The subjectivity involved in derivatives accounting also means that the counterparties in a contract may come up with very different values for it. Indeed, you will be forgiven if you immediately suspect that each party to a derivatives contract could simultaneously claim a gain on it which should be a mathematical impossibility. In fact, we have a weird tale, gleaned from court documents, supporting that suspicion. It involves Lehman, Bank of America, and J.P. Morgan, and suggests how far some of those “terminated” contracts are from being truly settled.

When Lehman failed, one of its subsidiaries was holding (sort of, which is a point we’ll get back to) $357 million of BofA collateral—an amount that was roughly related to the fair value of Lehman’s derivatives contracts with the banking giant. Presumably BofA had delivered the collateral because it thought Lehman had a legitimate claim to it.

But within two weeks of the bankruptcy filing, BofA sued Lehman to recover the $357 million, saying that Lehman in fact owed derivatives payments to BofA. Ultimately BofA placed the amount it was owed at $1.95 billion! In other words, by BofA’s thinking, Lehman didn’t have a plus of $357 million, but rather a minus of $1.95 billion. Trying to capture some of that money, BofA had by that time seized $500 million belonging to Lehman—described by Lehman as an overdraft account—held in a BofA Cayman Islands branch. Leave aside the point that anything about banking in the Caymans raises eyebrows, and behold that rich overdraft account, whose size suggests that Lehman may have been the Imelda Marcos of investment banks.