The Eclectic One

…Because labels are a poor substitute for thinking

Lehman Brothers, a thought

Posted by Bill Nance on September 16, 2008

One of the things I’ve been wondering lately is just how these giant investment banks not only invested so heavily in sub-prime paper (loans) but why in God’s name they held onto them for so long after the writing was on the wall that there was a pending problem.

In 2003 we were shopping for  house and were very concerned that prices were near the top of the spectrum and were likely to go down, particularly in one of the areas in which we were looking. So we took a bit of a chance and decided on a house in a less affluent area on the theory that the property was probably somewhat undervalued.

According to the Multiple Listing Service, it was a good decision, and the house is worth very substantially more than it was in 2003, even subtracting for improvements.

One of the concerns we had at the time was a great deal of buzz about an impending housing price crash, spurred in part be a crisis in the sub-prime market. This was in the summer of 2003, when Lehman Brothers stock was was at $77 a share.

If little old me, with no financial expertise was smart enough to read newspapers and make the right judgment call, what in God’s name were the “experts” on Wall Street doing?

I’m actually asking a question here, so anyone more knowledgeable than myself please answer the question if you can.

Were they unable to unload at least a large portion of their questionable portfolio? Or, as I suspect, were they just greedy?

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