Roger Ehrenberg

BofA, Lehman, AIG: The New Financial Realities

Squashnut, good bank/bad bank is the right structure. it was dependent upon them raising the capital necessary to capitalize the bad bank. They didn't. Fuld waited too long. I'm well aware that what I write is out there for all, forever. That is why I do it. I don't trade single stocks, I don't make money off of my blog. I do it because I enjoy sharing my thoughts. I never have claimed to be an oracle.

Lehman Follows Good Bank/Bad Bank to Redemption

Squashnut, if they've got to write down $50 billion then better to do so in a way that doesn't kill the rest of the company. The remaining business will then be attractive for either taking additional investment or being sold.

Thowze, it's all about knowing what you are investing in. I don't think most of Lehman is near dead. I think it's doing really well. Some really, really stupid decisions were made in an asset class that is killing the entire firm. Better to hive it off, face facts and move on. Your point about credit derivatives is fair, and actually gets to the fraudulent conveyance issue Squashnut raised earlier. Lehman can't simply walk away from their counterparty exposure by transferring contracts to a less credit-worthy entity. This is a non-starter. I can't imaging they'd be stupid or aggressive enough to try this. They would be vilified.

Lehman Follows Good Bank/Bad Bank to Redemption

Squashnut, the question is: do you know what fraudulent conveyance is? That concept has nothing to do with what is going on here. What you are doing is taking a pool of illiquid assets, creating a liquid market for them, and allowing the more liquid assets to stop being taxed by the burdens associated with uncertainty surrounding the liquid pool. This isn't Marriott/Host Marriott where legacy bondholders were handed a sharp downgrade simply due to the restructuring. So I really don't understand your comment.

Richard, I didn't forget to tell you anything; I simply don't agree with your thesis. It's not as if the real estate assets are simply vanishing. Either existing shareholders will benefit from fresh cash being injected into Lehman, or they will receive another share of stock representing their proportionate ownership interest in the spun-out entity. My contention is that under either of these scenarios, an investor will be better off because of increased transparency associated with the core franchise and the ability to tap into a larger pool of investors for the real estate assets. So I don't actually see value destruction here - I see value creation.

Roger

FAS 157: Blackstone and Its Banker Buddies Have It Wrong

mgv11 - quite true. there are no easy answers in accounting. the best you can do is to emphasize transparency and market-based measures, apply the rules consistently and let managers design their capital structures accordingly.

left coast rick - i wrote my post the way i did for a reason. if you didn't like it, ok. i think the fas 157 rules are pretty clear and your framing of the interpretation issue makes you sound like steve schwartzman. i don't agree.

goodbadandugly - if the income producing properties are so attractive, then fund them so you can hold them. if you can't, you are stupid and deserve to incur whatever wrath the market wishes to bring upon you.

user 219640 - all i read is how it difficult it is to specifically identify mortgages wtihin these securitized portfolios. while theoretically you may be right, the issue still remains that you should be prepared to fund the mortgages if they can't be moved. otherwise, you are subject to the short-term funding whims of the market, which are clearly pretty ugly at present. the liquidity issue is separate and apart from valuation. if you can hold something valued at zero until it becomes non-zero, then you have addressed the most pressing part of the problem.

roger