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Lehman Brothers demise triggers huge $365 billion default 10/11/2008


Lehman Brothers, the bust investment bank, triggered one of the biggest corporate debt defaults in history yesterday as it emerged that the US Federal Reserve is harbouring grave concerns about whether Washington’s $700 billion (£413 billion) bailout fund will avert a financial meltdown.

An auction of Lehman’s bonds yesterday determined that the bank’s borrowings were worth only 8.625 cents on the dollar. The valuation leaves the insurers of the debt a bill of about $365 billion. It is not clear whether the insurers, which are required to settle the bill in the next two weeks, will be able to pay – a development that could further undermine increasingly stressed capital markets.

The $365 billion default came as stock markets around the world suffered one of their worst days since the crash of 11 years ago. Panicking about the prospect of global recession, the FTSE 100 index of leading shares in London crashed within seconds of opening, losing 8.9 per cent of its value, its worse fall since October 1987. (more at link)

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The thing that ticks me off about this... is that the "insurers"

charged a significant amount in premiums, etc.

And now that the "claim" needs to be filed... they balk.

IMO, that is called "fraud" -- the parties doing the "insuring" need to pony up with the cashola (and remember, they DO get the assets that were insured in exchange, it's not like all those houses just "vanished" into thin air... they are still there!)

One thing I haven't seen mentioned -- beyond all of the CDO's and CDS's -- is the fact that probably ALL of those "homeowners" (mortgage clients) were paying PMI (Private Mortgage Insurance) -- which is "insurance to offset losses in the case where a mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property." So, if the companies that foreclose on those properties lose money on their resale, they can (and doubtless WILL) make claims on those PMI policies... ergo they should NOT suffer a dramatic loss.

And keep in mind that these were PREMIUMS that were sold as INSURANCE -- which carries a fiduciary responsiblity. Those premiums collected -- "Typical rates are $55/mo. per $100,000 financed, or as high as $1,500/yr. for a typical $200,000 loan." -- while perhaps the premiums for those specific houses were NOT sufficient for the individual houses recently sold are NOT expected to cover the entire loss; there is after all a back history of DECADES of homes that had PMI coverage which NEVER had claims filed against them... and those should not simply have been "profits" to be scraped off and spent, but rather part of the LONG TERM ASSETS of those insurance companies (are you listening Mr. Buffett?) that were in fact underwriting those policies and which need to now be SOLD in order to fulfill their CURRENT liabilities.

In other words... the tremendous profits/assets of companies like Berkshire Hathaway & other Insurance Company owners (whoever was underwriting and profiting from PMI all these decades) should be doing the paying... anything LESS is criminal malfeasance.

yes...but we all know...

...that they took the money by bonus or other means and have had one great time living it up. and if the insurance co. has to declare bankruptcy, guess who gets to foot that bill also...either way it is you and me paying for it all.

2Chronicles 7:14 If my people, which are called by my name, shall humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land.

Will the same thing hold

Will the same thing hold true for Freddie and Fannie?