LOCK, STOCK AND BARREL

Sep 22, 2008 Features / Columnists, Tony Deyal column

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The Brothers Karamazov, the Corsican Brothers, the Marx Brothers, the Blues Brothers, and even Cain and Abel, have nothing on the Lehman Brothers, the latest band of brothers to cause the world to sing the blues with a performance that would have been comical if it was not so catastrophic. 

All we can do now is to follow Adam’s family and raise Cain with our financial institutions; but, as Dostoevsky would say gloomily, this is like playing Russian roulette.  It is a Day at the Races, and the world can lose its shirt. 

Who, or what, are the Lehman Brothers?  The story of the Lehman Brothers started in 1844 in Montgomery, Alabama, where a 23-year-old Bavarian immigrant, Henry Lehman, the son of a cattle merchant, opened a dry-goods store.  When he was joined by his brothers, Emanuel and Mayer, the firm of Lehman Brothers came into existence. 

The brothers accepted raw cotton as payment for merchandise, and then got into the commodities business, moving to New York in 1858.

The company diversified and went into the financial advisory and banking business.  Prior to going bankrupt earlier this week, the firm had in excess of $275 billion in assets under management.

Then, according to the New York Times, “Lehman’s slow collapse began as the mortgage market crisis unfolded in the summer of 2007, when its stock began a steady fall from a peak of $82 a share. The fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that, as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal.” 

Then the end came.  The Times quoted one employee as saying, “People are just packing their things and leaving, and many didn’t even come in.  We were basically told to do our expenses and get our personal belongings.”   Later in the day, Lehman’s shares fell to 21 cents.  A company that was worth $46 billion had fallen to $145 million.

The Lehman Brothers should have followed the example of the Yoo Brothers of China.  Big brother Bu Yoo immigrated to Alabama in the United States and, like Henry Lehman, did extremely well.  He wrote to his other two brothers, Chu and Fu, extolling the virtues of life in the United States, and how from one hole-in-the-wall noodle shop he had opened a nationwide chain. 

 “I’m doing so well here and people like me so much they’ve changed my name to Buck,” he boasted.  Bu enclosed money for Chu to join him, and elated, Chu Yoo joined him.  A little more than a year later, Chu wrote from Alabama to his youngest brother, Fu. 

 “Fu, you must come and join me.  This is a great place to live and do business.  People here like me so much they now call me Chuck.  Here’s the money for your passage to America.”  Fu Yoo, contemplating the name changes of Bu and Chu, respectfully declined. 

The Bank of China should have done the same.  Its total exposure to Lehman’s is US$128.82 million.  Israel’s three largest banks have an exposure of US$254 million. 

The Wall Street Journal reported that the Japanese company Mizuho Trust & Banking Co., a publicly traded unit, sharply lowered its profit forecast for the six-month period ending Sept. 30, citing 11.8 billion yen ($112.5 million) owed by Lehman that is deemed unrecoverable.  The list goes on – Swiss Life, Swiss Re, German Bank KfW, as well as other European and Asian banks. 

As yet, no Caribbean bank has admitted to this almost indecent exposure.  Perhaps they should all have remembered the adage, “Beware of the naked man who offers you his shirt.”  The only good news is that Barclay’s has snapped up some of the key assets of Lehman, but at a vastly reduced price.

Another casualty is Merrill Lynch, the company which uses a bull as its logo and a herd of bulls in one of its television advertisements.  Merrill’s collapse is a herd shot all over the world. Its Chairman and CEO, John Thain, told the New York Times: “We have over 60,000 people working every day.  All the efforts of these people were overwhelmed by the write-downs in the mortgage-related assets.”  Bank of America has now bought Merrill Lynch, and a broker who worked for the company offered his own analysis to the Times, saying in effect that the bull had spread throughout the company. “A hundred guys flew this firm into a mountain.  It’s really sad. Now we’re going to be a bank like everyone else.”  Also going, but fortunately saved for the time being by the US Government, is the American International Group (AIG), proud sponsors of Manchester United football team.  Maybe Sir Alec Ferguson should head the company. 

Why is Wall Street unravelling and taking much of the world with it?  Is it merely globalization, or are we are in the age of chaos and deconstruction, maybe even the era of Humpty Dumpty?  Remember the nursery rhyme?  Humpty Dumpty sat on a Wall (Street)/ Humpty Dumpty had a great fall (on his Fannie Mae)/ And all the King’s horses and all the King’s men (as well as the US Government)/ Could not put Humpty Dumpty together again.  Why?  Humpty Dumpty was an AIG.  

*Tony Deyal was last seen quoting Jay Leno: “Experts say we’re going through what’s known as a lock, stock and barrel financial phase. You know what that is, and how that works? People are locked out of their homes, their stocks are worthless, and the oil companies have us over a barrel.”

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