Archive for September 23rd, 2008

Venezuelan Government orders banks to reserve half their positions at Merril Lynch and Lehman

September 23, 2008

In a nonsensical decision the Venezuelan Government has just ordered all Venezuelan banks to reserve 50% of all and any investments held in Lehman Brothers and-or Merril Lynch.

Recall that many banks had structured notes in US banks and investment banks which were guaranteed with either dollars or securities and which were purchased with depositors money. Because the parallel swap rate had gone down these were worth much less than what appeared in the banks’ books, creating huge losses.  However some of these notes were at Lehman Brothers which went bankrupt ten days ago. What makes absolutely no sense is to force these banks to take the loss in Merril Lynch, which has agreed to merge with Bank of America. If the merger goes through, all of the investments in Merril Lynch will be honored, which is obviously not the case in Lehman Brothers.

I can think of at least four banks, and it could be more, that can not survive this unless the owners replace the capital. Basically, if they reserve both Lehman and Merril, they are technically bankrupt, not because of Lehman Brotehrs, but because of this resolution.

I am not sure the Government understands what it just did, but it coudl be the start of a financial crisis…

So much for being immune to the US credit crisis as Chavez claims…