Mon 6 Apr 2020, 11:01 AM | Posted by editor
LETTER from Mark Langabeer, Newton Abbot Labour Party
Storyville, a BBC4 production, interviewed a number of employees of the Lehman Brothers investment Bank whose collapse in 2008 was the trigger for a worldwide meltdown in stock markets and, as Alastair Darling stated, ‘the biggest financial crises since WW2’. The banking system temporarily ground to a halt and the consequences are still with us today.
The principle at Lehmans was the Vice-President, Mathew Lee. He described Lehmans as one of the cowboys of Wall Street and only a year prior to its collapse, made record profits. This all turned on its head when the housing market took a dive, loans which had been given to many people could not be recovered. This part of the market was called ‘sub-prime mortgages’. No deposits and low monthly payments in the early years were features of sub-prime loans.
Tent cities emerged
Between 2001 and 2005 ,sub- prime rose from 5% to 20% of the market. The housing bubble bust and foreclosures rose by 87% in 2007. Tent cities began to emerge across the US and 2008 recorded losses for Lehmans. Anton Valukas, the Examiner of Lehmans after the bankruptcy stated that he employed experts in order find out what happened. They in turn employed more experts, due to the financial complexity of the company.
Mathew Lee informed the financial regulators that Lehmans were cooking the books and hiding their true debt levels. When faced with losses, the only recourse is sell assets. What they did was transfer some of the debt to their London office and after credit rating agencies and the public at large had seen this, they would transfer the debt back to their New York Office. Lee went public on this practice called Repo 15.His boss called him in the office and he was promptly sacked and blacklisted by Wall St.
Only goal was profit
Lee points out that Lehmans was the fourth largest bank in the US with assets worth $ 1:5 trillion. If you include derivatives, this rose to $6 trillion and had interests all over the globe. Lee argued that their only goal was profit and things sure as ethics and morality played no part in their thinking. The boss ,Dick Fuld, nick-name the ‘ Gorilla ‘ , was fated by Wall St and by big business circles in general. He and other top executives would hid their true remuneration package in case shareholders rejected it.
Whistle-blowers at BNS, a subsidiary company that sold mortgages were called out by some of it’s staff. An account’s manager explained that one application had the claim that he was earning $7000 monthly , working at a Kentucky Fried chicken joint. When she rejected the mortgage, the company management overruled her objections. An underwriter, whose job was to detect fraudulent claims When she reported this to her boss, they stopped giving her the work.
Widespread culture of bullying
Fraud and the culture of bullying was widespread. Three members of staff won compensation for harassment by the company. Many people ended up homeless or out of work because of Lehman’s recklessness and the drive for maximum profits. As pointed out by one whistle-blower, none of the top executives lost out. Dick Fuld kept all of his $480 million fortune. Mathew Lee pointed out, that not one prosecution has taken place over the banking scandals.
Have the lessons of Lehmans and the banking crisis been learnt. Not by the looks of it. Sub-Prime is back, bankers bonuses and the weakening of regulation by the Trump Administration. The Coronavirus pandemic will result in the racking up of debt. Only the Labour Movement in Britain and internationally can prevent this by bring the banks and major companies into public ownership and a planned economy.
The BBC4 programme is available on i-player, here.
