The President's Favorite Banker Pulled the Plug on Lehman

The U.S. bankruptcy court examiner, Anton Valukas, is out with his 2,200 page, $30 million report on the collapse of Lehman Brothers. A few things should be noted:


1. This is a Lehman-centric report and does not address the structure of the financial system itself, nor the role of the Federal Reserve in fueling the financial acrobatics of Lehman and others.


2. The danger with this report is that many will conclude that Lehman sank itself, beginning and end of story. WSJ, for example, headlines Examiner: Lehman Torpedoed Lehman. This is true to a degree. Lehman practiced many deplorable financial strategies. But, if $30 million was spent to examine Goldman Sachs or, say, Morgan Stanley, deplorable financial activities would also most assuredly be found. Bottom line, these now "bank" holding companies all borrow short-term and acquire long term assets. Any one of then is susceptible at any time to a liquidity crisis, if their short-term credit lines dry up. That is what sank Lehman- along with the roller coaster money supply manipulations of the Federal Reserve.

3. Of note in the report, we now know that it was JPMorgan Chase, run by President Obama's favorite banker, Jamie Dimon, that put Lehman over the edge with a collateral call. It is certainly legitimate for a bank to want to protect its exposure and call for collateral on a weakening asset, but I wonder if there was some code talk between Dimon and Treasury Secretary Paulson before the collateral call was made. Afterall, Jamie had just been gifted Bear Stearns and would later be gifted Washington Mutual, so it isn't like he isn't in the loop and knows when to pull the plug and when the Treasury is going to back up a firm.