Following Anton Valukus’ 2,200 page report on the demise of Lehman Brothers, the media has continued to dismiss the reputation of investment banks as nothing more than used-car sales men.
The now infamous ‘Repo 105’ transactions are now symbolic of the classed thievery that characterised investment banks preceding the global meltdown. But contrary to popular opinion, these opaque transactions and accounting methods were perfectly legal, being just another innovative adaption in order to promote a species continued success in the environment. As Charles Darwin wrote in 1859 in The Origin of Species, the process of natural selection is needed in order for continued evolution and growth of ecosystems.
Unfortunately for Lehman, which followed the fate of Bear Stearns in succumbing to the sub-prime meltdown, the adaption used was not enough to save it from being consumed by its environment. The bank collapsed in late 2008 with over US$613 billion in bank debt, and like the process outlined by Darwin, the characteristics of this bank were destroyed in natural selection.
The now infamous ‘Repo 105’ transactions are now symbolic of the classed thievery that characterised investment banks preceding the global meltdown. But contrary to popular opinion, these opaque transactions and accounting methods were perfectly legal, being just another innovative adaption in order to promote a species continued success in the environment. As Charles Darwin wrote in 1859 in The Origin of Species, the process of natural selection is needed in order for continued evolution and growth of ecosystems.
Unfortunately for Lehman, which followed the fate of Bear Stearns in succumbing to the sub-prime meltdown, the adaption used was not enough to save it from being consumed by its environment. The bank collapsed in late 2008 with over US$613 billion in bank debt, and like the process outlined by Darwin, the characteristics of this bank were destroyed in natural selection.
Now in 2010, the investment banking world that remains is constituted of the surviving individuals that possessed some competitive advantage that ensured their survival, being able to transcend the meltdown and pass on its favourable characteristics.
Henry Sender for The Financial Times recently published an article outlining the use of Repo 105s, and how the now surviving banks were able to pre-assess Lehman’s position and reduce their exposure. It is said that Merrill Lynch, which continues to live under the shelter of Bank of America, warned regulators that Lehman was incorrectly calculating its liquidity position in 2008, with little action being taken by the so called Federal Regulating Agencies.
Likewise, it has recently come to public light that the monolithic HSBC was undertaking Project Milan, a codenamed project with the intention of disentangling itself from Lehman Brothers by avoiding margin and brokerage positions with the aggressive bank, as it too, saw the instability in the corporation’s structure.
This intellectual foresight has allowed these two banks, and many others, to survive the crisis, with now greater experience and understanding of the financial-dos and financial-don’ts of capital markets.
The world exists with a framework and rules for corporations to operate in, but without pushing the boundaries of financial innovation, and in-part breaking the rules, world markets would be a sluggish and un-innovative place. Although painful in the short-term, it is these continued adaptions to environments and pushing of the boundaries, whether successful or not, that stimulate growth and development.
What a boring world it would be without rule-breaking and controversy?
Henry Sender for The Financial Times recently published an article outlining the use of Repo 105s, and how the now surviving banks were able to pre-assess Lehman’s position and reduce their exposure. It is said that Merrill Lynch, which continues to live under the shelter of Bank of America, warned regulators that Lehman was incorrectly calculating its liquidity position in 2008, with little action being taken by the so called Federal Regulating Agencies.
Likewise, it has recently come to public light that the monolithic HSBC was undertaking Project Milan, a codenamed project with the intention of disentangling itself from Lehman Brothers by avoiding margin and brokerage positions with the aggressive bank, as it too, saw the instability in the corporation’s structure.
This intellectual foresight has allowed these two banks, and many others, to survive the crisis, with now greater experience and understanding of the financial-dos and financial-don’ts of capital markets.
The world exists with a framework and rules for corporations to operate in, but without pushing the boundaries of financial innovation, and in-part breaking the rules, world markets would be a sluggish and un-innovative place. Although painful in the short-term, it is these continued adaptions to environments and pushing of the boundaries, whether successful or not, that stimulate growth and development.
What a boring world it would be without rule-breaking and controversy?
Your blogs are very professional: you write engagingly and comment on the issues. That said, I need to see more comment comparing newspaper sources which this entry lacks. 6.5
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