The Financial Drama Continues: New Suspect in Lehman MUUURDER!

Naked Capitalism has a great post from last night that I recommend reading in its entirety (don’t worry, busy people: it’s pretty short.  Under three minutes. I promise).  It sources this Financial Times article extensively but Yves’ input is highly recommended reading.

So I posted a day or two back about the accusations flying around about the insidious JP Morgan having MUUURDERED Lehman Brothers by denying them access to funds.  Well, apparently, Lehman had come up with the idea of becoming a bank holding company two months prior to Morgan Stanley and Goldman Sachs successful (and, at unprecendented speed) conversion to bank holding companies which are subject to greater regulation, but also have access to greater funds and loans.

On top of that, Lehman had requested the Federal reserve modify its collateral requirements for Lehman.  Ironically, as Yves expertly points out, as now the TARP will not only take any of your trash as collateral, but they’ll pay you any dollar amount you can dream up for it.

If I hadn’t disagreed with almost everything done by the Fed, Treasury, and SEC at this point, I’d be a bit surprised by this new revelation.  But now that Showtime’s Dexter has just come back for it’s third season, this is beginning to make a lot of sense to me.  See, Dexter is an emotionless serial killer who has to fake his own humanity to blend into the world and each episode more or less chronicles his murder of some criminal to satisfy his insatiable urge to kill while doing so in a manner that allows him to remain free and able to kill again in the future (or at least this was the plot for the first season… now it’s a romantic comedy about a former serial killer who is now a really good guy who loves children and has all sorts of normal human feelings and is a superhero to boot, or something… but I digress).  Every episode, more or less, Dexter would knock off some low life and learn something about his past and his role in the world at the same time, in a very poetic sort of way with really made-for-TV internal monologues.  That’s what the Fed/FDIC/Treasury is doing!

Every time the Fed/FDIC/Treasury kill a bank or broker a shotgun wedding, they fuck up a little bit.  But each time, they learn.  With Lehman, they learned it was a bad idea to let a major investment company fail in this world of extremely precarious capitalization and interconnectedness, so they’ve decided they’ll never, ever let another bank fail.  Lesson learned.

They also learned from Lehman that investment banks are extremely vulnerable without deposit bases and Lehman’s status as an investment bank may have made it more difficult to be acquired or acquire a (failing?) bank with a strong deposit base to recapitalize itself.  So when Morgan Stanley and Goldman Sachs (Henry Paulson’s former company, and also the former company of Neel Kashkari, the man chosen to head the TARP who is better known as the undead magical villain in the first The Mummy movie) came begging with the same plea that Lehman apparently had, they were converted to bank holding companies in record time.

Furthermore, as a bank holding company, Lehman may have been able to apply different accounting to its books that may have saved it or slowed its decline.  As Barclays Wealth reports:

“It [becoming a bank holding company] also may allow Goldman and Morgan Stanley to avoid using of mark-to-market accounting — which forces companies to value their assets based on the current market price. Instead, these firm may be able to classify assets as “held for investment,” as many banks do.”

Now that they’ve figured out telling the truth about the trash you own can make people lose faith in your company, the SEC is now (via the TARP) able to selectively suspend mark-to-market accounting. Problem?  Solved.

And it’s not all lessons from Lehmans.  They have killed before.  They learned from the death of Wachovia and Bear Stearns (among others, perhaps), as well as the pushback against the ‘bailoutness’ of the TARP, that banks really won’t even buy another bank unless they’re paid to do it and taxpayers think it is uncool when we pay banks to buy one another.  So they decided to secretly pay banks to buy other banks by amending the IRS rules (btw, an update on the Wachovia paternity suit can be found here, which was apparently written in the future since I first read it in the evening of the 6th and its dateline is Oct 7.  So even if you’re 100% up-to-date, Bloomberg still might have some shockers for you).  A summary of Wells Fargo’s prospective elevation to tax-free status (which means that the Federal government has recognized worship of Henry Paulson as a legitimate religion) can be found at Yahoo! News:

“Essentially, Wells Fargo could use the $74 billion of tax losses on Wachovia’s loan writedowns to offset its own income, which means the bank’s taxes could be much lower for several years”

Oh, and the best lesson of all, also from Barclays Wealth:

“”The Fed wanted to send a strong statement that they would not allow Goldman and Morgan Stanley to be ‘Lehman-ised,’” said a person familiar with the discussions, referring to the bankruptcy of Lehman.”

I think Dexter murdered about a couple dozen people or so before he figured out how to be a member of society (and palatable for a broader TV audience).  So after a killing a few more banks, all that is left is for the Fed/FDIC/Treasury to find true love.  Oh, and admit to being a MUUURDERER!

… and the cow goes moo