Lehman is down is winning the race to the bottom today, down more than 19 percent while the Amex Securities Broker/Dealer index has dropped just 2.6 percent. Unlike other days, when stock declines could be blamed on rumor mongers, the rumor mill isn't grinding away at Lehman today. What's driving the stock down seems to be a ripple effect from the problems at Fannie Mae and Freddie Mac. But exactly why that should have a disproportionate effect on Lehman is not immediately clear.
One trader we talked to said that Lehman suffers more than other financial firms from the fears over Fannie because Lehman is viewed as having the shakiest balance sheet. "No one knows what will happen if Fannie blows up or gets taken over by the government. Lehman is still highly leveraged, has questionable business prospects and is viewed as teetering on the edge," he said.
Another trader indicated that the problem was more concrete. If Fannie and Freddie went down, it would be difficult if not impossible to securitize mortgages. But isn't that business already gone? "This could have a long-term effect, basically permanently removing an important business from the Wall Street playbook," the other trader said.
But we want to know what you think. What's crushing Lehman today?
Posted by miami , Jul 11, 2008 12:22PM
Finkle is Einhorn!
Posted by guest , Jul 11, 2008 12:24PM
Momentum
Posted by guest , Jul 11, 2008 12:27PM
Snowball effect
Posted by guest , Jul 11, 2008 12:29PM
lack of mayo
Posted by guest , Jul 11, 2008 12:31PM
The weight of its own awesomeness (i.e. too sexy for the NYSE).
Posted by guest , Jul 11, 2008 12:33PM
investors are being forced to meet margin and sell now.
Posted by guest , Jul 11, 2008 12:38PM
Market is open then Lehman trades down. Only $14 to go.
Posted by guest , Jul 11, 2008 12:43PM
Possibly due to LEH's CDO spreads increasing 55BPS due to debt insurance concerns.
Posted by guest , Jul 11, 2008 12:43PM
Possibly due to LEH's CDO spreads increasing 55BPS due to debt insurance concerns.
Posted by sales rep , Jul 11, 2008 12:52PM
Stevie Cohen is menstruating.
Posted by guest , Jul 11, 2008 12:55PM
Einhorn is Finkle!
Posted by guest , Jul 11, 2008 12:59PM
LACES OUT!!!
Posted by beentheredonethat , Jul 11, 2008 1:00PM
I very much admire David Einhorn. Nothing more impressive than someone speaking the truth when surrounded by bullshitters. When the final chapter is written, and we see that the shorts and the rumors played insignificant roles in the collapse of LEH, the market will be better off, albeit with one less counterparty. There is nothing more to this story that the toxic waste LEH willingly dumped on its own books. GS was smart enough to put them on the customer books with a hefty commission rather than hold them in principal accounts.
Posted by guest , Jul 11, 2008 1:05PM
Lehman who?
Posted by blndebnker , Jul 11, 2008 1:07PM
Here's a nice, light-hearted article for Friday...
http://www.bloomberg.com/apps/news?pid=20601109&sid=ayIvmRwa4t6E&refer=home
still somewhat entertaining though kind of a no-brainer
Posted by guest , Jul 11, 2008 1:12PM
I agree about Einhorn. He was extremely candid on CNBC a few weeks back and they treated him like a communist. He is obviously a smart guy, and he just calls em like he sees em. Whats wrong with betting against crappy companies? If you suck, you suck, end of story and Lehman dug their own whole. Are we supposed to feel sorry for them?
Posted by guest , Jul 11, 2008 1:13PM
Jimmy Cayne.
Posted by guest , Jul 11, 2008 1:15PM
The more likely it is that the Feds step in to save FNM and FRE, the less likely it is that they'll be able to intervene on LEH. Can't keep on proclaiming "no one is too big to fail" without allowing anyone to do just that.
Posted by guest , Jul 11, 2008 1:16PM
Me.
Posted by guest , Jul 11, 2008 1:21PM
This is just an old fashioned portfolio blowout, to coin an old Ed Hart term.He's the late commentator from FNN days, kids...the one that CNBC should have snatchced up when it imploded back in 1991, instead of the idiotic Insana and Herrera types.But I digress...
Sector blowouts happen at the late stages of bear routs, and we had a beauty back in sept-oct 1990 when Citi,Chse,Chemical,Fleet and some assorted hotel/motel/real estate related entities got slaughtered,losing 60% in under 8 weeks.
This is a normal course of events for stocks in their capitulation stage,but it sucks to be an LEH employee right now.
Posted by Anal_yst , Jul 11, 2008 1:22PM
just a warning this is stream-of conscious and little thought has been put into the following statement, but, if Lehman is in such fine shape, why not just come out and present your case, i.e. here are our positions, here is our leverage, blah blah. If you've got nothign to hide, don't hide it, bing bang boom problem solved.
Of course, if you've got something to hide, well, then you do nothing, kinda like what they're doing now...
Posted by beentheredonethat , Jul 11, 2008 1:30PM
@1:22
While I agree with the sentiment, it is not possible. Once their postions are publicly known, they will have 30 minutes to clean their desks out and shut the lights. The vultures are already circling, and showing them where the carcass is at.....well, I'll stay here in the Jeep while Jim goes to investigate......(Now to figure out how old everbody is, name that reference)
Posted by blndebnker , Jul 11, 2008 1:31PM
@Anal_yst - You make a good point but at the same time, everyone is a critic. So they could come out and prove that they are fine and some people somewhere will poke holes in it and say "Oh but if this happens in the market then..." etc. Not to mention, if everyone knows the exact shape they are in, they could exploit any weakness, no matter how small it is.
Bear came out and tried to dispell the rumors and look at how that turned out. Now obviously it's not the same but in the same vein. Kind of along the lines of "doth protest too much..."
If I were in control, as long as I was pretty sure I could ride it out, I probably wouldn't say much either.
Posted by guest , Jul 11, 2008 1:31PM
Ahhhhhhh yeah! Dropping loads all over LEH!
- Nick Manning.
Posted by guest , Jul 11, 2008 1:33PM
Anal_yst,
The go on offense and make our case game ha been played already, ask Erin Callen. They're playing defense now.
Posted by guest , Jul 11, 2008 1:41PM
"If Fannie and Freddie went down, it would be difficult if not impossible to securitize mortgages. But isn't that business already gone?"
What? Fannie and Freddie's securitization machine is not gone. Fannie's done 70+ MBS deals so far this year, by count, on par with 2006 and earlier vintage issuance. Obviously dollar volume's down in both agency and non-agency, subprime is shut down, CMBS is crawling along with what looks like just 1 more deal for 2008 - but it's probably a little too early to say the business is gone.
Posted by bank_teller , Jul 11, 2008 1:55PM
luckily, leh employees were issued lots of stock last week to give them an "incentive to stick around". anybody know what the strike/face was? options or shelf stock or combo? were taxes withheld (i assume so) or will those employees owe taxes later at the issue price? those bottles at marquee are getting more expensive by the minute...
Posted by guest , Jul 11, 2008 1:57PM
Beentheredonethat: What is Mutual of Omaha Presents - Wild Kingdom!
Eats, Shoots, Leaves (and hasn't registered...)
Posted by guest , Jul 11, 2008 2:00PM
beentheredonethat:
"And there's one now!"
I'm not that old, but liked to watch poor Jim wrestle with the enraged alligator/bear/moose/giant snake.
Posted by beentheredonethat , Jul 11, 2008 2:03PM
@1:57
Now I feel better.
@2:00
Denial is more than a river in Egypt....
Posted by guest , Jul 11, 2008 2:04PM
"If Fannie and Freddie went down, it would be difficult if not impossible to securitize mortgages. But isn't that business already gone?"
No. As long as the loans are conforming (government backed debt) the mortgages will continue to be securitized. As noted by 141pm.
Posted by guest , Jul 11, 2008 2:06PM
LEH=Ben Dover/C.Howiit Fields
Posted by beentheredonethat , Jul 11, 2008 2:13PM
@2:06
Those are my lawyers.....
Posted by guest , Jul 11, 2008 2:19PM
To echo 1:41, I thought Carney's statement was a little off, too. Fannie and Freddie are in the business of securitizing mortgages, so of course that market has not "gone". 30-year fixed mortgages do not exist in most of the world because most governments are not interested in backing mortgages in the secondary market (implicitly or explicitly). Agency RMBS is holding up today because the market believes the government will intevene over the weekend, no matter what was said this morning.
Posted by guest , Jul 11, 2008 2:20PM
I am hearing that this weekend the goverment is going to infuse each entity with $12 billion.
Posted by John Carney , Jul 11, 2008 2:22PM
It's not gone but it's no longer the profit engine it once was. I was being a bit dramatic. My apologies for the confusion.
Posted by Anal_yst , Jul 11, 2008 2:26PM
@ Beenthere/Fun/etc
I should have actually, ya know, thought about that a little more, damn you hindsight!
So what you've said being the case, what options does lehman have? Think game theory here: You can't tell the truth, it'll only open you up to further penetration (heh). You can't stay mum, then it sounds like you're holding back because you've got something to hide. As 1:33 points out, Leh is on the defensive despite "assurances" that everythings hunky-dory (who says that wtf?), so, if there's nothign they can do, is endgame a foregone conclusion?
Posted by beentheredonethat , Jul 11, 2008 2:38PM
@2:26
The endgame is in on, the conclusion not yet settled, but for sure Lehman is no longer in control of their fate. They could conceivably weather the storm and emerge terribly weakened and end up attending their own shotgun wedding. On the other hand, if the assets on the books are as toxic as I believe them to be, it will be a bust with no bailout.
Posted by FUNdamental , Jul 11, 2008 2:46PM
@anal - if game theory applies (which I agree it does) isn't the best course of action to try and deflect this attention elsewhere to try and buy time and deal with your internal demons and weather the storm?
Unless mgmnt believes their business is not sustainable in the current environment, in which case they need to try and sell themselves and get what they can for debt holders, shareholders, employees etc...
Posted by guest , Jul 11, 2008 2:55PM
Paulson said the freddie and Fannie eligiable for discout window
Posted by beentheredonethat , Jul 11, 2008 2:57PM
I hope that window is one of those floor to ceiling jobs........something that will allow the dump trucks to get through.....
Posted by guest , Jul 11, 2008 3:00PM
Thanks beenthere....that made me lol.
Posted by guest , Jul 11, 2008 3:47PM
Let's keep shorting all the financials. Pretty soon they'll lay us all off. Then we can go home, sit in front of Etrade on the screen and short some more.Then we won't even need jobs. Hahaha.
Posted by guest , Jul 11, 2008 3:54PM
@ 3:47,
your still getting dressed in the morning and going into work?
What is up with that?
Posted by guest , Jul 11, 2008 4:08PM
Fear and greed are crushing Lehman today. Fear by those afraid to own LEH, and greed by those hoping Lehman topples so they can cover their shorts. Fear of the unknown always causes a downdraft too.
I don't think even one short seller gives a shit about LEH's pending failure and the effect it might have on LEH jobs, on the financial sector, and on the economy as a whole.
Fuck everyone else except me and mine. That's what they say.
I really hope Washington restores some of the regulations that were undone in the late 90's and in 2000 that had been around since the 1930's. This whole credit mess and the wild commodities speculation are a result of that undoing.
I cannot see how this situation is going to improve without drastic measures coming out of Washington. This bullshit is not going to correct itself on its own.
Posted by guest , Jul 11, 2008 4:16PM
@3:54,
I still get up and go to work, I don't dress too well anymore (I don't care really), and I don't think my job will be around much longer. I'm getting bad vibes at work, morale is dirt low, and I don't see much of a future here either. Thanks for asking. How about you?
Posted by onetwo , Jul 11, 2008 4:28PM
Ok, this whole thing is pretty simple.
1. If Lehman wants to "hurt the shorts" as Dick said, all they have to do is start a massive share repurchase. If the firm is as well capitalized as they make themselves out to be then investing in themselves is a no brainer. Current shareholders win by reducing sharecount, critics are stymied because there is a true economic signal and not noise, shorts are hurt by the inevitable squeeze.
Of course, that is predicated on everything actually being alright. But, even if LEH doesn't have the cash, someone like Fuld could go and make a massive public purchase with his own cash. Again, it's a true economic signal.
2. Also, this short-seller conspiracy thing is still nuts to me (sorry ARS). If it was all about selling pressure from naked shorting then the CDSs shouldnt be trading at near all-time highs.
Posted by Anal_yst , Jul 11, 2008 4:48PM
Anyone knwo the current (like today) short ratio on Leh?
Posted by beentheredonethat , Jul 11, 2008 5:09PM
@4:28
Please go to the corner of Wall & Broad. The turnip truck will be waiting to take you home.
Posted by onetwo , Jul 11, 2008 5:27PM
@5:09 - Already there...Care to elaborate or are pointless ad hominems in with the kids today?
Posted by beentheredonethat , Jul 11, 2008 5:54PM
@5:27
the point would be either naivete or ignorance. If Lehman were to announce a share repurchase, the flood of sellers would make the Mississippi look like a creek. The new capital bought in at $28, and you see the price today. They don't have a penny of capital to spare. God knows what they reported to the FED at the close today, but Humpty Dumpty is worried less about the fall than the integrity of the bricks in the wall.
Posted by onetwo , Jul 12, 2008 7:17PM
Hence the statement "Of course, that is predicated on everything actually being alright. But, even if LEH doesn't have the cash, someone like Fuld could go and make a massive public purchase with his own cash. Again, it's a true economic signal."
Try reading my comments before refuting them.
Posted by beentheredonethat , Jul 13, 2008 8:59PM
Fuld is not that stupid. as bad an executive he may be, he's not going to sacrifice his own cash.....
Posted by StMarc , Jul 13, 2008 10:43PM
See other threads - the Feds are blowing their wad on the GSE's. They've said flat out there's nothing left for LEH or any other financials.
Fire in the hole!
M
Posted by guest , Jul 14, 2008 12:28PM
so allowing banks and brokerages to get together was a good idea, right?
Posted by guest , Jul 15, 2008 12:09AM
what will we talk about once Lehman is gone?
Posted by guest , Jul 15, 2008 4:47PM
Lehman = TTT
Posted by guest , Jul 15, 2008 4:52PM
Fire in the hole...LOLOLOL
They are screaming "incoming" every 5 minutes at Leh...LOLOL