How Big Was Lehman's Hole?

Dick Fuld may think there was “no capital hole” at Lehman when it collapsed, but the bankruptcy examiner’s report showed a giant mega-hole in the balance sheet. Still, that report apparently doesn’t add up either.
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Dick Fuld may think there was “no capital hole” at Lehman when it collapsed, but the bankruptcy examiner’s report showed giant losses in the balance sheet, especially when you take into account the famed Repo 105 transactions. But, the report still fails to add up.

Lehman's bankruptcy administrator has put the losses at $130 billion. Lehman’s net worth as of May 31, 2008 was reported at $26 billion. So if we accept the $130 billion estimate, the swing from reported net worth to losses realized was over $150 billion. Naked Capitalism does some back-of-the-envelope calculations to find the source of the hole.

The Continuing Mystery of the Lehman Black Hole [Naked Capitalism]

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As some of you may recall, a month after Lehman Brothers went under, the House Committee on Oversight and Government Reform released an interesting email Dick Fuld had sent to LEH vice-chairman Thomas Russo on Saturday, April 12, 2008, circa midnight. Dick had just come back from a dinner with Hank Paulson and was so excited to relay the details he couldn't wait 'til the next day to get in touch with Russo, who he apparently viewed as his "teacher." Fuld said his key "takeaways" were that the government loved Lehman, that Paulson wanted to "kill the bad hedge funds" (like those diabolical shorts Fuld knew were to blame for his problems), and that while the then Treasury Secretary appeared to have a "worried view" of Merrill Lynch, Dick got the sense that Paulson thought Lehman was in terrific shape. Per the bankruptcy documents put online last week, here's how the rest of the conversation between Fuld and his Sensei went.