By Satyajit Das
In this two part paper, the issues regarding settlement of complex derivatives arrangement revealed by the failure of Lehman Brothers is outlined. Many of the failures affect new regulatory proposals such as the rapid resolution regimes under consideration. The First Part deals with terminating and settling derivative contracts.
A generation was once measured by where they were when an American President was assassinated in Dallas. A newer financial generation measure themselves by where they were when Lehman Brothers filed for bankruptcy protection on 15 September 2008.
The controversial failure of Lehman has become a pivotal point in ideological debates about markets, finance and the role of government. At a more mundane level, Lehman’s bankruptcy points to deeper problems in the “plumbing” of the financial system. The policy debate so far has largely ignored these unfashionable issues.
Refusal to understand these lessons will spawn poor new policies and regulations. The concept of “living wills” for large financial institutions substantially ignores some issues that Lehman’s exposed. Many of these concerns relate to derivatives, especially the settlement of contracts following bankruptcy, documentary uncertainties and the use of collateral.
Read more: http://www.macrobusiness.com.au/2012/03/lessons-from-lehman-part-1/
In this two part paper, the issues regarding settlement of complex derivatives arrangement revealed by the failure of Lehman Brothers is outlined. Many of the failures affect new regulatory proposals such as the rapid resolution regimes under consideration. The First Part deals with terminating and settling derivative contracts.
A generation was once measured by where they were when an American President was assassinated in Dallas. A newer financial generation measure themselves by where they were when Lehman Brothers filed for bankruptcy protection on 15 September 2008.
The controversial failure of Lehman has become a pivotal point in ideological debates about markets, finance and the role of government. At a more mundane level, Lehman’s bankruptcy points to deeper problems in the “plumbing” of the financial system. The policy debate so far has largely ignored these unfashionable issues.
Refusal to understand these lessons will spawn poor new policies and regulations. The concept of “living wills” for large financial institutions substantially ignores some issues that Lehman’s exposed. Many of these concerns relate to derivatives, especially the settlement of contracts following bankruptcy, documentary uncertainties and the use of collateral.
Read more: http://www.macrobusiness.com.au/2012/03/lessons-from-lehman-part-1/
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