BU Now » Lehman Brothers

Lehman Brothers’ collapse

Jo Breiner — Tue, 14 Sep 2010 17:24:43 +0000

September 15th marks the 2nd anniverary of Lehman Brothers’ collapse. Mark Williams, a former Federal Reserve Bank examiner, is the author of “Uncontrolled Risk.” He is Executive-in-Residence/Master Lecturer in the School of Management.

“It has been two years since Lehman Brothers fell and almost brought down the entire financial system. Despite the financial pain uncorked by the collapse the collapse, adequate controls are not in place – global systematic risk remains and the likelihood of another Lehman-like crash is high.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Goldman executives questioned

Dick Taffe — Thu, 01 Jul 2010 21:05:43 +0000

The Congressionally appointed Financial Crisis Inquiry Commission exploring the 2008 crash questioned executives from Goldman Sachs, the world’s most profitable bank, about how much it makes trading derivatives — those complex financial bets that helped bring down the economy. Goldman Chief Financial Officer David Viniar said they had no way of determining its derivatives data separately from trading in cash securities. But Mark Williams, a former Federal Reserve bank examiner who teaches finance in the School of Management and is author of “Uncontrolled Risk” about the fall of Lehman Brothers, says he doesn’t buy it.

“For Goldman’s CFO to go before the Financial Crisis Inquiry Commission and claim he doesn’t know what Goldman makes in derivatives trading is the equivalent of a major league pitcher not knowing his ERA. Such a claim is shocking given how lucrative and central derivatives trading is to Goldman’s core business model.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

AIG bill still hitting taxpayers

Dick Taffe — Thu, 10 Jun 2010 21:42:08 +0000

The Congressional Oversight Panel says in a scathing report that the government failed to exhaust all options before bailing out the insurance giant American International Group – although the rescue did help the financial system avert collapse. Nonetheless, the watchdog panel says taxpayers may never be paid back all of the $182 billion funneled to support AIG. Former Federal Reserve Bank examiner Mark Williams, who teaches finance in the School of Management and is author of “Uncontrolled Risk” about the fall of Lehman Brothers, says the report speaks to the elevated role that policymakers have in conducting stronger risk management.

“Taxpayers deserve better decision making that incorporates basic risk-management tools, including risk measurement, worst-case forecasting, monitoring, and frequent reporting. With significantly more taxpayer money at risk, now it is time for policymakers to exercise better risk management.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

BofA, Citi hid debt like Lehman

Dick Taffe — Thu, 27 May 2010 17:41:23 +0000

Bank of America and Citigroup brushed off reports that they incorrectly hid from investors billions in debt — similar to what Lehman Brothers did — to obscure its true level of risk. Company documents filed with regulators show the two Wall Street banks classified some short-term repurchase agreements (“repos”) as sales, which they should have shows as borrowings. Law Professor Elizabeth Nowicki, a former SEC and Wall Street attorney, says such “repo” transactions should have been disclosed — even if they were legal.

“Isn’t it material to one poker player to know that all the other poker players at the table regularly cheat in other games, even if none of the players actually cheats in the game then being played? Bank of America, Citi, and other banks using repos can count on being sued promptly by investors.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

Financial regulatory reform crunch time

Dick Taffe — Mon, 24 May 2010 16:01:50 +0000

Capitol Hill negotiators from the House and Senate committees dealing with financial regulatory reform are getting down to the details of working out differences between the bills passed in respective chambers, with Democrats holding the majority votes in both. Former Federal Reserve Bank examiner Mark Williams, who teaches finance in the School of Management and is author of “Uncontrolled Risk” about the fall of Lehman Brothers, says the Fed simply isn’t equipped to take on any new oversight role over banks — as the Senate bill dictates.

“At the Fed, bank examiners continue to be underpaid, lack advanced training in the ways of Wall Street, and are saddled with risk-measurement systems that lag the Street.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Congress close to financial reg reform

Dick Taffe — Fri, 21 May 2010 20:40:49 +0000

The most extensive overhaul of financial regulations since the 1930s has cleared its big hurdle in the U.S. Senate and how can head to President Obama for a signature after a conference committee works out remaining differences between the House and Senate versions. But former Federal Reserve Bank examiner Mark Williams, who teaches finance in the School of Management and is author of “Uncontrolled Risk” about the fall of Lehman Brothers, cautions that only four of the world’s 30 global financial giants that could take down the world’s economy are covered under this reform bill — yet the problems are globally systemic.

“The U.S. is now in the position to lead again but will need to encourage other nations to follow. Until global uniformity is reached, high systemic risk will remain.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

German trading ban roils markets

Dick Taffe — Wed, 19 May 2010 19:29:18 +0000

Because no one followed suit, Germany’s unlateral ban on “naked” short selling of European government bonds - speculative bets that prices will fall on borrowed assets which then can be sold back to the lender with the speculator pocketing the difference –rocked global markets. Mark Williams, who teaches finance at the BU School of Management and is author of “Uncontrolled Risk” about the lessons to be learned from the fall of Lehman Brothers, says this shows that systemic risk remains high in our global financial market.

“Short sellers are a symptom not the cause of our fragile financial system. The action that will be most effective is coordinated efforts by G-20 powers to enact a global financial reform. Efforts being made in the U.S. will not solve the systemic risk that Greece has reminded us still exists.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Greece’s debt crisis grows

Dick Taffe — Wed, 05 May 2010 20:20:33 +0000

As nationwide workers’ strikes continued and deadly riots erupted in Athens over austerity measures invoked to deal with Greece’s ongoing debt crisis, fears grew that the situation may adversely impact the global banking system. Mark Williams, author of “Uncontrolled Risk” about the fall of Lehman Brothers who teaches finance in the School of Management, says the risk will remain high until meaningful financial reform is enacted globally.

“If the stunning collapse of world markets after the Lehman Brothers bankruptcy in September 2008 was the wakeup call [about uncontrolled risk in the banking system], the unraveling of Greece and potentially other sovereigns (Spain, Portugal, Italy) is the latest alarm bell.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Lehman ex-CEO has “no recollection”

Dick Taffe — Tue, 20 Apr 2010 17:45:47 +0000

Lehman Brothers ex-CEO Richard Flud told Congress he has “no recollection“ of hearing anything about how the now-bankrupt Wall Street investment bank used controversial accounting techniques to hide toxic assets from the balance sheet. Former Fed bank examiner Mark Williams, who teaches finance at the School of Management and just had a book published on the fall of Lehman (“Uncontrolled Risk“), says instead of “blaming and shaming” another fallen CEO these Congressional hearings should be used to flush out more relevant facts that can help shape regulatory reform.

“A more comprehensive approach can make this hearing a chance to expose the weakness in existing banking regulation and oversight. The stakes are too high to squander this opportunity.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Examiner: Lehman croaked Lehman

Dick Taffe — Fri, 12 Mar 2010 20:18:43 +0000

The federal bankruptcy examiner’s report on the collapse of Lehman Brothers shows the 158-year-old firm died from multiple causes, including bad mortgage holdings and accounting gimmicks used to hide its mounting debt. Law Professor Tamar Frankel, author of “Trust and Honesty: America’s Business Culture at a Crossroad,” says if Lehman scammed stockholders and investors, they should pay.

“Corruption starts at the top and spreads downwards. The results of corrupt leadership should be years in prison and payment of the entire salaries and bonuses since the fraud started.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu