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naked capitalism: How Lehman Blew Up the City of London
So (provided the broker is not acting criminally) you should get the bulk of your money back if the broker dealer fails. And provided the capital requirements are adequate (and they mostly are) the broker dealer won't fail. Even the Drexel Burnham Broker Dealer did not fail....

The result. Whilst Lehman brothers went bust Lehman US broker dealer did not. This pretty well saved the US hedge fund industry.

Europe however was a different story. Lehman Europe failed - and the clients of the European broker dealer (read a good proportion of the London hedge fund community) are now queuing as unsecured creditors of Lehman. Many funds have folded. Far more have been nicked. Whilst the US hedge fund business is currently looking dazed, confused and a little problematic the UK business is on life support.

In some sense this is the end of the City of London.

I am on record as saying the UK took Maggie Thatcher to heart and deregulated financial activity to such an extent that the whole UK market worked without capital...

But now with the biggest bank in the world by balance sheet (Royal Bank of Scotland) effectively nationalised and the and a large part of the UK hedge fund community lying with open veins it looks a little stupid.

This puts in a different light the 8 billion dollars that Lehman London transferred to the US when it was failing. I stand open to correction - but I would guess that the money was obtained from client accounts from the European/London broker dealer. It is certainly being investigated by Lehman clients. This is a scandal of the first order allowed by an insane lassis faire approach to financial regulation.

So here is a plea for US Depression style financial regulation. Some of it (such as the Broker Dealer regulation) was well thought out and should be duplicated. (Some of it was less sensible...)

If I have a plea to my home country (Australia) after the Opes Prime debacle - a copy of the US 1934 Act would be a good start.

As for London - I am sorry, but it is a wreck. Maggie Thatcher you stand condemned.
by Metatone (metatone [a|t] gmail (dot) com) on Sun Oct 19th, 2008 at 05:46:42 PM EST
And that is a bad thing in which way?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 20th, 2008 at 06:44:01 AM EST
[ Parent ]
The outcome may not be bad but the fact is that Lehman US took 8 billion in clients' assets from Lehman US...

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Oct 20th, 2008 at 06:50:43 AM EST
[ Parent ]
And just to be clear on this point, these clients are who exactly?

Speculants looking for a quick buck? CEOs looking for a place to park their bonuses? Or mom and dad whose pension fund bought some AAA-rated paper?

In the former two cases, I couldn't care less if I wanted to. Horse thieves stealing from other horse thieves.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 20th, 2008 at 08:30:07 AM EST
[ Parent ]
There could be some pension funds in there. Just because they are pension funds for mom and dad doesn't make them less of horse thieves.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Oct 20th, 2008 at 03:20:09 PM EST
[ Parent ]
But it does make it easier for them to unload their Shitpile(TM) on mom and dad. Hence my greater sympathy for their plight.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 20th, 2008 at 03:58:41 PM EST
[ Parent ]

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