Charlie Bottle

Richard X. Bove on Lehman: An Assault on Reason

Dear Prescient,

Thank so much for your comments. Indeed the goal fo the article was not to analyse Lehman's solvency and much less the end of the world (I am of the view that financials hit bottom 7/15), the objectve was simply to point out the flawed argument (I would lamost qualify it as a non-sequitor) in the article.

You cannot separate the good businesses from the bad businesses realize the value fo the good ones and leave your creditors hanging on to the bad ones.

There may even be a buyer out there for Lehman, but to say that there will be hostile take over battle with two or more contenders under current conditions is non sensical IMO.

Richard X. Bove on Lehman: An Assault on Reason

Double AA, thank you for your comment. No doubt there are rules that need to be followed regarding insider trasanction, there is a time "window" for such sales, disclosure requiremets, etc. I did not mean he should buy shares in the next couple of days - he has had two months since last quarter's earnings to do it. Completelly agree with you that if he wanted to make a statement by buying shares he could do it.

A Critical Market Juncture (Again)

The introduction of a clearinghouse in the "middle" of all CDS contracts means that each contract would have as counterparty the clearing house (just like in a derivatives exchange) rather than another participant.

For example, a contract where LEH sold JPM CDS on a name, becomes effectivelly two transactions: LEH sells to the clearing house; the clearing house sells to JPM. This way JPM is not exposed to LEH counterparty risk (or vice-versa).

By creating this hub structure, this sytem effectivelly diversifies counterparty riks and allows the system to better absorb the default of any individual counterparty. The problem with the existing over the counter structure is that it coexists with concentrations of exposure to a limitied number of counterparties by any given participant which creates the potential risk for a domino effect of counterparty defaults. This is why JPM had little choice but to buy bear strearns, and why the Fed is very focused on this.