Monday, September 14, 2009

One Year Ago - September 15th, 2008 2pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later. [Photo: Reporter outside the crypt]
Tales From the Crypt
Originally written Monday September 15th, 2008, 2pm

I've been in and out of the building three times this morning and on the second time one of the reporters spotted my name tag and started shouting out my name "Alan! Alan! Any comment?" I ignored him. When I came out about 30 minutes later, however, the SAME guy spotted me and began yelling "Alan! Alan! Over here!" and in 3 seconds 40 reporters with cameras and microphones were following me down 7th Avenue yelling "Alan! Alan!" Then all these tourists spotted them following me so they started following me and snapping pictures and babbling in Italian. I sort of enjoyed it. It was very difficult not to respond but no good can come of it and I look like I haven't slept much for some reason. :) So, the official line is we are open for business and fully cooperating to ensure as orderly a wind-down process as possible. There is clearly interest from different parties in buying the equities business, where I work, but it is a shrinking asset. We have about 100 clients who matter and we're holding their hands very closely and doing anything they want right now (plus none of them wants chaos, either). This is something we can probably do for 2-3 days max before they say enough is enough and our franchise is worth nothing. Dick Fuld seems to have overplayed his hand and we now see that the Fed has in fact created a MUCH huger moral hazard with all its actions last night, but the headline "Lehman declares bankruptcy" is a very good one for investors and the US economy in general and a coup for the Feds. I hope this action plus the purchase of Merrill are enough to stop all the madness. Capitalism requires pain, and the pain is never evenly distributed. I've always argued that it's tough luck for midwestern factory workers whose jobs move to China forever as long as we give them a safety net of unemployment insurance, social security etc so I'm getting a taste of my own medicine and that's fine. I would be surprised if there is a buyer (there are lots of rumors) although it's amazing who comes out of the woodwork when a company that cost $2.5 billion on Friday is worth $160 million today. A week ago - at my debut - it was worth $9.7 billion. The day I started, May 12, it was worth $31 billion. A year ago it was worth $47 billion. Now, I have friends who could buy it, fer chrissakes! :) The biggest threat to the economy now is what happens when the bankruptcy turns from a Chapter 11 to the Chapter 7 version if Lehman cannot sell any of the good parts in the next few days. Chapter 7 could force them to sell the mortgage-backed assets at probably a few cents on the dollar. If that happens, every other financial institution in America will have to use that price to set a value on the similar assets they all hold. This will create a paper loss for the entire sector in the hundreds of billions of dollars - and a dramatic contraction in the money supply etc. It could be 1933 all over again. I am certain the Feds are looking at options where they take over Lehman's bad assets rather than let them be sold openly. It won't generate the headlines that "bailing out" Lehman would have. The mood? People are crying, hugging etc. I am awkward because the team I joined has been together for 7 years and many of them have worked together far longer (like 19 years). Plus most of them were wiped out financially. Most have small children. So I'm there but not "there." Very sad. More later.

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