I think that until one gets a full disclosure as to what kind of assets were on Lehman's books, it is too early to say anything really smart about the Lehman meltdown. Hopefully, they will have something like UBS's report to shareholders, that went over very precisely what went wrong. That is, what kinds of Asset Backed Securities, or credit default swaps, were on their books? One needs to know not just the 30,000 feet level, but the actual type, their subordination. I haven't seen any of that. I suspect they had assets that, marked to comparable securities, made them insolvent. But back in 1980, most of the financial system was insolvent, but back then very little of their balance sheet was marked to market, so they lived through the high interest rates. I imagine back in 1970, it was similar, but with the 'banking book' not being marked to market, only insiders from back then know.
It's an interesting issue, because as we see with closed end funds, the market value can diverge from net asset value. I'm not clear that this Lehman bankruptcy was necessary or appropriate, but I don't have much information. I'm doing some bottom up work on mortgages now, and can tell you that figuring out their valuation is very difficult.
But I do love Paul Krugman, who confidently asserts that the answer is more regulation, without any evidence that more regulation would have mitigated this. The government, and the regulators, were behind this 'ownership society' push. I think its implausible to think that more resources would have changed that focus. They might have made it worse.
No comments:
Post a Comment