The idea that financial firms whose collapse could create trigger broad economic problems should come up with their own living wills has been gaining traction lately.

After the confused attempt to bailout or save Lehman Brothers, Bear Stearns and AIG in 2008, some regulators have been suggesting that banks and important financial institutions plan for their own demise.

A senior Canadian finance official said on Wednesday that the Group of Twenty (G20) are thinking about the idea as a way to avoid financial meltdowns.

 Even one of the top financial advisors unwinding Lehman Brothers’ has said a living will would have helped.

But is it the banks or the regulators that oversee them who should come up with these living wills? Should they come up with them together? Who would have better incentives to prevent systemic issues?

The issue was discussed on Wednesday at a Practising Law Institute conference in New York by  H. Rodgin Cohen, a mergers & acquisitions lawyer at Sullivan & Cromwell in New York, who personally worked on deals like JPMorgan-Bear Stearns, Barclays-Lehman, and Wells Fargo-Wachovia last year.  Here is what Cohen told the conference:    

“I do think we have it somewhat backwards on all this emphasis on the living wills for these institutions. Actually the living will isn’t the institution’s responsibility. It is truly surprising to me that sitting in a locked desk somewhere there isn’t a living will which the relevant supervisor has for each institution. Clearly that did not exist last year, and hopefully we have it today. “

So who should come up with these “living wills”? Banks or Regulators or both?

With apologies to Harper’s Index, some collected statistics on the collapse of Lehman and the roller-coaster year that followed.

Add your own significant digits in the comments section.

***

Number of siblings who made up the original Lehman Brothers, founded as a dry-goods store in 1844:

3

Age of Bavarian immigrant Henry Lehman when he founded the business:

23

Percentage difference between the DNA of former Lehman CEO Dick “The Gorilla” Fuld and an actual gorilla:

1.6

Lehman assets listed in its record bankruptcy filing:

$639 billion

Assets listed in the second-largest U.S. corporate bankruptcy filing of Worldcom

$107 billion

Pounds of yellowcake uranium left on Lehman’s books from a commodity trade:

450,000

“Buy it now” price of Lehman Brothers humidor on eBay:

$62.99

Rank of Giants Stadium LLC in the list of Lehman claimants:

7

Number of Wall Street institutions compared to a “great vampire squid wrapped around the face of humanity”:

1

Size of actual vampire squid, in feet:

1

Estimated ratio of Goldman Sachs bankers to other bank representatives at emergency government meeting to save AIG:

3

Amount of money former Merrill Lynch CEO John Thain spent renovating his office:

$1.22 million

Amount of the renovation budget devoted to an antique “commode on legs”:

$35,115

Percentage of global wealth destroyed by the credit crisis, according to Blackstone CEO Stephen Schwarzman in March, 2009:

45

Percentage losses for investors who bought Blackstone shares at $31 IPO price:

56.5

Number of knees that Treasury Secretary Henry Paulson got down on to beg House Speaker Nancy Pelosi to support the bailout bill:

1

Per capita U.S. bailout funds provided to Fannie Mae and Freddie Mac:

$313.44

Per capita U.S. funds provided to AIG:

$228.97

Amount of bonuses received by 73 AIG executives in March, 2009:

$165 million

Number of bathrooms in AIG CEO Robert Benmosche’s Croatian villa, shown during a tour in which he railed against “lynch mobs with pitchforks” who protested the bonuses.

12

Before it declared bankruptcy, Lehman was one of the biggest investors of debt and equity in U.S. commercial real estate estate. But having Lehman as a partner these days is a little like climbing a staircase in an M.C. Escher drawing — you’re bound to end up where you started.
Take ProLogis for example. The world’s largest owner and developer of warehouse and distribution centers set up a property fund in which Lehman in an equity investor as well as the lender.
Before Lehman Brothers Holdings Inc filed for Chapter 11 bankruptcy in September, the two planned to pay off the $166 million loan on the portfolio.
“Subsequent to them going into bankruptcy they were impossible to get hold of. We finally did, and they said they were still in the game for paying this off.”
Lehman said it just needed to get the correct approvals.
“About a week later, we got a call from State Street Bank bank who said, ‘We are the lender on the Lehman portfolio. We now own the loan,’ Chief Financial Officer William Sullivan told investors in New York.
The subsequent chat went well, but there was one problem.
“The fact of the matter is is that we don’t know that they own the loan today,” Sullivan said. “They had told us they own the loan. They have not provided us with documentation that they own the loan, and Lehman thinks they own the loan but are not sure.”
The three are trying to work out an extension while they straighten out the loan’s ownership. Meanwhile, the loan was due Nov. 11.
“We think we’ll wrap this up in the next week,” Sullivan said. “But from our prospective, this loan should be considered extended at this point. If that doesn’t turn out to be the case, in the grand scheme of things, it goes into default, and I’m certain that Lehman and State street will have a merry old time discussing it.”
There likely will be a lot of talk. Mark Edelstein, partner in the firm of Morrison Foerster told a room full of lawyers that extensive negotiations on Lehman deals are par for the course these days. Sounds like a lot billable hours.

An auction of Lehman’s Neuberger Berman unit and other investment management bits and pieces moved closer yesterday with bid procedures getting clearance from a New York judge.
 
Private equity groups Bain Capital and Hellman & Friedman agreed last month to purchase Lehman’s prized asset management unit for $2.15 billion, and they will be the lead bidders at an auction for the unit in December.
 
In a status update prior to the judge’s ruling, Lehman’s lead attorney, Harvey Miller, said prosecutors had opened three grand jury investigations into the investment bank’s demise. The New York Post reported that disgraced CEO Dick Fuld is among 12 Lehman executives being subpoenaed. Fuld, questioned by a U.S. congressional panel earlier this month, denied deceiving shareholders.
 
Politicians and the public are calling for heads to roll on Wall Street. Looking into Lehman are federal prosecutors as well as at least one state attorney general. And the FBI is in the early stages of examining mortgage finance companies Fannie Mae and Freddie Mac and insurer American International Group, which were bailed out by the government after getting caught in the credit crunch.
 
Did anyone actually understand the rocket science behind the engineering of the credit default swaps and other complex financial tools that blew up behind the scenes? If not, then it might be a hard sell to convince anyone that investors were intentionally misled.

In the brave new financial world that emerges from the chaos of the ‘08 crash, will Wall Street executives be expected to understand everything their firms are doing? Sounds reasonable, if unlikely.

Deals of the day:

* The credit crisis has forced Dutch builder Royal BAM Groep to put on hold its plan to sell its 21.5 percent stake in Dutch dredger Van Oord, BAM said.

* Japanese trading house Itochu Corp and six Asian steelmakers have agreed to jointly buy a minority stake in Namisa, an iron ore mine owned by Brazilian steelmaker CSN, sources familiar with the deal told Reuters. 

* San Miguel may bring in foreign partners in a bid for a 40 percent stake the Philippines is selling in oil refiner Petron Corp, the president of Southeast Asia’s largest food and beverage firm said.

* India’s Tata Sons has been in talks to buy a stake in AIA, a major Asian unit of American International Group, according to sources close to the matter, as the U.S. insurance giant seeks to sell assets after nearly collapsing last month.

After a couple weeks of just trying to keep up with developments in the financial crisis, reporters and bloggers are taking halting steps toward describing the mythos of the investment banker.

It’s been a while since Tom Wolfe and Bret Easton Ellis popularized the bespoke-suited arrogance commonly associated with the financial world’s anointed — the easy millions, the casual disdain for the rubes and the marks in the lower classes and the single-minded pursuit of money. Depicting the carnivore in his or her habitat is beginning to come back into vogue as taxpayers who may soon be on the hook to bail out their social betters in the investment banking world wonder why they’re getting stuck with a bill they didn’t incur.

New York magazine ran a story called, “The Rage of the Previously Rich: A Lehman trader copes with the sudden onset of income shrinkage,” featuring this choice nugget:

The collapse of the world’s most powerful wealth-creating engine required everyone to take stock of their financials. One Lehman executive in Rye Brook, fretting about paying off a Hamptons summer house and a ski chalet in Vermont, panicked on Monday morning and laid off her nanny, who had been with the Westchester family for nine years. “The nanny called me crying,” says Marla Sanders, who runs Advance Nannies and staffs Lehman homes. “One of the children she had brought home from the hospital.” Sanders knows more cuts for her clients are on the way. “They’re going to have to sell homes. The question is, will the homes sell? They’re cutting some of the children’s activities out, dance class, acting class. Are they going to have flowers delivered every day to their homes? I don’t think so!”

On Wednesday, ivygateblog featured comments from the pseudonymous “George”:

One of my friends at Bank of America texted me, ‘Hey, we might be buying you guys.’

I was in denial. You see, Merrill has a much better repuation than a commercial bank like Bank of America. I was shocked I would be joining a lower-tier commercial bank. There’s a feeling, ‘I didn’t go through this whole interview process to work at a commercial bank.’

More from George:

Changing compensation will obviously change the attitude of students toward the industry. They might go to med school or law school instead. … This is a sad week. … We may be losing the competitive advantage for getting the best talent.

And finally, regarding the proposed $700 billion bailout plan, courtesy of the United States’s 300 million would-be shareholders of bad debt:

It’s a good step toward stabilizing the turmoil. If the government can take the balance sheet pressure off the companies then the companies will look better going forward.

After all, that’s the only thing that counts in this whole story.

(Photo: Workers leaving Lehman Brothers office in London. Reuters)

There’s nothing like a belle to bring a festive mood to an otherwise gloomy ball, and today that honor belongs to Goldman Sachs, which has drawn attention - and money - from none other than Warren Buffett.

Stock futures are pointing up on news of the uber-investor’s plan to purchase a $5 billion stake in the bank. And Japanese media say that Sumitomo Mitsui Financial Group is also looking to buy in.

But the fate of the Wall Street bailout plan remains the $700 billion question. Congress is continuing discussions today, with Fed chief Ben Bernanke testifying before the House Financial Services Committee.

At the same time, CNN is reporting that the FBI is investigating potential mortgage fraud at Fannie Mae, Freddie Mac, Lehman Brothers and American International Group - the very companies at the heart of this financial services meltdown.

Oil prices are up ahead of weekly data expected to show the fifth consecutive decline in U.S. crude inventories.

The dollar is down against an index of major currencies. Longer-term U.S. Treasuries are higher.

On a light day for economic reports, we’ve got existing home sales from the National Association of Realtors.

And while we’re on the subject of the housing slump, home-improvement chain Lowe’s says it’s cutting store openings for its next fiscal year.

- Lisa Von Ahn

Staffers at the once No. 4 U.S. investment bank headed into its midtown Manhattan headquarters on Monday morning, armed with bags and suitcases of all sizes.

Their emotions ran the gamut.

One man caught his co-worker’s eye and threw his hands up in the air in dismay before hurrying into Lehman’s global headquarters, a few minutes’ walk from Times Square.

“It is madness,” one man said on the phone, as he walked by dozens of reporters lined up on the sidewalk in front of the building. 

Another just stood by the corner of the street and gazed up at the building silently for a few seconds before walking in.

Some bought their morning coffee and stood in groups, smoking and talking in the corner near the entrance to the subway station.

Even the coffee cart guys seemed unusually somber, talking very little and shaking hands with their customers.  

Most staffers did a doubletake on seeing the media lineup and refused to answer questions as they walked in. 

But cameramen and reporters pursued those who came out of the building with what seemed like packed bags or boxes. 

A mix of passers-by and Lehman staffers turned their thoughts on the firm’s fall into art, signing a close-up painting of CEO Richard Fuld. 

(Photos: Reuters)

Lehman’s most valuable assets, primarily Neuberger Berman, are still on the block, but becoming less valuable by the hour with the bank having filed for bankruptcy protection. And with Merrill Lynch now heading for the relative safety of Bank of America’s $50 billion embrace, it’s time ask “Who is next and how?” Most attention is squarely focused on insurer AIG and investment bank Morgan Stanley.

AIG’s shares lost a third of their value in pre-market Monday action. Warren Buffett would be a natural candidate for AIG assets, given it’s a business he knows (and part of being a successful oracle is knowing your businesses).

On Sunday AIG is reported by the New York Times to have approached the Fed seeking $40 billion in short-term financing. An investor call is expected later today.
The Fed might be more willing to play a role in getting AIG sorted out as well, if it sensed a systemic risk to another strut of the financial markets.

AIG execs reportedly met top New York state officials including Governor David Paterson and insurance and banking regulators over the weekend, seeking permission to liquidate assets, such as Manhattan real estate, to raise cash.   

Morgan Stanley could be a much tougher sell, if it comes to that. The market for investment banks is not too healthy, to say the least.

Other deals of the day:

* Longs Drug Stores said it will weigh a $75 per share takeover bid by Walgreen, but the drug store chain said for now it still recommends that shareholders accept an earlier tender offer by rival CVS Caremark.

* Chinese state-owned trading firm Sinosteel’s stake in Australian iron ore prospector Midwest Corp has risen to more than 82 percent after a former senior Midwest executive sold a stake, Sinosteel said on Monday.

* Israeli food maker Osem Investments and Swiss parent Nestle signed a deal to buy 51 percent of a unit of Maabarot Products for 248.7 million shekels ($69 million), Osem said.

* Google has bought Korean blogging software developer Tatter and Company, the two companies said.

* Borealis Infrastructure Management, an investment arm of the Ontario Municipal Employees Retirement System, said it has formally commenced its takeover bid for Teranet Income Fund for C$11 per unit.

* The chief executive of Northwest Airlines said he still expects the carrier’s merger with Delta Air Lines to close in the fourth quarter.

You can place a bet on the next victim of the credit crisis by clicking on the graph below, which links to the news prediction website www.hubdub.com.

Which of these banks will be the next victim of the credit crisis?

Lehman Brothers employees carried out boxes of their possessions on Sunday night in New York as bankruptcy became inevitable. View the rough cut video from Reuters. 

There was a rumor that an announcement on Lehman was coming this morning at 6. Not that it would have taken a day-break jolt to get newsrooms and trading floors buzzing over the embattled investment bank - heck, the echo of the last two days will last for months. Bids are due later today for Lehman’s asset management jewels, but with the U.S. government now playing the part of the 800 lb gorilla in the room, the fate of the entire bank is much more in question than just its best businesses.

It’s unlikely the US government will want to offer more support to a Lehman deal than it did to Bear Stearns buyer JP Morgan. In fact, there is probably less appetite for a bailout now, given the opening of the Fed’s liquidity window to investment banks seems to have kept money markets calm this time around, though it clearly hasn’t saved Lehman. And at the end of the day, that’s really what the Fed is responsible for - keeping the system safe with lots of liquidity when necessary. So if there is nothing more on the table, is Lehman likely to see less than a $2 bill taped to its front door?

Other deals of the day:

* Deutsche Bank is poised to swoop on rival Postbank in a two-part takeover valuing the retail lender at roughly $13 billion, sources with direct knowledge of the matter said.

* Shenyang Machine Tool intends to proceed with the sale of a 30 percent stake to U.S.-based Jana Partners, a subsidiary of the Chinese firm said, denying a media report the deal was dead.