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Remembering the week that rocked Wall St. By Adam L. Anderson

Remembering the week that rocked Wall Street...  On September 15, 2008, the 158 year old investment banking firm, Lehman Brothers, declared bankruptcy sending shock waves throughout the US and world economies.  Still to date, Lehman Brothers is the largest bankruptcy in history as it held over $600,000,000,000 in assets.  The historic investment banking firm was involved in every aspect of our financial industry from money market funds to stock listings.  They were large holders of mortgage backed notes and had extensive real estate holdings.  The rapid decline in property values from the imploding housing bubble was too much to bear.  They were too big to fail, but no life preserver from the private industry or the Federal government was to be had.  The news of their failure locked up lending and temporarily froze all the financial markets.  News and rumors flew around about who could be next as distress signals where being heard from companies like Merrill Lynch, Bear Sterns, AIG, Washington Mutual, and hundreds of other banks and investment firms.  We were looking into the face of financial Armageddon.

I had recently qualified for a recognition trip from the broker dealer firm I affiliated with which took me to Monaco and the coasts of France and Italy.  It was the trip of a lifetime for my wife and I.  The firm I was with had just been acquired by a larger broker dealer and their top people, even the company president, was with us.  Before leaving for Europe, I had been trimming or eliminating stock holdings and added a number of bonds to my portfolios.  Many of the bonds I bought included Merrill Lynch, Bear Sterns, Washington Mutual and Lehman Brothers.  With coupons in the 5-7% range and prices significantly discounted, I thought these are great companies, they will survive.  I believed that I could ride out the crisis, get paid an attractive interest rate and eventually sell them at or near their original loan value.  While in Monaco, easily one of the most opulent places in the world and certainly the most opulent place I’ve ever been, we gathered for dinner with other qualifying advisors and the top brass from the new broker dealer.  News feeds on the hotel lobby television streamed out breaking news, “Lehman Brothers declares bankruptcy.”  The fear was palpable and the mood grim.  Bank runs and financial uncertainty was at the top of our minds.  Everyone in our group was trying to communicate with counter parts in the States.  Remember, the first smart phones were just coming out at this time.  Emailing required going to an internet café or business center and international calls were very costly.  Communication was limited and challenging.  All I could think of was my assistant fielding calls from nervous clients and telling them I was in Monaco. 

The next shoe(s) was ready to fall; AIG was teetering and Merrill just secured a buy out from Bank of America.  We had a Republican President and a Democratic House.  Hank Paulson and Ben Bernanke came up with the Troubled Asset Relief Program (TARP).  The Republicans held for the most part a Laissez faire economic ideology and the public sentiment was anti bailout, but further failures in the financial industry would be catastrophic and a 600+ billion dollar bail out was approved.  Hundreds of US companies qualified for TARP assistance and the US economy started to stabilize. 

I experienced my first bond failure with my Lehman Brothers holding.  Many of my clients had to withdraw money to support themselves or loved ones.  Like many others, my home lost significant value and we had to cut back on expenses.  Our budget became, “don’t spend anything unless it’s critical to sustaining our life.”  Luckily, I had reduced stock exposure early in the financial crisis and most of the bonds I held did survive.  My Washington Mutual bonds were honored by Chase and Merrill’s were honored by Bank of America and luckily, my exposure of the Lehman Brothers bonds was limited, but the pain of the financial crisis was real and felt by me and everyone I knew.

An interesting note:  the TARP 1 loans were repaid and the US Government and us (the tax payer) received over $700 billion back.  TARP 2, on the other hand, I feel was more of a political payoff program and as far as I know, no money was returned.

 

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