Hudson Castle: How Lehman Brothers Juggled Money

So there's this finance company called Hudson Castle. Lehman Brothers used to own a quarter of the firm.

And, this morning's New York Times explains, the relationship between Lehman and Hudson Castle is an excellent case study of the Rube Goldberg machines that Wall Street uses to move money around — and how the machinery failed during the financial crisis.

One example, according to the NYT:

1. Hudson Castle created a special purpose vehicle called Fenway.

2. Lehman lent $3 billion to Fenway, in exchange for IOUs.

3. Fenway lent the money to a Lehman subsidiary. That loan was secured by Lehman's investments in SunCal; those investments soured in the crisis.

4. Lehman later used the IOUs from Fenway as collateral to borrow more money from JPMorgan.

Hudson Castle is now the second-largest creditor in Lehman's estate, the NYT says.

A Hudson Castle spokesman told the paper that, after 2004, "all funding decisions at Hudson Castle were solely made by the management team and neither the board of directors nor Lehman Brothers participated in or influenced those decisions in any way."

Correction: An earlier post incorrectly stated that SunCal collapsed during the crisis.



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