The Bigger They Are, The Harder They Fall (If We Let Them)

Nate Oman has an interesting, if somewhat sobering, poist at Concurring Opinions which begins as follows:

One of my students sent me the pages from Lehman's filings listing the 30 top unsecured creditors. It's a simple column of figures that makes sobering reading, even for a let-the-market-punish-them enthusiast such as myself. First past the post is CitiBank with $138 billion in unsecured bonds. Just for fun, I tried to find out what $138 billion will get you in today's world.

The comparative numbers he offers are so big as to nearly defy comprehension.

I understand the Schumpaterian arguments for size and global competitiveness, but isn't there still some virtue to keeping firms from getting too enormous?

OK, Lehman wasn't too big to fail. But two or three Lehmans might be.

And we just socialized AIG (Fed to lend $85 billion to AIG, take 80 percent stake). Did FDR do anything on this scale?

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2 Responses to The Bigger They Are, The Harder They Fall (If We Let Them)

  1. Mitch Guthman says:

    It looks like Citigroup isn’t really on the hook for the $138 billion. This is from a press release on their web site:

    New York – Citi issued the following statement today about its role as indenture trustee of Lehman Brothers bonds:

    “Citibank N.A. is listed in the Lehman Brothers bankruptcy filing as an indenture trustee for bond debt of approximately $138 billion under Lehman Brothers Holdings Inc. Senior Notes. Citi wishes to clarify that our role in this issue is administrative in nature and does not represent exposure for Citi to Lehman. Any assertions to the contrary are false.”

    In another press release, they say that their actual exposure to Lehman is “modest”, whatever that means.

    I do, however, have another question which maybe you or one of your readers could answer. I a lot of stories talking about “exposure” to Fannie and Freddie which seem to refer to the bonds and notes, not the common or preferred stocks (which I understand will be more or less worthless). This implies that the bonds were priced downwards after the renationalisation but that makes no sense since the Fed. Gov’t’s credit rating is higher than either Fannie or Freddie. Am I reading these stories right or when people say “losses on Fannie or Freddie” they mean they were holders of stock?

  2. Mike says:

    Did FDR do anything on this scale?

    No, he was too busy facilitating the confiscation of money and thus bankrolling the young Soviet government.

    “The complaints alleged that in 1917, or 1918, the companies had been dissolved, and their properties had been ‘confiscated and appropriated,’ by decrees of the Russian State. The claim of the United States is based upon an assignment made by the Russian government, on November 16, 1933, in connection with the recognition of that government.”

    296 U. S. 463

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