I woke up today to discover a vigorous "hindsight" understanding of the financial crisis and the fall of Lehman. A mini-Christmas for a left-coast, semi-recluse, front line survivor. The disdain for Fuld (he gave a talk today somewhere) remains high but I was amused by the pedestrian lens that this critical slice of history is being viewed through.
Let's reset the table, shall we?
The big I-banks and the morphing hybrid bank/security firms were all riding the crest of the long credit super-cycle. Securitized mortgages (anything with a time-able cash flow really) were flowing through the system like high octane gasoline. The manufacturing, rating and adjusting anchor to these "things" - it was well known and turned out to be - was completely corrupt on many levels. (Note WSJ article today showing Bcc emails on LIBOR manipulation going to the BOE trade desk !)
These institutions, representing a huge chunk of the SP, were gearing their activities at double digit speeds in recognition that; contrary to the prevailing wisdom that US manufacturing was dead, the business of America was the creation, distribution and accumulation of promised payments. When the music stopped, the regulatory arbitrage that smoke screened the illusion went all the way to the Fed.
MS and GS quickly asked for, and were granted, status as "banks." This allowed the Fed to help them along with the other now exploding giants. Lehman found itself in a tricky spot. Levered up at a higher gear to keep up with its beefier friends, the wholesale funding lock out had them hemorrhaging cash like oil from the Exxon Valdez (#GIK). Unsure of who was to listen to whom, Treasury and the Fed showed a unified voice : We will cover it, but we want the gearing ratios down first. This reality led to the part of the chaos I like to call Fuld's Gambit.
As the others - yeah we're looking at you Merrill - tagged out billions to 22 cent bid lists, Fuld held back, and continued to fund daily in a variety of common yet sketchy and increasingly difficult ways (Repo 105, nice to see you old friend). This did not sit well with the schphitzing government suits, nor the falling in line competitors. After a few harrowing days, Fuld's tower of promises remained heavily levered as the others had recognized some Costanza-sized shrinkage. The bid would be 45 cents soon, but Lehman had to go for not playing along.
I say, good on you, Dick. You went down with the ship. The others, most now heavily fined, some still revered, remain on the thrones of their hypocritical kingdoms. TBTF? I'm pretty sure it failed. You might even say..EPIC.