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Lehman bankruptcy filing wiped out billions: report
2008 11:59 am ET
The Lehman Brothers booth on the trading floor of the New York Stock
Exchange, Reuters – The Lehman Brothers booth on the trading floor of
the New York Stock Exchange, September 16, 2008. Lehman
Brothers Holdings Inc's emergency bankruptcy filing wiped out as much as
$75 billion of potential value for creditors, The Wall Street Journal
reported on Monday, citing an analysis by the bank's restructuring
advisers.
A more planned and orderly filing would have allowed Lehman to sell some
assets outside of bankruptcy court protection and would have given it
time to unwind derivatives positions, according to the analysis by
Alvarez & Marsal.
The Journal said it was too early to say how much money Lehman creditors
would recover; it said unsecured creditors have asserted they are owed
$200 billion.
Lehman filed for bankruptcy protection in September after the U.S.
government declined to bail it out and a frantic weekend of negotiations
to save the investment bank failed.
The Lehman meltdown touched of a stock market panic and credit crisis
and was quickly followed by a government rescue of American
International Group Inc, once the world's largest insurer.
Lehman's demise also ignited a wave of fire sales of other giant
financial groups such as Wachovia Corp and Merrill Lynch & Co Inc.
Lehman executives were not immediately available to comment on the
Journal report.
Crisis impact spreads
A man sits next to a pillar of a building at a financial district in
Tokyo Reuters – A man sits next to a pillar of a building at a financial
district in Tokyo December 16, 2008.
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The global financial crisis scuppered a $17 billion petrochemicals joint
venture and drove three Japanese insurers into merger talks, while data
from Europe showed the region's economies face a bleak 2009.
Israel's assault on Gaza added another element of risk to the mix on
Monday, sending oil and gold prices higher and weighing down the dollar.
"It's a terrible situation and it just seems to be again causing major
concerns for all the markets," Peter McGuire, managing director at
Commodity Warrants Australia, said of the Gaza violence.
Consumers, investors, central bankers and politicians are hoping to see
some signs of recovery next year from the worst downturn since the 1930s
as governments pump over $1 trillion into their ailing economies.
However,
 it
looks like being a long haul everywhere.
U.S. stock indexes fell again as the collapse of a $17 billion joint
venture between Kuwait and Dow Chemical threatened to unravel one of the
large merger deals of the year and overshadowed gains in energy shares
on rising oil prices.
The planned Dow joint venture had angered some Kuwaiti parliamentarians
who said it was not economically viable amid the global financial crisis
and slumping petrochemical sales.
This year will see one of the biggest ever stock market falls. The U.S.
S&P 500 benchmark was down 41 percent with three trading days left in
2008. Its biggest yearly drop was in 1931 in the Great Depression when
it fell 47.1 percent.
The fallout has hit all sectors from banks to autos to commodities and
resources. Unemployment has climbed, house prices have plummeted and
cash-strapped consumers have curtailed spending, heaping more pressure
on companies struggling to survive recession.
Three big Japanese insurance companies were the latest firms considering
a merger to tackle a downturn that has hit demand for car and fire
insurance in the world's second-largest economy.
Shares of Mitsui Sumitomo Insurance Group Holdings Inc, Aioi Insurance
Co and Nissay Dowa General Insurance Co surged on Monday on hopes that a
merger would increase profits and reduce competition.
Data from South Korea underlined the broad impact of the crisis. Central
bank data showed consumer sentiment tumbled to a 10-year low in December
as household incomes fell and the jobs market worsened.
In Europe, sentiment among Italian businesses hit the lowest level
recorded in a monthly survey dating back to January 1991 and data showed
the French economy grew only 0.1 percent in the third quarter.
A report by Britain's Chartered Institute of Personnel Development
forecast as many as 600,000 people could lose their jobs in Britain next
year.
Russia devalued the rouble again on Monday and Kremlin leaders urged
government unity to deal with the biggest economic challenge in a
decade.
CURRENCY MOVES
A surging yen was cited by analysts as part of the motivation for the
insurance merger, because it has eroded the value of the insurers'
foreign-currency assets.
Yen strength has prompted official concern, underscored on Monday by
Finance Minister Shoichi Nakagawa, who told the Financial Times that he
was watching volatility in the foreign exchange market with alarm.
The yen has surged more than 18 percent against the U.S. dollar this
year, slamming Japanese exporters like Toyota and Sony and triggering
speculation the government may intervene to halt the currency's rally.
"Every day I am looking at the market developments with a sense of alarm
and urgency," the paper quoted Nakagawa as saying in reference to yen
volatility in an interview.
The dollar fell, eroded by a grim economic outlook and concerns Israeli
attacks in the Gaza strip will destabilize the Middle East and threaten
oil supplies.
Sterling hit a record low against the euro, approaching parity with the
single currency, after reports pointed to a further slide in UK home
prices in 2009.
The Swiss franc jumped as well as gold and oil prices as Israeli
warplanes pounded the Hamas-ruled Gaza Strip for a third consecutive
day.
"Geopolitics had disappeared from the oil scene for the last couple of
months but will regain some price premium with the latest Israeli attack
in Gaza," Olivier Jakob, of consultants Petromatrix, said in a research
note.
U.S. light, sweet crude was up $1.16 at $38.87 a barrel by 10:06 a.m.
EST, below a session high of $42.20.
Oil is on track for a nearly 60 percent loss this year, the biggest
annual fall since futures began trading 25 years ago.
Madoff liquidation trustee gets $28 million for costs
Bernard Madoff walks back to his apartment in New York, December 17,
2008. Reuters – Bernard Madoff walks back to his apartment in New York,
December 17, 2008.
NEW YORK (Reuters) – The Bank of New York Mellon Corp has agreed to
transfer $28.1 million from an account of confessed swindler Bernard
Madoff's investment firm to pay for liquidation costs, according to
court papers.
Irving Picard, the trustee of the Securities Investor Protection Corp
overseeing the liquidation of Bernard L. Madoff Investment Securities
LLC, "is in urgent need of funding for immediate costs of
administration," the December 26 filing in U.S. Bankruptcy Court in
Manhattan said.
It said the agreement called for $29 million held in the bank's account,
minus $883,978 already transferred for employee pay and healthcare
coverage, to be wired to the trustee.
A Bank of New York Mellon Corp representative said the bank was not
exposed to Madoff but the investment adviser held an account with the
bank.
A hearing was scheduled for Tuesday before U.S. Bankruptcy Judge Burton
Lifland to approve the agreement. Two weeks ago, another judge ordered
liquidation of the firm under the Securities Investor Protection Corp, a
nonprofit group created by Congress in 1970.
A lawyer for the trustee was not available to comment. Madoff's lawyer
was not available to comment.
In another move in bankruptcy court, the trustee is taking steps to sell
the market-maker business run by Madoff, who was arrested and charged
with securities fraud on December 11 after authorities said Madoff told
them he had been operating a "Ponzi" scheme for years with estimated
losses of $50 billion.
The court gave approval to the trustee this week to share confidential
information with potential buyers of the firm.
A Ponzi scheme is one in which early investors are paid with the money
of new clients. Madoff's dealings ensnared rich people, banks and
charities all over the world.
The exact amount of money lost by Madoff is not yet known, but
investigators may have a better idea of his firm's worth by Wednesday.
On December 18, a U.S. District Court judge in Manhattan ordered Madoff
to provide a verified written accounting of his firm's records to the
U.S. Securities and Exchange Commission by December 31.
These include "all assets, liabilities and property, bank accounts,
brokerage accounts, investments, business interests, loans and lines of
credit" according to the order in the civil case brought by the SEC.
Madoff, 70, who has not appeared in court to answer the criminal
complaint, is confined to his Manhattan apartment 24 hours a day with
security cameras trained on the doors "to prevent harm or flight"
according to a court order.
The cases:
USA v. Madoff 08-02735, U.S. District Court, Southern District of New
York (Manhattan)
Securities and Exchange Commission v. Madoff et al 08-10791, U.S.
District Court, Southern District of New York (Manhattan)
Securities Investor Protection Corp. v. Bernard L. Madoff Investment
Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of
New York (Manhattan).
Thanks to Hamas' stupid, provocative, and self-defeating rocket assault
on, well, nothing, in Israel, the Middle East that Barack Obama will
inherit from George W. Bush just got a lot more complicated. And, sadly,
Obama seems content to fiddle while Gaza burns.
Yesterday Obama got an official US intelligence briefing on the crisis
in Gaza, which may or may not have numbed his brain with data he didn't
need. Obama didn't need an intelligence briefing to tell him anything he
really needs to know: that, once again, the twin poles of Israeli and
Palestinian extremism have flared up in a way that will only undermine,
perhaps fatally, the chances of a negotiated accord during Obama's first
term in office.
The only useful intelligence Obama might have gained from the briefing
is that the Mossad knew, before Israel's massive attack on Gaza, that
Hamas was only trying to make a show of force. That is, Hamas'
not-too-bright leaders thought that they could get away with a few
hundred rocket attacks into Israel and then renegotiate a better
ceasefire deal. Like the less-than-brilliant strategists in Georgia, who
thought that they could attack Russia with impunity and who instead got
their heads handed to them last August, Hamas' own armchair fanatics
thought they could get away with it. Oops. The Wall Street Journal
reports today:
In recent weeks, Israeli intelligence officials have said they believed
Hamas doesn't want a full-scale confrontation, but rather wants to make
a show of force before seeking a renewed cease-fire on more favorable
terms.
If that's true, and there's little reason to think it isn't, it was
certainly within Israel's power to exercise restraint -- or perhaps to
engage in a little tit-for-tat counterattacks -- while waiting for
things to settle down. But, no. Hamas, for its part, should have known
that it was firing its rockets directly into Israel's pre-election
political mess, in which hardline extremists like Bibi Netanyahu are
gaining the upper hand. And the power of those extremists, playing on
Israeli public opinion and its fears, pushed the pathetic Olmert-Livni
government over the brink. (It's particularly disgusting that Olmert,
who in his various exit interviews and speeches has pretty much
acknowledged that Israel needs a deal involving the removal of Jewish
settlements and the partition of Jerusalem, would go along with the
overkill in Gaza.)
But the truly sad thing is see how Obama has opted out. He left the
commenting to David Axelrod, his political strategist, who said,
mouse-like: "I think he (Obama) wants to get a handle on the situation
so that when he becomes president on January 20 he has the advantage of
all the facts and information leading up to that point." To that
gobbledygook he added that now all-too-familiar nostrum that America has
"one president at a time."
It's long past time for the United States to have opened a dialogue with
Hamas. As stupid as they are, their leadership is divided and they are
not all religious fanatics (though many are) and they are not all living
in the fantasy that Hamas can defeat Israel. The same Journal story
today notes:
There are indications that the Hamas leadership is divided on how
forcefully to respond. When Hamas's traditionally hard-line
Damascus-based leader Mr. Meshal urged renewed attacks against Israel
earlier this month, local Hamas leaders in Gaza quickly distanced
themselves from his statements.
Those more sensible Gaza leaders of Hamas might be willing to reconcile
with Fatah and the Palestinian authority, and it's the least that Obama
could do to say so. It might be nice, too, if Obama would gently (or not
so gently) point out that Israel's ham-handed overreaction needs to be
reined in. (The Bush administration, which cheer-led Israel's 2006
attack on Hezbollah in Lebanon, isn't going to call for restraint.)
Meanwhile, just as Israel's attack on Lebanon strengthened that
country's band of religious fanatics -- Hezbollah -- the Gaza assault is
almost guaranteed to end up bolstering Palestine's own religious
extremists, including Hamas's more wild-eyed and terrorist-inclined
gangs. For some Israeli extremists, that may be exactly what they want,
because it pushes a two-state solution that much further away. It would
nice, too, if Obama would point that out.
During 2008, Obama never allowed any daylight between himself and the
Israeli lobby. Those inclined to believe that Obama had a secret plan to
break with AIPAC and its allies and to push for a solution in Palestine
in a manner that wouild involve twisting Israeli arms discounted Obama's
pro-Israel rhetoric as campaign posturing. We'll see. But it now appears
abundantly clear that we'll have to wait until January 20, if not long
afterwards, to find out.
The Worst Predictions About 2008
*
U.S. insurer American International Group (AIG) office building is
pictured in Reuters – U.S. insurer American International Group (AIG)
office building is pictured in Tokyo December 24, 2008.
Here are some of the worst predictions that were made about 2008. Savor
them -- a crop like this doesn't come along every year.
1. "A very powerful and durable rally is in the works. But it may need
another couple of days to lift off. Hold the fort and keep the faith!"
-- Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008
At the time of the prediction, the Dow Jones industrial average was at
12,300. By late December it was at 8,500.
2. AIG (NYSE:AIG - News) "could have huge gains in the second quarter."
-- Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008
AIG wound up losing $5 billion in that quarter and $25 billion in the
next. It was taken over in September by the U.S. government, which will
spend or lend $150 billion to keep it afloat.
3. "I think this is a case where Freddie Mac (NYSE:FRE - News) and
Fannie Mae (NYSE:FNM - News) are fundamentally sound. They're not in
danger of going under I think they are in good shape going forward." --
Barney Frank (D-Mass.), House Financial Services Committee chairman,
July 14, 2008
Two months later, the government forced the mortgage giants into
conservatorships and pledged to invest up to $100 billion in each.
4. "The market is in the process of correcting itself." -- President
George W. Bush, in a Mar. 14, 2008 speech
For the rest of the year, the market kept correcting and correcting and
correcting.
5. "No! No! No! Bear Stearns is not in trouble." -- Jim Cramer, CNBC
commentator, Mar. 11, 2008
Five days later, JPMorgan Chase (NYSE:JPM - News) took over Bear Stearns
with government help, nearly wiping out shareholders.
6. "Existing-Home Sales to Trend Up in 2008" -- Headline of a National
Association of Realtors press release, Dec. 9, 2007
On Dec. 23, 2008, the group said November sales were running at an
annual rate of 4.5 million -- down 11% from a year earlier -- in the
worst housing slump since the Depression.
7. "I think you'll see (oil prices at) $150 a barrel by the end of the
year" -- T. Boone Pickens, June 20, 2008
Oil was then around $135 a barrel. By late December it was below $40.
8. "I expect there will be some failures. I don't anticipate any serious
problems of that sort among the large internationally active banks that
make up a very substantial part of our banking system." -- Ben Bernanke,
Federal Reserve chairman, Feb. 28, 2008
In September, Washington Mutual became the largest financial institution
in U.S. history to fail. Citigroup (NYSE:C - News) needed an even bigger
rescue in November.
9. "In today's regulatory environment, it's virtually impossible to
violate rules." -- Bernard Madoff, money manager, Oct. 20, 2007
About a year later, Madoff -- who once headed the Nasdaq Stock Market --
told investigators he had cost his investors $50 billion in an alleged
Ponzi scheme.
10. A Bound Man: Why We Are Excited About Obama and Why He Can't Win,
the title of a book by conservative commentator Shelby Steele, published
on Dec. 4, 2007.
Mr. Steele, meet President-elect Barack Obama.
Top 10 Most Literate U.S. Cities
Once again, bookworms in the Midwest and Pacific Northwest have beaten
out Yankee types to reach the very top of a researcher's list of the
most literate American cities.
Minneapolis and Seattle tied for the top ranking this year, based on
local newspaper and magazine circulation, library data, online news
readership, book purchases and resources, and educational attainment.
Here is the full Top 10 Most Literate list for 2008 (OK, there are 11
cities on the list) generated by Jack Miller, president of Central
Connecticut State University:
Minneapolis (tied for 1st)
Seattle (tied for 1st)
Washington, D.C.
St. Paul, Minn.
San Francisco
Atlanta
Denver
Boston
St. Louis
Cincinnati (tied for 10th)
Portland, Ore. (tied for 10th)
Miller's research for this year's "America's Most Literate Cities" was
conducted in collaboration with the Center for Public Policy and Social
Research at Central Connecticut State University. The original AMLC
study was published online in 2003 at the University of
Wisconsin-Whitewater. The data for the 2008 analysis came from the U.S.
Census Bureau, American Booksellers Association, Audit Bureau of
Circulations, Yellow Pages and other sources.
Here are the top 5 ranked cities for 2007, in declining order:
Minneapolis, Seattle, St. Paul, Denver and Washington, D.C. In 2006, the
top 5 were Seattle, Minneapolis, Atlanta, Washington, D.C., and St.
Paul. In 2005: Seattle, Minneapolis, Washington, D.C., Atlanta and San
Francisco.
The AMLC study attempts to capture the literacy of major U.S. cities
with populations of 250,000 and above, presenting a large-scale portrait
of the nation's cultural vitality.
"From this data we can better perceive the extent and quality of the
long-term literacy essential to individual economic success, civic
participation, and the quality of life in a community and a nation,"
Miller said.
Contrary to popular wisdom, Internet use correlates with reading words
printed on paper, Miller found. Cities ranked highly for having
better-used libraries also have more booksellers; cities with more
booksellers also have a higher proportion of people buying books online;
and cities with newspapers with high per capita circulation rates also
have a high proportion of people reading newspapers online.
"A literate society tends to practice many forms of literacy not just
one or another," Miller said.
However, when the literacy lens is opened to look at the picture
worldwide, in terms of per-capita paid newspaper circulation, the United
States ranks No. 31 in the world.
The Republic of Korea, Singapore, Venezuela, Finland, Greece, the United
Kingdom, Sweden and Norway, among others, all significantly surpass U.S.
circulation rates - often at a substantially higher cost to consumers,
Miller said.
Astronomers Aim to Grasp Mysterious Dark Matter
'Dark energy' expands, contracts universe: researchers AFP/NASA/File –
This August 2008 image taken by the Hubble Space Telescope and Chandra
X-ray Observatory show a clear …
For the past quarter century, dark matter has been a mystery we've just
had to live with. But the time may be getting close when science can
finally unveil what this befuddling stuff is that makes up most of the
matter in the universe.
Dark matter can't be seen. Nobody even knows what it is. But it must be
there, because without it galaxies would fly apart.
Upcoming experiments on Earth such as the Large Hadron Collider (LHC)
particle accelerator in Switzerland, and a new spacecraft called Gaia
set to launch in 2011, could be the key to closing the case on one of
the biggest unsolved mysteries in science.
A disturbing truth is accepted by most astronomers: There is a lot more
stuff in the universe than what we can see. Scientists now think visible
matter — all the planets, stars, and galaxies that shine down on us —
represents only about 4 percent of the mass-energy budget of the
universe, while dark matter and its even more esoteric cousin, dark
energy, make up the rest.
"There is no consensus actually at all as to what dark matter is," said
Gerard Gilmore, an astronomer at the University of Cambridge who wrote a
recent essay for the Dec. 5 issue of the journal Science about the
search for dark matter.
A leading hypothesis posits that dark matter is composed of some kind of
exotic particle, yet to be detected, that doesn't interact with light,
so we can't see it. One such theorized class of particles is called
WIMPs (Weakly interacting massive particles), which are thought to be
neutral in charge and weigh more than 100 times the mass of a proton.
Atom smasher
The newly-opened LHC, a 17-mile-long (27 kilometer-long) underground
ring in which sprays of protons speed around and crash into each other,
could be the first experiment to detect WIMPS. The particle accelerator
officially went online in September 2008, but was halted shortly after
due to a fault with its construction — it's due to go back online in the
summer of 2009. Since the LHC is the largest and most powerful atom
smasher ever built, its collisions could produce the extremely high
energies needed to create the elusive particles.
In fact, the LHC will likely create a host of never-before-seen
particles, opening up a realm of the universe that physicists have been
eager to explore.
"The assumption is, there will be whole families of new types of
particles," Gilmore said in a podcast interview with a reporter from
Science. "The challenge then is to say, well OK, we now then have a new
set of ingredients in our recipe for how nature is put together, but
what is the recipe that uses this set of ingredients? I.e., what mix of
these particles does nature actually use to create the universe, and
how?"
Weighing the universe
That's where Gaia comes in. The European Space Agency satellite is
designed to measure positions and speeds of about 1 billion nearby stars
with unprecedented precision. Its vision is so sharp it should be able
to discern the equivalent of a shirt button on the surface of the moon
as seen from Earth, Gilmore said.
By establishing where things are in our galaxy, the spacecraft will help
scientists measure the weight and distribution of mass in the Milky Way
in much greater detail than ever before. These measurements are vital
for models that attempt to describe how the pull of dark matter has
shaped our galaxy.
"What Gaia will do is measure the distances of stuff and measure how
they're moving in three dimensions around space to much better precision
than we've had before, which will allow us to weigh things on all sorts
of scales down to the smallest scales we can find," Gilmore said. "They
will tell us to exquisite precision how the dark matter is distributed
in space, which is the recipe we need to determine its properties."
The global financial crisis Lehman bankruptcy filing wiped out billions
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