Marketwatch reports that Lehman creditors are demanding $875 billion.
(emphasis mine)

March 15, 2010, 5:02 p.m. EDT
Lehman reportedly files plan to repay creditors

SAN FRANCISCO (MarketWatch) -- Lehman Brothers (OTHER:LEHMQ) unveiled its plan to repay tens of thousands of creditors that are demanding about $875 billion from the failed investment bank, according to a Dow Jones Newswires report on Monday. The plan, filed with the U.S. Bankruptcy Court in Manhattan, comes on the 18-month anniversary of Lehman's collapse in 2008, which marked the largest bankruptcy ever. Lehman faces about 65,000 claims from creditors, but the firm will likely object to many of them and fight with creditors over what they're owed, Dow Jones Newswires said.

Creditors are demanding about $875 billion. To put this number in context, we need to look at Lehman's balance sheet at Lehman's balance sheet at the end of 2007.

SEC reports Lehman's 2007 balance sheet. (the two numbers I want to focus on are highlighted in red)

How did a firm with 213 billion total assets and 190 billion total liabilites collapse nine months later owing 875 billion? The answer to this question is in Note 5 of Lehman's 2007 Annual Report.

Note 5 Securities Received and Pledged as Collateral

We enter into secured borrowing and lending transactions to finance inventory positions, obtain securities for settlement and meet clients' needs. We receive collateral in connection with resale agreements, securities borrowed transactions, borrow/pledge transactions, client margin loans and derivative transactions. We generally are permitted to sell or repledge these securities held as collateral and use them to secure repurchase agreements, enter into securities lending transactions or deliver to counterparties to cover short positions.

At November 30, 2007 and 2006, the fair value of securities received as collateral that we were permitted to sell or repledge was approximately $798 billion and $621 billion, respectively. The fair value of securities received as collateral that we sold or repledged was approximately $725 billion and $568 billion at November 30, 2007 and 2006, respectively.

We also pledge our own assets, primarily to collateralize certain financing arrangements. These pledged securities, where the counterparty has the right by contract or custom to sell or repledge the financial instruments, were approximately $63 billion and $43 billion at November 30, 2007 and 2006, respectively. The carrying value of Financial instruments and other inventory positions owned that have been pledged or otherwise encumbered to counterparties where those counterparties do not have the right to sell or repledge, was approximately $87 billion and $75 billion at November 30, 2007 and 2006, respectively

When a firm goes under, all pledged collateral is seized by counterparties. This means the 150 billion (87 + 63) which d isappear from total assets the moment Lehman becomes bankrupt (with resale right). Furthermore, everyone whose securities weren't properly segregated by Lehman ends up a general creditor.

My reaction: Lehman was essentially borrowing hundreds of billions from customers off balance sheet. When it collapsed, these customers were left general creditors, and they aren't going to get much.