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Apparently, the Lehman bankruptcy executor discovered emails from Lehman employees to Barclays showing that the employees had been offered new positions at Barclays. In return, they wrote down Lehman assets to make it seem as though Barclays were buying much more of a dog than Lehman actually was.

http://www.reuters.com/...

Money quote after the fold.

"Barclays planned on and insisted on the discount and they planned on the liability numbers being inflated," Robert Gaffey, a Jones Day attorney representing Lehman, told the court.

"It was not the wash described to the (Lehman) board, it was not the net benefit described to the estate," he continued, claiming that Barclays received an $11.2 billion immediate windfall profit on the assets it acquired, while the court was told that the sale would actually give Lehman a benefit of about $4 billion in terms of reduced liabilities and cash.

Gaffey showed the court emails from Lehman employees who had been offered new jobs at Barclays, revealing the conflicts they may have had as they were working to arrange the deal.

OK, for many of us, this might seem like no big deal, unless you were an investor in Lehman's directly or else your mutual fund, 401k or IRA had some residual Lehman involvement.

But remember, much of the economic crisis was brought on by Lehman's corporate bonds and the credit default swaps on Lehman bonds. TARP and a lot of the losses sustained by other banks came as a result of Lehman's bankruptcy, and those losses have been made whole at a lot of banks--courtesy of the US taxpayer. Remember the term "toxic paper?" That's Lehman Brothers, and they were selling the paper for 5 cents on the dollar after the crisis. The government wanted to buy that paper back for a huge premium, something like 50 cents or more, and the taxpayer would swallow the loss. Worse, other investment banks sold a lot more in credit default swaps on Lehman than Lehman had actually issued in bonds, which made the ensuing default so much more painful.

Now we learn that Barclays conspired with Lehman employees to show bigger losses at Lehman (that US taxpayers were ultimately responsible for) than actually existed. This created a much bigger problem since the CDS out there create exponential losses. So, Barclays $12 billion scam actually creates much bigger losses elsewhere in the system.

This is a dynamic that government should NEVER have gotten involved with. The conspiracies are why we should totally steer clear of saving banks and instead create new mechanisms to keep our economy running when banksters commit their heists.

Who is going to jail?

Originally posted to upstate NY on Sat Apr 10, 2010 at 08:52 AM PDT.

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Comment Preferences

  •  Tip Jar (12+ / 0-)

    There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

    by upstate NY on Sat Apr 10, 2010 at 08:52:08 AM PDT

  •  In Affect (4+ / 0-)

    Lehman employees offered new positions at Barclays falsified internal data in order to arrange a multi-billion dollar discount on the sale to their future employer.

    Adam and Eve had Iraqi birth certificates.

    by bink on Sat Apr 10, 2010 at 09:00:35 AM PDT

    •  Er (3+ / 0-)
      Recommended by:
      wilderness voice, Badabing, papicek

      Effect -- what is wrong with me today?

      Adam and Eve had Iraqi birth certificates.

      by bink on Sat Apr 10, 2010 at 09:02:29 AM PDT

      [ Parent ]

    •  Exactly... (3+ / 0-)
      Recommended by:
      emal, watercarrier4diogenes, papicek

      That doesn't surprise, I suppose, but any loss for investors exponentially increases when you bring credit default swaps into the mix. This means the money that Barclays gained ($11.6 billion) rises exponentially when the owners of CDS come calling to the other banks that sold the contracts.

      Worse, Barclays was a recipient of TARP, both directly and through AIG.

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Sat Apr 10, 2010 at 09:04:13 AM PDT

      [ Parent ]

      •  exponential gains? (1+ / 0-)
        Recommended by:
        thethinveil

        how does that work? For all us financial and accounting noobs.

        Plus ça change we can believe in.

        by papicek on Sat Apr 10, 2010 at 09:06:05 AM PDT

        [ Parent ]

        •  I was not clear (1+ / 0-)
          Recommended by:
          papicek

          I should have written exponential losses.

          If Lehman Brothers was actually worth 15.2 billion more (11.2b in immediate Barclays profit + 4b in the writedown of Lehman debt) then the creditors who held CDS on that debt should not have been paid by US taxpayers but rather by the Lehman bankruptcy court.

          The problem is that the insurance on Lehman debt was oversubscribed. The insurance contracts on Lehman debt far exceeded the amount of actual debt, and since these insurance contracts are legal instruments, the holders of such contracts demanded payment--and were paid. But the only people who should have been paid were those who had originally bought the Lehman corporate bonds. They should have been paid through the bankruptcy court.

          There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

          by upstate NY on Sat Apr 10, 2010 at 09:10:26 AM PDT

          [ Parent ]

          •  When you talk about CDS losses, (1+ / 0-)
            Recommended by:
            papicek
            are you talking about CDS on lehman debt or cdss for which lehman was a counterparty?  If the former, then the losses were paid out by 3rd parties; the estate wouldn't be on the hook.  If the latter, my recollection is that the total gross exposure netted out to about 10% of the total, so those losses were much less than the gross total.
            •  I'm talking about the former. (1+ / 0-)
              Recommended by:
              papicek

              I'm not sure what you mean by the estate not being on the hook. If the company is bankrupt, its assets are distributed to creditors. So any losses by creditors would be diminished by the amount of assets distributed.

              There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

              by upstate NY on Sat Apr 10, 2010 at 09:51:39 AM PDT

              [ Parent ]

              •  Then the estate (which refers (1+ / 0-)
                Recommended by:
                papicek
                to Lehman in bankruptcy) doesn't pay out on those.  CDSs on Lehman debt.  Hedge funds and and other banks lost money on those, not Lehman. (A cds, recall, is where A pays B if C goes bankrupt).

                The story is interesting enough w/o the cds angle, which doesn't really add anything.

                •  Where did I say (1+ / 0-)
                  Recommended by:
                  papicek

                  the estate pays out CDS?

                  Are you missing the fact that there is no CDS payout if I'm made whole on my investment by the bankruptcy court?

                  If I'm made whole, then I'm good.

                  There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                  by upstate NY on Sat Apr 10, 2010 at 11:04:14 AM PDT

                  [ Parent ]

  •  Looting 2.0 (2+ / 0-)

    in action. There is all sorts of criminal liability here if this can be confirmed in a court of law.

    Has anyone heard a peep from the FCIC on this? Or the FBI?

    Plus ça change we can believe in.

    by papicek on Sat Apr 10, 2010 at 09:04:25 AM PDT

  •  Thanks for this diary.... (5+ / 0-)

    Who is going to jail?

    Please send a copy of this to AG Eric Holder...he is supposed to be 'investigating Lehman Bros.' as formally requested by the Chairman of the Senate Finance Banking Committee, Senator Dodd.

    What I learned about this, was when they let Joseph Cassano of AIG go free, who collected $315 Million dollars, that if 'one of them go down' they all go down, because all of the 'crooks'....JP Morgan, Goldman Sachs, Lehman, Citi, were all doing the exact same things:  Cooking their books, and the FED knows it, and so does our government.

    It's a 'cover up'...plain and simple and makes Watergate look like a bunch of 'boy scouts' who got caught stealing candy bars.

    'Stealing is now Legal in the USA' for anyone that works on Wall Street/the Banks.

    ...oh, not to worry, I'm wearing a Flame Retardant Valentino Orange Moo Moo whenever I visit DailyKos.

    by Badabing on Sat Apr 10, 2010 at 09:08:23 AM PDT

    •  The executor is careful to note (5+ / 0-)

      that the emails only show job offers.

      He says the employees "may have a conflict of interest."

      Gee, you think?

      So there's no smoking gun, but these people should be interviewed. How in the world were these assets hidden? Who signed his name? Who is ultimately in charge? Did Barclays hire Lehman's accountants?

      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

      by upstate NY on Sat Apr 10, 2010 at 09:12:22 AM PDT

      [ Parent ]

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