September 15, 2009 – 1:03 pm

83071615DB011_JOBS_CULL_IN_

Much has been made in the mainstream financial media of the difference between Bear Stearns and Lehman Brothers, and the shrill question still arises:  “why save Bear Stearns and let Lehman Brothers fail?”  The question is quaint, of course, to those in the know. Bear Stearns was no more saved than Lehman, but rather the bank was turned into a sacrificial offering from the Fed to the ghost of the chairman of the meeting at Jekyll  Island. And while neither Bear Stearns nor Lehman Brothers conducts business anymore, JP Morgan’s investment in the Creature from Jekyll Island is still paying dividends. But those profits come with a human cost and cannot be measured by the metrics of finance.

The Human Cost of Shock:

When Yu Lia Chun, a retired hospital orderly in Hong Kong, thought her money was in a savings account, she never dreamed that via the twisted actions of securitization she had lent it to a bankrupt American securities firm halfway around the globe. She was ruined! Her family was ruined!

Yu, who has a sixth-grade education, said she thought her money was in a savings account. She didn’t know she had lent it to a bankrupt American securities firm. Eventually, she found out that her HK$1.2 million ($155,000) nest egg was gone. Her children lost another HK$3.8 million because Yu had persuaded them to make similar investments.
“There is no way a person like me could understand any of this,” Yu said, dabbing her eyes with a tissue in a coffee shop in Hong Kong’s financial district. “Sometimes I feel like jumping off a building.”
Yu, who has a sixth-grade education, said she thought her money was in a savings account. She didn’t know she had lent it to a bankrupt American securities firm. Eventually, she found out that her HK$1.2 million ($155,000) nest egg was gone. Her children lost another HK$3.8 million because Yu had persuaded them to make similar investments.
“There is no way a person like me could understand any of this,” Yu said, dabbing her eyes with a tissue in a coffee shop in Hong Kong’s financial district. “Sometimes I feel like jumping off a building.”

Yu and others were swept away by the tsunami of defaulting equity-linked notes or so-called Lehman minibonds .

‘Information Asymmetry’
Yu, a mother of six who emigrated from mainland China in 1962, didn’t have a chance, according to Joseph Stiglitz, a Columbia University economics professor who won a Nobel Prize for his work on the effect of unequal access to information on buyers and sellers in financial markets.
“As securities got more complex, the opportunities for gaming, to the disadvantage of ordinary people, increased,” Stiglitz said. “Complexity opened up new venues for information asymmetry, which banks exploited.”
‘Information Asymmetry’ is just a fancy way of saying Insider Information, the kind the big players get, but you can’t have. This is the difference between the classes.
Yu said she went to an export trade show in Hong Kong two years ago and met Chow Chi Chung, a salesman for Amsterdam-based ABN Amro Holding NV. He offered her a better return on her savings if she switched banks, she said. So she did.
Two-thirds of Yu’s money, about $100,000, came from a settlement with her employer after an elevator fell half a floor, injuring her pelvis, according to Yu, who still drags her right leg when she walks.
Unfortunately, she didn’t read the prospectus.
A month after their meeting, Yu said Chow called her to say he had a new product that could return as much as 20 percent a year because it was linked to the stock performance of three large Chinese companies — China Communications Construction Co.,China Merchants Bank Co. and Ping An Insurance Co.
Yu said she didn’t read the fine print, trusting Chow when he told her she couldn’t lose her principal. Had she looked at the prospectus and understood it she would have discovered that she had essentially bought three call options — contracts that would capture gains if the shares of the three companies rose by a certain amount — coupled with the equivalent of a Lehman corporate bond. If Lehman defaulted, her money would be gone.
Whether she didn’t read the prospectus or couldn’t, the scenario begs the question. How many adults with a sixth grade or even a college education understand call options or any other kind of derivatives contract? ‘Information Asymmetry’ is just a nice euphemism for a not so nice con game that costs more than just money.
The Human Cost of Betrayal:
Sun Kwan wasn’t out for a killing, when he bought Lehman minibonds.
Sun, who has a high school education, invested about $285,000 in Lehman Minibond Series 12 notes, sold to him by BOC Hong Kong, which paid about 4 percent interest a year.
He said he thought he was putting his money into a certificate of deposit. Instead, as the prospectus explained, the notes were a bet against the default of the Chinese government and five companies, including Hutchison Whampoa Ltd., which operates ports and telecommunications services, Chinese state-owned oil producer CNOOC Ltd. and Lehman.
As an incentive, he was given $26 in supermarket coupons.
$26 in supermarket coupons, a swap for the life saving of  a man and his family, including his dignity!
“It’s all gone,” Sun said in an interview conducted through a Chinese translator at the demonstration. “I almost wanted to kill myself. I’ve been crying for months, even though I am a man.”
He said he hadn’t yet told his 25-year-old son, Sun Chi Yan, what had happened to his nest egg, most of which came from a settlement when the government bought his family’s land.
Sun was sold the bonds, then promptly sold out.
Like a child learning to ride a bicycle relies on his mother to catch him, the  novice investor relied on the moral and fiduciary obligations of the peddlers of their financial ruin, and the regulators who backed those obligations up. With the world-wide Ponzi scheme coming apart at the seams, it was they who could see we were going too fast, even though the child didn’t feel like he was falling, his mother knew he was going too fast. But instead of slowing him down or catching him when he fell, the mother pushed him over. Then, as the injured child cried, the mother sold him into slavery just as she had intended to do so all along.
To Lehman Brothers, no one else mattered. Where sharks swim, they swarm, and with the body of Bear Stearns still warm, the hunt was on for Lehman Brothers.

The Human Cost of Loss:

Lehman’s employees worked hard and sacrificed much for their pay scale. Many considered their jobs careers, were loyal and had their retirement tied up in the company stock. For a time, their loyalty and service were highly rewarded and they lived well off the scraps from the Lehman elite table. They would have never thought to plan for the overnight collapse of their company or their way of life.

Lehman Brothers collapsed at the onset of the credit crisis and the careers and jobs lost there will likely not be replaced in a lifetime. As upper management and upper middle management move into the unemployment lines, they do so knowing they have lost far more than just a job or career, they have lost their lifestyles and they will never have those ones again. It would be as if you lived in the Emerald City, and going out to play in the enchanted forest, you forgot your key. Now the life you loved is locked behind a door slammed shut and you know that you will never hold that key again. Fuld and the other executives still have their riches, but for the everyday employee, losing Lehman means losing everything.

The Human Cost of Guilt:
Guilt is perhaps the most expensive human cost, carrying with the stain of shame and the residue of unworthiness.
The amoral mind cannot suffer, but the guilt riddled one tortured beyond measure is willing to do anything to repay what cannot be repaid. So, Kirk Stephenson, while suffering unbearable shame, seeing no way out finally repaid all that he could in the only manner he could find. It cost him everything.
It took only 10 days for the ice-nine to get to Kirk Stephenson, chief operating officer of Olivant Ltd., a London private-equity firm run by former UBS AG ChairmanLuqman Arnold. On Sept. 25, Stephenson, 47, jumped in front of a train going 125 mph at a station in Taplow, 28 miles (45 kilometers) west of London.
The coroner’s office for the county of Buckinghamshire ruled the death a suicide. Stephenson, a native of New Zealand, was despondent about the financial crisis and talked about killing himself one week after Lehman’s demise, according to a statement from his wife read at the coroner’s inquest.
<>

Comments

    Comment on this post! (Requires free membership in the Implode-Explode forums!)