Wednesday, September 17, 2008

What Are In-house Counsel Thinking—the Demise of Lehman and Merrill

I waited until Tuesday to write this because I wanted the emotion of the moment to fade. Those of you who have been reading my blogs have known that I have not been a fan of government intervention.

Today for those of you not in financial institutions your biggest concern maybe whether you will ever be able to afford to retire. But for our colleagues in financial institutions I am wondering what is going through their minds.

As a trial lawyer, the moment the jury went out or at the close of an appellate argument, I would begin reexamining every decision I made in the conduct of the trial or the argument and if the jury or panel returned with an adverse verdict, that re-examination would go on for weeks.

I am wondering if they are looking at those “complex financial instruments” and wondering like I did what they could have done differently, or whether their legal education even prepared them for this experience.

I was listening to Hank Greenberg this morning on CNBC attempting to distinguish AIG from Lehman. He said Lehman was insolvent, whereas AIG was simply illiquid. To me being illiquid means, there is money in my checking account, but I cannot cash a check today because the banks are closed; however, tomorrow it is virtually certain I will have the cash—I should have not problem pledging that check as collateral.

Insolvency means there is no money in the checking account. If AIG is in fact simply illiquid, why has it not been able to pledge its assets as collateral? I am wondering what AIG’s lawyers are telling their client—is illiquidity simply the asset owner’s euphuism for insolvency? Are we once again trying to make words dominate reality?

-Larry Salibra
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