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Lehman's bonds went to 0 because all of its assets went out the door with its derivatives. If the derivatives had had the same status as other debts, including

• hga 16y ago
  Are you really sure Lehman's bonds went to zero? No one was willing to take a chance they'd be worth something when everything was sorted out? I doubt that and would like to see some evidence of it. The problem for the Reserve Primary Fund was that their value dropped precipitously; I suspect it wouldn't have mattered if they ended up at 0, 1, 5 or 10 cents on the dollar. As for the derivatives, when it came time to settle them, as widely predicted they mostly canceled out with only (from memory) 6 billion US$ changing hands.
  • anamax 16y ago
    > Are you really sure Lehman's bonds went to zero? The official story is that market essentially froze, that no one would buy. I'd have bought everything I could get my hands on at fractions of a cent (and possibly more), but they didn't ask me. (After they let individuals back in, I thought that all of the bargains were gone, so I didn't go bottom fishing. Big mistake. The great deals were gone, but there were still some opportunities left even when I got around to looking.) The money that left with the derivatives may have kept the bonds at 70-80 cents. Unless Reserve Primary was 100% Lehman, that might have been enough. > As for the derivatives, when it came time to settle them, as widely predicted they mostly canceled out with only (from memory) 6 billion US$ changing hands. Yup, but no one knew that when the derivatives were being made whole while everyone else waited to see what was left.