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Will Lehman crash and burn?

Posted Jun 05 2008, 05:50 PM by Matt Koppenheffer
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Are we going to get an encore showing of "The Amazing Disappearing Investment Bank?" Now that Bear Stearns is no more, the banking bears and short sellers have turned their attention to fellow investment bank Lehman Brothers.

With the massive leverage ratios that the investment banks have propped themselves on, creditor confidence has become a prized asset -- maybe the prized asset. There was plenty that was going haywire over at Bear, but it ended up being a complete and rapid drying up of the firm's liquidity that finally pulled the rug out. Unfortunately, Bear's management didn't seem to grasp the potential of this happening and their response to liquidity questions was a flip "Liquidity? Oh don't worry, we're just fine."

As the saga continues to unfold we'll see how much Lehman learned from Bear, and whether it's enough for them to keep the liquidity flowing, but the firm certainly seems to be taking the pessimists on head first. Lehman raised new capital back in April, but did so with preferred shares that couldn't be shorted. More recently, as rumors swirled that the company would be raising more cash, it thumbed its nose at shorts and bought back shares instead. The financial media has also gotten wind of deleveraging at Lehman through whispers and leaked memos from the company.

But the short sellers are stubborn. Trying to pick apart the financial position of the firm is nearly impossible for an outsider, but chief critic David Einhorn of Greenlight Capital has made a pretty compelling case by highlighting some questionable areas of Lehman's last quarter and arguing that it should have seen much worse write-downs on its CDO holdings. Multiple bloggers, including Barry Ritholtz and Yves Smith, have also questioned whether Lehman is intentionally leaking information -- which should be drawing the ire of the SEC. And disclosure rules aside, they also argue, what does it say about how Lehman management is feeling if this cloak and dagger information exchange seems appropriate?

Don't go to The Motley Fool's CAPS community expecting a sunnier take either. The stock is rated a rock bottom one star there and many community members are looking for blood. Just today MarketBottom jumped in the scrum with an underperform rating on Lehman saying "The giant derivative laced scheme has now started to unwind and the fallout from this has only started. Desperation is now being added to previous bad judgment."

CAPS All-Star TMFWBuffettJr was of the same mind when he put his thumb down on Lehman back in February:

Warren Buffett warned that the problem with such a fantastic party like we had at Cinderella's mortgage ball over the last five years is that there are no clocks on the wall. He said the drinks taste a little better, the girls get a little prettier, and so you stay for just one more dance. But eventually midnight hits and everything turns back to pumpkins and mice. Lehman is caught holding a lot of pumpkins and mice, they're just trying to hide it a little while longer than everyone else.


My take is that the opacity of Lehman makes it extraordinarily tough to figure out whether this stock is a victim of irrational fear or a ticking time bomb. So I'm not shorting it and I'm not buying it -- instead, I'm keeping my distance and getting ready to duck and cover should it end up blowing.

 

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Comments

 

you people on wall street and other places seem to have missed things,i live in ark and have traveled hwy 71 most of my life,last sun at 6.p,m, 71 had less traffic than i could remember  in 30 years, and i don;t think everyone  was in church

How do I find out the reputation of a investment firm as far as how good they are at what they do like the wins and losses kind of stuff.

Warren Buffet is the only could save Lehman,he could make a killing,I guess he is too smart or too old to do it!

I don't trust anything that these banks say. They've got this credit lifeline from the Fed, but I don't think anyone else is willing to engage in businesses with them. And that's true also for Citibank, WaMu, Wachovia, and many others. I think BoA is making a big mistake right now, acquiring Countrywide, in the same way that JPMorgan made its own mistake with Bear Stearns, but the 2 are in better shape and these deals are not as big as to cripple them too badly. So, Lehman, Citi, WaMu and Wachovia are likely to go out of business with time, deteriorating along the way, even if it doesn't involve total bankruptcy.

okay--listen----The markets can be fixed/fair for everyone -----and trustworthy----if you get rid of options--inside-traders--------------Then you can really almost call it a fair market-----------------thankyou

Yes, we're still sinking. While not as big a Lehman, Sterling Savings is now spiriling down, despite a lack of publicity. June opened with another round of downsizing layoffs at Sterling HQ in Spokane. Approx 50 rif's, and the commercial loan dep't was reduced 70%.

If Lehman manages to maintain liquidity, more power to them. But you have to bail fast when the gunwals are awash.

As the old saying goes - "The bigger they are, the harder they fall."  These

big shot bankers with their suits and ties are worse than a guy who walks into a

bank with a shotgun.  

We reap what we sow.

The historic Great Depression II is upon us.

The baby boomer elite sold us down the river 30 years ago, starting with the loss of intellectual property, and unfair trade. Some cats got fat selling our nations future away to the highest bidder.

Our revolution ( the american revolution II ) will follow shortly after things get so bad, the original great depression will permanently fade into historical obscurity.

This all was brought on by Greed. Even the poorest americans have it better than most 3rd world people, but the level of extravagance displayed by late 20th century upper-class america is grotesque. The term here is " spoiled".

Simple description with maybe, "ignorant" thrown in there as a balance.

Our grand parents and before were nothing like the human-pigs that were cultivated in the 60's and 70's. And their Ilk still runs the slaughter house called the stock market and the treasury.

So, as they lost out when their bubble burst this year, do they man-up to their losses ? Do they pull out the contingency plans the should have had in the 1st place ?  Hell no they didnt . They reach out to the fed to save their asses... and what does the corrupt rotten government do ? They print more money to mitigate the damage... manually devaluing our currency in a fashion thats going to create worse problems shortly daown the road, just to cushion the greedy morons mistakes. These pigs lived like kings at the expense of regular folks working to make a living. The were allowed unregulated airspace to act as they wanted, and their tactics right up to the end were to lure the poor into an arrangement that would consume them totally unless property values continued their artificial rise.

These pigs knew it was going to end, and they didnt care about what happens after they are through with their harvest.

There might be a new association with a noose and a gallows, and it wont have anything to do with racism.

There is a song about Pretty Boy Floyd which has a line........."Rob you with a sixgun or a fountain pen."

I robbed a bank with a pen because I was in jail for letting the air out of a rude lad's tires.

Sixty six days fifty thousand dollars cash bond for a prank.

The system tried to stiff me soooooooooo

I stuck it where the sun don't shine.

Now the VA is trying to deny me medical care for an imagined act.

I am a war orphan and a Vietnam vet.

THANKS A LOT UNITED STATES OF AMERICA.

The fool on the hill.

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