Sunday, Sep 06, 2009
Tulip mania
FT: Lehman rise leads bankrupt stock rally
Almost a year after it filed for bankruptcy, the value of Lehman Brothers shares has soared amid a surge in trading activity.
Other bankrupt companies β where the value of shares is usually close to zero because equity investors are compensated only after all creditors have been repaid β have also seen a frenzy of trading in the last few days.
βIt is tulip mania... People have decided a stock is worth something based on nothing. The facts are quite the contrary.β
Posted by devo @ 08:46 PM (358 views) Add Comment
1 Comment
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1. icarus said...
These junk shares are traded over-the-counter. Time to do something about this OTC cr@p. It's a big scam by the usual suspects. For example, JPMC, GS, BofA, MS and Citi are in line to make $35bn+ this year trading in CDSs and other unregulated derivatives contracts. About half of the profits of these banks currently derive from this business. It's simple. It works like this. When a client wants to enter into a swap the bank checks the cost of making the opposite trade with another bank. The first bank, with no risk exposure whatsoever then offers a higher swap price to the client and pockets the difference. The US government plan is to require standardised derivatives to be listed on exchanges that entails the reporting of trades and processed through clearing houses where members would make good on trades in the event of default. The ensuing public pricing of trades would kill this very fat, socially useless goose.
These banks love trading away from transparent exchanges. The usual suspects + Madoff were behind another little scam about 10 years ago called Primex Trading. It was supposed to be an electronic version of the NYSE, open and trasparent. In reality the partners practiced 'internalisation' where they matched buys and sells in-house rather than sending them to an open exchange, creating pockets of liquidity and not allowing orders to interact. The boyz paid for 'order flow' to expand their business. They did the opposite of what they purported to do - 'get the best price for our clients'. (The system lasted from 2000 to 2004, when Nasdaq terminated it.)
Btw - none of the banks Madoff partnered with on Primex got scammed by Madoff over the following years, but their counterparts in Europe did.