Ten years after Lehman Brothers collapsed and the absurd lies of the multi-trillion-dollar “derivatives” market in which it played began to corrode the entire global economy, the most famous name of the financial crisis is still a happy phrase for some people.

It’s still making them billions of dollars.

The vulture firms that zipped in to buy Lehman debts at rock-bottom prices after the investing house garroted itself in a massive, complex web of wagers on the deregulated housing finance marketplace are now seeing massive returns on their investments. Some $124 billion has gone to Lehman’s creditors so far, Bloomberg reported Saturday, and the faucet isn’t quite done dripping.

The $126 billion total expected return is a far cry from the on-paper value of Lehman’s holdings prior to its collapse, to be clear. But for the financiers that picked over Lehman’s corpse in the earliest hours and days, it represents a massive win. Leading vulture capitalist Paul Singer secured a significant chunk of Lehman’s bond debts when they were selling for about 9 cents a pop, and the unexpected success of private-money financiers in the Lehman bankruptcy process over the decade since has boosted their value to nearly 50 cents.


Though often regarded as the opening bell of the financial crisis, Lehman’s bankruptcy on September 15, 2008 was actually the second major firm to fail that year after getting too deeply entangled in the market for mortgage-related derivatives. The basic scheme for Bear Stearns, Lehman, and numerous others at that time had less to do with the buying and selling of actual home loans — packaged together into large pools of “mortgage-backed securities” or MBS — and more with betting on the future value of those loans.

The derivatives market had an on-paper value in the tens of trillions — several times to gross domestic product of the entire planet — by the time the elaborate landscape of wealthy investors’ wagers began to crack. Lehman was allowed to fail; over the ensuing hours and days, the government would begin bailing out every other teetering giant in its peergroup. The Great Recession that resulted was the worst economic crash in 75 years, and the economic recovery from it the slowest and shallowest in modern U.S. history.

The investors who gambled on Lehman’s corpse-parts in those chaotic first days did so to become entitled to a piece of whatever liquidity the firm’s estate could gin up in bankruptcy. They bought, in some cases, from Lehman investors with a much more tangible connection to the public good: retirement managers, public pension funds, and city governments. The vultures offered those original Lehman investors a deal at a dire moment for the sellers, who knew they would never get what their Lehman holdings had been worth on paper just a few days earlier and had good reason to fear they might now be worth nothing. Firms like Singer’s could guarantee them a small bird in the hand, in exchange for taking over their future right to make demands of Lehman’s estate in bankruptcy court.

While the idea of bankruptcy court may call to mind an image of wronged small-timers getting the chance to demand to be made whole by the rich guy who screwed them, the reality is usually not so morally clean. It is typically investment houses and teams of high-dollar lawyers who came in late, bought out the people who actually got victimized by the collapsed firm, and then made similar demands despite not having been around for any of the wrongdoing or mistake-making that harmed the guys they bought in from.


It’s a common tactic for a certain particularly aggressive set of the high-finance machine. Known as distressed debt buyers, the firms operate in a more well-to-do version of the mode favored by small-time debt collectors who harass and intimidate workaday folk into paying back old medical or consumer debt that the hospital or credit card company in question long since gave up on. Perhaps Singer’s most famous investment story involves the sovereign nation of Argentina, which found itself basically at the mercy of a foreign capitalist’s whims after he hoovered up its national debt and then started demanding changes designed to boost the value of his investment.

In the Lehman case, the distressed-debt vultures got a significant if indirect assist from every U.S. taxpayer. When the George W. Bush and Barack Obama administrations decided to bail out numerous private firms whose gambles on the housing market — most of the toxic assets relieved by the Toxic Asset Relief Program (TARP) were derivatives of mortgages that serve as legalistic wagering slips on the future of home prices, not actual home loans — had gone awry, Lehman had already crashed. Some historians of the crisis still think that the worst of the wider panic could have been avoided if the government had jumped in to prevent the firm’s complete collapse. But even though Lehman didn’t get bailed out, the subsequent rescues of nearly every other major player in the same ludicrous housing-finance casino propped up the broader system of assets and cash flows that Lehman’s bankruptcy would later draw upon to repay creditors. The policies followed after Obama’s inauguration might have been different if then-Treasury Secretary Tim Geithner had not stalled on the president’s instructions to prepare a plan to nationalize some of the largest failing banks.

Some of the largest pension funds stayed in long enough to force the hedge fund vultures to compromise, the Bloomberg report notes, forestalling a lengthy court fight and delivering better-than-expected returns for each side of the argument. But front-row observers like Shai Waisman, who worked on the bankruptcy estate team for years, see injustice in the deal that sped things up and helped debt vultures get paid. The whole thing should’ve gone through court piece by piece, Waisman told the news service.

“It would have returned that money to the initial holders, like pension funds, rather than the opportunistic buyers,” Waisman said.

While working-class family net worths are still not caught back up to where they were before the crisis wiped them out, the wealthiest people who are most deeply embedded in the runaway industry are still cashing out on the wreckage 10 years later.