Maria Bartiromo interviewed the CFO of Lehman Brothers this spring in Business week, it was on the blog at that time. Back then I stated that I doubted the CFO knew what was in the billions of dollars of so called assets. Since then Lehman fired her for not 'increasing confidence' among investors in their financials. Now this morning Lehman is trying to raise capital and sell assets (a Wall street euphemism for trick or treat) and cannot do either. Is Lehman too big to fail, I doubt it but will Bernake arrange another 'sale' as he did for Bear Stearns?
Click on the hyperlink and read the article. Lehman et al are writing down assets, what does this mean? It means the assets are impaired and not worth their value on the balance sheet. Okay what does this do via the accounting equation of A = L + OE. Well if A goes down, either L will have to decrease of OE will have to increase. THe realism is that the only number right on Lehman or any other Investment Bank balance sheetis the L number, got it? So OE has to go up. This means they must raise equity to meet capital requirements, these firms must must have a meager 3% in capital. Of course a hiccup in sub prime can wipe out 3% in capital over a mocha latte at a Starbucks break these days which is what has happened.
We will be studying all these things in Intermed II and Statement Analysis this fall. This makes a great time to be studying such things, by the way, has anyone noticed we are in a BEAR MARKET, it is going down, check out BRKA or BRKA, even Buffet will soon be down 30%, anyone interested in sale prices?
More breaking news here.
By the way, why are these called investment banks when all they do lately is lost money,
reminds me of the Click and Clack Capital Depreciation Fund that promised losses!
Professor Elam 
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