Friday, April 11, 2008
Wall St. is taking advantage of its new ability to borrow from the Fed. Lehman Brothers, for example, moved $8.2 billion in loans that it had trouble selling into a new investment vehicle "Freedom," so called because it gave the firm the freedom to tap into as much cash as it needed. Freedom then issued debt securities backed by the loans, most of which received investment grade credit ratings. Lehman then used the securities as collateral for a low interest short term loan from the Fed. Was this strategy "shocking" or "brilliant?" In any event, expect more of the same. WSJ, How Lehman Opened the Fed's Spigot.