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« As College Student, Eric Holder Participated In 'Armed Takeover' Of Columbia University ROTC Office | Main | VIDEO - Strippers, Keynes And The National Debt »
Friday
Sep212012

How JPM Destroyed Lehman And Paid A Tiny $20M Fine

Greece 1972 - My dad and I trailing my mom and a distant cousin, Spiro, at the Parthenon.

My brother was somewhere nearby looking for weak spots in the Parthenon's structural integrity, and my 3 year-old sister was back at the hotel being showered in drachmas by cheek-pinching relatives, a fact which Mike (bro) and I took advantage of later that day when we used a room-service knife to cut a hole in her piggy bank and borrow (isn't that what Corzine said) all the shiny drachmas inside.

As you know, this week is the 4th anniversary of Lehman's failure.  Here's the NYT article from Sep. 15, 2008 announcing the bankruptcy.  It's pretty interesting to go back and get a taste of the panic that was gripping global markets at the time.

Here's another story that caught my eye.

How JPM Destroyed Lehman Brothers And Paid A $20 Million Fine

The Final Days: JPM and Lehman

Around the time of the Lehman disaster, a senior insider at the firm relayed to me what seemed an astonishing allegation: that in the weeks prior to the eventual collapse, JP Morgan deliberately withheld huge monies owed to Lehman in order to make the bankruptcy a certainty from which they could benefit.

I relayed this story to another contact the following year, and he not only corroborated the charge, he also said he was sure Barclays had done the same.  The now disgraced Barclays CEO Bob Diamond took over Lehman in a fire sale only weeks later (using taxpayers’ money as a bridging loan to do it) and rapidly built up a commanding position for the division he then headed up, Barcap  – the investment arm of the bank.

Now, more than three years later, regulators have penalised JPMorgan for actions tied to Lehman’s demise. The bank settled the Lehman matter and agreed to pay a fine of approximately $20 million.  The action took place because of JPM’s ‘questionable treatment of Lehman customer money’: regulators accused JPMorgan of withholding Lehman customer funds for nearly two weeks.  So it had been true after all.

Jamie Dimon’s Morgan Chase dodged and dived on this one for three years in an attempt to smooth over the tracks.  As late as April this year, the Pirate insisted that the ‘monies involved were small’: but that doesn’t tally with this Wall Street Journal snippet from the time as follows:

‘Lehman Brothers Holdings Inc., the securities firm that filed the biggest bankruptcy in history yesterday, was advanced $138 billion this week by JPMorgan Chase & Co. to settle Lehman trades and keep financial markets stable, according to a court filing.’

Advancing cash to keep the markets stable is simply double-talk bollocks: many observers are sure this was the Lehman trades money withheld by JPM.  The Lehman administrators continued to air their grievances about it, and in late May 2010 the bankruptcy estate of Lehman Brothers Holdings, Inc. filed suit against JPMorgan Chase, alleging that JPMorgan’s actions in the weeks preceding bankruptcy were wrongful.

The claims arose from amendments and supplements to the Clearance Agreement between Lehman and JPMorgan in the weeks immediately preceding the bankruptcy.  In a nutshell, JPM changed the terms without notice to include onerous requirements for massive collateral against giving Lehman its own money back – a form of crooked logic that only a banker could construct.  The weight of this collateral requirement on already serious debts took Lehman Brothers from intensive care to the Pearly Gates.

Just before this suit was filed, I took a small risk by including the phrase ‘former Lehman employees rendered jobless by management hubris and JP Morgan’.  Now the full extent of the cannibalism indulged in by Morgan has come to light…although Barcap’s role remains in a murky penumbra somewhere.  But typically, by coughing up twenty million bucks to the Federal Government, the predatory Morgan Chase has got away with ‘not admitting guilt’.  Disgraceful.  Think of it this way: $20m to ice a major competitor…that has to be the bargain of the decade.

A few more extracts from the 2010 Slogpost make interesting reading today:

‘The top-ranking British law practice Linklaters signed off on controversial accounting practices that let Lehman Brothers shift billions of dollars of debt off its balance sheet. This masked the perilous state of the bank’s finances, and for many years misled both investors and regulators….Not only has crooked dealing been a clear and present carbuncle on the City’s reputation for decades, ancillary professional concerns have long been up to their necks in illegal collusion in such activities….Time and again, accusations of wrongdoing are met with appalled sanctimony by those routinely involved in serious misdeeds….only to result in even worse revelations…..And equally, the sentences handed out to miscreants justifiably evoke cries of ‘one law for the rich and another for the poor’.’

Well, nothing changes. And not much changed in Morgan the Pirate’s behaviour either: on 20th May 2009, so a CNBC story claimed, Washington Mutual (Wamu) sought billions in damages following its acquisition by Morgan Chase, via a class action suit littered with phrases like ‘far below market value’, ‘premeditated plan’, ‘designed to damage’, ‘purchase…on the cheap’, ‘wrongful conduct’, ‘sham negotiations’, ‘misusing confidential information’, ‘violation of confidentiality agreement’, ‘unfair advantage’, and ‘fire sale prices’. Nothing to see there, then. On June 24th last year, an Appeals Court revived the action – whch clearly has some merit. As far as I know, it continues to rumble on today, to the benefit of lawyers….just for a change.

Hat-tip to U.S. blogger Butch Cassidy for alerting me to progress on the original Lehman scam.  If anyone has anything substantial on Diamond Bob’s role in it, the address as always is jawslog@gmail.com.

Poscript: when I suggested in a 2007 edition of the magazine Market Leader that robust Lehman results hid an overdependence on merger and acquisition business, I did not for a second suspect wrongdoing – only myopia. But I can promise you, no editor has ever received such a level of vitriol from Lehmans and others in the sector – coupled with bullying threats of legal action, and accusations of dangerous naivety on my part. It must rank as one of luckiest unintentional scoops of all time.

***

 

Editor's note:  The links below are slightly older as they were originally included with a shorter version of this story published on July 23.

 

 

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Reader Comments (14)

Analysis: For brokers like Peregrine, from bad times to worse

http://www.reuters.com/article/2012/07/23/us-peregrine-brokers-idUSBRE86M03P20120723



Here is a rebuttal (op-ed) regarding Lloyd Blankfein's op-ed in politico (a link to Blankfein's piece is in story).

http://blogs.reuters.com/ben-walsh/2012/07/19/goldman-the-rest-of-you-should-invest-in-america/
Jul 23, 2012 at 7:06 AM | Unregistered Commenterjohn
Good-looking family. Very un-Walmartish.

Shots like this bring home the beating the middle class has taken. When I was growing up, you could do anything you wanted on your merits. Those days are over because they were stolen by big banks.
Jul 23, 2012 at 10:20 AM | Unregistered CommenterCheyenne
What a great photo.
Jul 23, 2012 at 12:26 PM | Unregistered CommenterPitchfork
You know, I forgot until I scanned the undercard headlines that Tiny Tim asked Dimon to step down. That popped up one Friday night on baseline scenario, wherein the esteemed nemo of calculated risk registered an appearance and a comment.

After that, nothing came of it. Jamie Dimon blew off the Treasury Secretary of the United States of America with total impunity.

Nemo predicted that Geithner would meet up with a bad accident. My own prediction was also off the mark. Who woulda figured that the Treasury Secretary would be completely ignored without consequence?

Meanwhile, there is a squirrel that water skies on the news. It's a very important story.
Jul 23, 2012 at 4:51 PM | Unregistered CommenterCheyenne
I have no idea where this cat learned how to write, but he learned.

His prose is disarmingly simple. He reminds me of Royko.

http://jessescrossroadscafe.blogspot.com/2012/07/academic-study-finds-about-20-of-public.html?m=1
Jul 23, 2012 at 5:30 PM | Unregistered CommenterCheyenne
Some interesting stories you shouldn't miss DB

Shudder if the Squid thinks Dodd Frank is good YOU KNOW IT'S NOT!

In Washington, Blankfein Backs Dodd-Frank

http://dealbook.nytimes.com/2012/07/18/in-washington-blankfein-backs-dodd-frank/

Behind Credit Default Swaps Market, a Cartel Left Open to Collusion

http://www.cnbc.com/id/48236325

Robbing retirees
The dirty little secret of O’s student-loan fix

http://www.nypost.com/p/news/opinion/opedcolumnists/robbing_retirees_bEk22P6DHVMylcH7zAtHXL

Warren Buffett Talks His Book While Defending Moody’s from Congress

http://wallstcheatsheet.com/breaking-news/warren-buffett-talks-his-book-while-defending-moodys-from-congress.html/

Moody's to settle mortgage bond credit ratings lawsuit

http://www.housingwire.com/content/moodys-settle-suit-filed-pension-fund-other-shareholders

How Bernanke Can Get Banks Lending Again

If the Fed reduces the reward for holding excess reserves, banks will have to find something else to do with their money, like making loans or putting it in the capital markets.

more

http://online.wsj.com/article/SB10000872396390444873204577537212738938798.html?mod=googlenews_wsj

Related

US 10-Year Yields Hit Record Low on Spain Fears (yea sure Spain Fears :)

Investors expect the Fed to eventually decide to either make a third round of bond purchases, known as quantitative easing , or cut the interest it pays banks on their excess reserves.

Expectations of the latter helped push the two-year Treasury yield below the 0.2 percent level for the first time since September.

in full

http://www.cnbc.com/id/48279904

Tony Blair: hanging bankers won't help (I don't know about that)

http://www.telegraph.co.uk/news/politics/tony-blair/9422096/Tony-Blair-hanging-bankers-wont-help.html


Titanic Banks Hit LIBOR Iceberg: Will Lawsuits Sink the Ship?


http://webofdebt.wordpress.com/2012/07/20/titanic-banks-hit-libor-iceberg-will-lawsuits-sink-the-ship/


The Federal Reserve And The Libor Scandal

http://baselinescenario.com/2012/07/19/the-federal-reserve-and-the-libor-scandal/

How not to report on the poor and the wealthy

http://blogs.reuters.com/felix-salmon/2012/07/23/how-not-to-report-on-the-poor-and-the-wealthy/


Biased Media Ignores Shady Obama-Jon Corzine Connection

http://www.usnews.com/opinion/blogs/peter-roff/2012/04/26/biased-media-ignores-shady-obama-jon-corzine-connection


Wall St. Is Ruining America

http://money.msn.com/investing/wall-street-is-ruining-america-mirhaydari.aspx


Why finance can’t be fixed with better regulation

http://blogs.reuters.com/felix-salmon/2012/07/23/why-finance-cant-be-fixed-with-better-regulation/

Will Oil Prices be the Next Manipulation Scandal?

http://moneymorning.com/2012/07/20/will-oil-prices-be-the-next-manipulation-scandal/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+USMoneyMorning+%28Money+Morning%29

Relentless rise in food prices already showing up in inflation indicators

http://soberlook.com/2012/07/relentless-rise-in-food-prices-already.html

Your guide to sleazy Democratic Party-backed banks

http://michellemalkin.com/2012/07/18/your-guide-to-sleazy-democratic-party-backed-banks/

Alan Blinder: Release the Trillion in Excess Reserves!!


http://www.economicpolicyjournal.com/2012/07/alan-blinder-release-trillion-in-excess.html
Jul 23, 2012 at 10:01 PM | Unregistered CommenterLiberatedCitizen
In regards the manipulation of oil prices, there was an article in Forbes in O8 or sometime around the storm. Forbes basically laid out the case that Golman Sachs had pulled the shorts on a deal they were making for one the US largest refiners. The owner of the refinery said it was a 500 billion dollar rip off to the american public. Essentially he was forced to sell out to them for about 20 billion. Never ever have seen a back up to that article. I will have to look for it and try to post. It was some crazy stuff.
Jul 23, 2012 at 11:31 PM | Unregistered CommenterSKINFLINT
SKINFLINT, I believe this may have been what you were talking about.

http://www.tulsaworld.com/news/article.aspx?subjectid=298&articleid=20100517_298_0_Agroup240299
Jul 24, 2012 at 5:38 AM | Unregistered Commenterjohn
John, This is about the same time frame. I saved the article somewhere in hopes of hearing about the forthcoming details. Long story short the particular company in question had to open the books to Golman to help them get some short term liqidity and Golman decided to not do the deal then squeezed them. I will find it and try to post it. I would imagine the article here is a little later down the timeline with the collateral players. Thanks.
Jul 24, 2012 at 6:24 AM | Unregistered CommenterSKINFLINT
Looking forward to it Skinflint. GS involvement in the energy sector is of great interest to me. Btw, you've put up some great stuff here.
Jul 24, 2012 at 7:00 AM | Unregistered Commenterjohn
Learned something new DB. Thanks. Just a tiny less than a dumb ass.
Jul 24, 2012 at 10:02 PM | Unregistered CommenterSKINFLINT
CONTACT YOUR REPRESENTATIVE!

Congressman Ron Paul's H.R. 459, the Federal Reserve Transparency Act, could come up for a vote at any time! (7/25/2012)

http://www.chooseliberty.org/audit_vote.aspx?pid=s185
Jul 25, 2012 at 2:19 AM | Unregistered CommenterAnon

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