In today’s Financial Times, under the headline “Lehman set to reveal new creditor repayment proposals,” is the striking out-take from the article: “Managers of the estate want to start paying our 60.1bn this year.” (FT 1/24/11, p. 19) Really? This year? So soon? Why not get things settled first. Lehman went bankrupt in 2008; and its only 2011.
Let the record show that in addition to the legal costs of having had to whittle down a trillion dollars in claims to just $322bn (and the further costs from having to figure out 60.1 (less these legal fees) divided by 322), a major cost of bankruptcy is loss of liquidity. A lot of assets are tied up in this bankruptcy. So funds sit idle, which is costly for hedge funds or investors that pay experts to allocate assets. Since presumably claims on Lehman trade at large discounts and are hard to use as collateral, do investors with claims on Lehman fire researchers and asset managers? Let them sit idle?
And doesn’t such a long and costly process make the next run on a large financial firm more likely?