Revisiting Lehman Brothers Chapter 11 Filing Five Years Ago

Five years ago today, Lehman Brothers, one of the world’s largest investment banks, filed for Chapter 11 bankruptcy protection.

I thought this weekend would be an opportune time to revisit the report of the Examiner, Anton Valukus, chairman of accounting firm Jenner & Block.

The global financial crisis has created a non-trivial community of bloggers and commentators who write angry screeds against the financial sector, but don’t take the time to read the detailed reports like this.

There was clearly no need for TARP or giving investment banks access to the discount window. There is nothing wrong with imposing losses on shareholders, but when executives have little skin in the game because they didn’t really fork out for their equity holdings in their employers, of course there will be issues around risk taking.

The Chapter 11 documentation website shows the difference between how the US deals with corporate insolvency and how New Zealand and Australia do.

Michael West, writing in the Sydney Morning Herald, points out how the Australian arm of Lehman Brothers has paid out millions of dollars to liquidators and lawyers but nothing to creditors yet.

From an economists perspective, if you are an unsecured creditor, you now need to account for the opportunity cost of money tied up in insolvency proceedings. This means that less credit will be available, less deals will get done and the silent recovery will take a lot longer.