“The SEC considered an asset to be “liquid” if it could be monetized in less than 24 hours (though the SEC never enforced this definition, or wrote it into an actual rule).”
…or how Lehman using fancy schmancy “legal” accounting every 24 hours helped become the largest bankruptcy in USA history.
Lehman:
…calculated its reportable liquidity at the end of each day, and if the clearing-bank collateral was released at the end of each day, Lehman considered it part of the “liquidity pool.”
Here’s the short version:
…on Friday, September 12, Lehman claimed that it had a $32.5bn liquidity pool, and on Monday, September 15, Lehman needed $16bn to finance non-central bank eligible collateral. So why, if their liquidity pool was twice the size of their funding requirement, did they have to file for bankruptcy? The answer is that Lehman didn’t actually have a $32.5bn liquidity pool; they had, at most, a $2.5bn liquidity pool. That is not a typo.
Imagine if you could pull a number out of your ass to use as collateral to finance your daily expenses.
Read the Economics of Contempt take on the Lehman Examiner’s Report.
Via Naked Capitalism.