I don’t think so. The big prime brokers tend to have positions that are market neutral so that whether the market rises or falls doesn’t affect their valuation. I don’t think this would have been possible without my having hear about it, and I didn’t get a “let’s crash global markets” memo. I did get a “given that things are falling apart, let’s be conservative who we lend to” memo.

The big banks *did* increase margin requirements on hedge funds last week, but that was because a lot of cash is going to change hands this and next week to cover the fallout of the Lehman bankruptcy, and no one wanted to be in a situation where they ended up losing lots of money if a hedge fund goes under because of this.

re: LEH — ok, now it’s beginning to make more sense, especially in light of the HK post above.

if this is true, then:

it would make proper sense that UST decided not to bail them out, as that would be rewarding possibly soon-to-be explicit criminal behavior

(Mr. Fuld and pals weren’t too good in covering their tracks were they? perhaps we should start a new acronym — TSNTF — Too Sloppy Not To Fail?)

and JPM would have been acting properly in their fiduciary capacity as LEH’s clearing agent to freeze their liquid accounts of $17B, the straw that broke LEH to file chap 11 3 days later.

okay, but ‘properly’ also importantly depends on WHEN DID JPM discover what LEH was doing and how long it did it take them after their discovery to alert the UST, and then how long it took the UST to act.

everyone will have their own personal opinion of what constitutes a ‘proper’ duration but given the gravity of the situation and the eventual repercussions would it be proper to say that Monday of LEH’s last week would be construed as proper, giving them a comfortable 5 days for everyone to decide how to act?

(perhaps i’m being too generous given the time Congress was allowed to pass TARP/EESA/PWFU, but i’m in a generous mood today)

it would be interesting to see a timeline of those events you outlined above.

it will also be interesting to see how far this lawsuit goes, because that seems to be the only way to ever answer the above question:

http://www.nakedcapitalism.com/2008/10/lehman-creditors-allege-jp-morgan-role.html

Then and only then did they file Chapter 11. And the timimg was a bit of a Reichstag Fire as it set up the Congressmen keen to get home to campaign for a quick panic passage of the biggest appropriation with the least oversight in US history.

Go figure. Sounds like looting to me.

I suggested on Brad’s thread some two or so years ago that the Fed would export inflation, then export deflation. You want to see what exported deflation looks like, examine Lehman or the massive margin call liquidation of the past ten trading days.

I am still thinking through the issue of sterilization — if the Fed lends dollars to a european central banks that lends the money to a european bank that then pays cash to an American money market fund, there would be an effective increase in the money supply. But if the funds in the money market are invested back into Treasuries, nothing much happens. And i think the latter is the best way of thinking about this.

But i am not sure …

I though fairly confident in the analysis of Dr. Hamilton — namely that in the face of a huge collapse of confidence and the hoarding of dollar liquidity, this isn’t likely to be inflationary. The money the fed is lending out isn’t being spent …

though it’s hard to not to think this way when it’s staring us right in the face.

notice who went up in the late-hour rally on friday — the usual suspects.

re: LEH — if we agree that LEH was the straw, that begs the questions…

why was LEH allowed to fall in the 1st place?

why did JPM freeze their cash accounts on a Friday night?

was this just an climax of a longrunning BSD contest between the IB big boys in the sandbox or was there something deeper going on there?

and after the bankruptcy filing, why did LEH request to the court that special creditor status be given to the company (JPM) who pulled their plug?

>> Fuld also will wonder on that great day, why he was unable to make more dough.

I get the part about (eg) the fed swapping USD for EUR and an agreement to unwind at term (eg. 28 days hence). A couple of questions though:

1. Does the ECB actually deposit EUR at the fed, or is it really a USD loan collateralized by ECB EUR holdings?

2. Is the net effect of the operation an increase in the supply of USD for the term? In other words, is there an offset (sterilization) needed to mop up USD, and if so, how can we tell if and to what extent it’s actually being done.

Thanks in advance.

We can expect to see equities shoot up in a nice bear rally over the next two weeks into the election, and then oil and gold will shoot up again after the election.

I think we are witnessing coordinated market manipulation on a grander scale than Goldman Sachs ever dreamed before it had access to the US Treasury’s limitless leverage.

LEH’s bankruptcy may also have had an impact, as some hedge funds found their funds in LEH frozen and they consequently shifted out of other stand alone brokers …