs, pushing strollers and asking for directions shared the narrow sidewalk
with bankers and lawyers who came outside for a break. One who stepped outside
in a blue pinstriped suit sat on a park bench and puffed on a cigarette. When
asked how it was going inside, he thought for a moment, looked up at the sky
and said nothing. He went back inside two minutes later."
The New York Times' Dealbook blog published pictures of what it looked like
down there on Liberty Street, with buttoned-down tieless men getting into black
sedans with looks on their faces one might expect to see had they been getting
into a hearse; once they left, the blast doors to the building's interior
driveway came down. Three NYPD police officers guarded the door, as
summer-dressed New Yorkers and tourists walked by, all obviously oblivious (as
is, to judge by the howling irrelevancies dominating the ongoing presidential
campaign, the rest of the country) to the crucial events going on upstairs that
will determine the degree of prosperity or deprivation in their future.
Early Saturday evening arrives; the New York Times reports that the talks have
adjourned until Sunday - maybe one and all wants to go uptown to see Tina Fey's
hilarious portrayal of Sarah Palin on Saturday Night Live.
But like Sherlock Holmes' dog that didn't bark, the real story here is the
rescue deal that is not being made. Everybody's holding tough, not budging.
Paulson's saying no money, Wall Street's saying, in that case, no deal.
Sunday morning, the talks resume. The clock is ticking - the Asian and Pacific
markets open at 6pm New York time.