Predicting a Heart Attack: The Fundamental Opacity of Extreme Liquidity Risk
Volume 86, No. 3, Spring 2014
By William O. Fisher [PDF]

After 150 years of business, Lehman Brothers ran out of cash and credit and filed for bankruptcy on September 15, 2008. As a publicly traded company, Lehman had filed all the reports required by U.S. securities law. But the hundreds of pages of words and numbers provided no timely warning of lurking liquidity death. The risks of triparty repurchase financing and the endgame Lehman would have to play if a self-magnifying credit drain hit were, as it turned out, inherently opaque. Disclosure, the traditional securities law “fix,” was destined to fail in this case, raising the question of whether it might fail in others as well.