Monday, September 15, 2008

Quote of the Day: Leveraged Lehman

John Hussman of the Hussman Funds writes:
Last week, Lehman reported $600 billion in assets, on less than $20 billion of common shareholder equity. ... Put another way, a markdown in the value of Lehman's assets by just over 3% would wipe out that reported shareholder equity. One would need to have a great deal of faith in that asset valuation to be willing to buy the company out at any price, since an outright buyer would have to agree to pay off Lehman's bondholders (in excess of $100 billion).


Wow, think homeowner with a $300,000 house, but his equity in the house is only $10,000, and with the house, and credit card and other debts of $50,000. Hmm, so turns out our most esteemed financial firms are no different from the lay homeowner?

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