Today's scare at Lehman Brothers showed us all what a bank-run would look like. The stock plunged 22% while credit default swaps blew out to deathwatch levels. The basis of the scare were a pair of rumors that started circulating yesterday, namely that Pimco and SAC Capital were pulling out of trades with Lehman Brothers because of counter-party risk. Both Pimco and SAC acted quickly to deny the rumors, although skeptics will no doubt parse the denials for hidden verbal escape hatches. Lehman stock recovered to a dime or so above where it had opened.
We're pretty sure the "jail the rumor-mongers" crowd will be heartened by today's events. But they shouldn't be.
On the face of it, it looks like Lehman was victimized by a false rumor. But we're not so sure that the lesson some seem to be taking from all this criticism of rumor mongering is the right one. CNBC's David Faber publicly declined to explain the content of the rumor, even as the stock was down around 15% and dropping. Investors far removed from Wall Street gossip circles were left wondering why Lehman's stock was dropping so quickly.
Everyone who has picked up the New York Post knows what a "blind item" is. But for those of you dialing into the calls from abroad, it's where a gossip item tells you what an unnamed celebrity did but leaves the identity up to the reader to guess. Faber today employed the rarely seen "reverse blind item" in which you get the name but not the action. Imagine if Page Six ran items like: "People are talking about Kirsten Dunst" and that's it. People who could get in would know that she made out with a DJ at Beatrice Inn. Everyone else would just have to guess or wonder.
Wouldn't it have been more responsible to simply explain the content of the rumor that was moving the market so rapidly? Reserving this kind of information for Wall Street insiders hardly seems a way to bolster confidence. What's more, in today's age of nervous investors, it's likely that many thought something far worse might be in the pipeline. A pending bankruptcy? A default on its bonds? With holding information from outsider investors seems a recipe for panic.
We're not saying that every rumor is fit to broadcast. We send most rumors we get directly to the circular file. But when a stock has fallen as far as Lehman's did today, don't investors have a right to know the details? CNBC admirably recovered from their tight-lipped behavior this afternoon by bringing on Pimco's Bill Gross and running Charlie Gasparino's report of SAC Capital's denial. But for several hours CNBC insisted it's viewers couldn't handle the truth about what was moving the stock. They didn't report, they decided.
Posted by guest , Jul 10, 2008 5:00PM
It's unfortunate that David Faber didn't have either the balls or the brains required to explain the LEH rumors. That job was left to 3 others. I wonder if Faber is getting his ass chewed by CNBC management right about now?
Posted by Slothrop , Jul 10, 2008 5:03PM
I dont see the difference between saying 'theres a rumor that xyz is happening' and 'theres a rumor but we arent going to repeat it.' Both are going to cause panic. It got to the point where the guys on CNBC seemed even hesitant to say 'I think theres a problem here' for fear that it would be interpreted as a rumor.
Posted by guest , Jul 10, 2008 5:42PM
Sloth,
I'm glad that CNBC staff (sans Faber) were able to ask the right questions of the right people and ultimately diffuse the rumor.
BTW, Slothrop = good name. I know what "sloth" is, but how does the "rop" part fit in?
Posted by John Carney , Jul 10, 2008 5:59PM
It is good they got those guys to diffuse the rumor. We applaud them for that.
Posted by guest , Jul 10, 2008 6:07PM
F%$^&G Faber needs to collect his balls left behinds so long ago. I am so sick and tired of media that has forgot what its meaning is. American public should smarten up a little bit and start listening to various news sources but I guess everyone is preoccupied with high gas prices, credit crunch, and salmonela in food. Media will kill this economy.
Posted by guest , Jul 10, 2008 9:43PM
"Lehman stock recovered to a dime or so above where it had opened"
umm...it opened at 19.63 and closed at 17.30 - lower in after hours
Posted by chad , Jul 10, 2008 9:49PM
way to avoid the nymag coverage of you and dealbook you pussy.
Posted by chad , Jul 10, 2008 9:51PM
i want a bess article on it. I WANT BLOOD!
Posted by guest , Jul 10, 2008 10:11PM
I believe Faber thought he may have been a tool when he reported the "GS is not taking BSC counterparty risk" rumor in March. That's fine as each journalist can decide what he/she is comfortable with. I assume CNBC attorneys didn't have a problem with it since Najarian and Gasparino mentioned the rumors later, though they were aired I believe after the Bill Gross interview.
Posted by guest , Jul 10, 2008 10:42PM
Faber is the stud of CNBC. No doubt about it. He sources things thoroughly and his articulate explanations are rich in detail and rationally explained. And Joe is simply a pro. In fact, most of them are truly outstanding to include Maria, Erin, Dennis, Bill G, Dylan, etc.
Then there is the on airhead editorialus minimus - the Gasbagarumor. Yes indeed, the "we breaka dat storey or I breaka you face" gumba who shades every story to pay back his scant sources. Truly, the dumbest mo fo on the tube.
He is about as qualified to write a book about Bear Stearns as Spitzer was to be a sex counselor. In fact, the parallels between Elliott The Spitsorswallows and Gasbagarumor the Gangster are almost frieghtening.
Posted by guest , Jul 11, 2008 12:03AM
these guys have omitted major stuff from their coverage...the pattern lately appears to me as if they're doing so out of a desire not to create panic. those guys completely omitted FNM/FRE move a couple of days ago from coverage until the early afternoon. pretty useless if you ask me...they're capable of good market coverage, but it appears as though there's a mandate not to report that the financial markets are in some major league trouble.
Posted by guest , Jul 11, 2008 12:17AM
FNM, FRE going down makes LEH falling in its wake seem like small peanuts. Yes, these are very crazy times...
We are definitely in for a rough ride ahead...
Posted by FUNdamental , Jul 11, 2008 7:49AM
@slothrop - you don't happen to be the same slothrop from deadspin commenter fame do you?
Posted by guest , Jul 11, 2008 8:47AM
Likeit or not something doesn't smell right this morning...this is strangely reminiscent of the final days pf Bear before the fed bailed them out.
PIMCO and SAC pulling out or not Lehman is in the deathslide now and the fed is not going to bail them out so we are all in for a bumpy ride.
This could lead to the US brker/dealer banks going down like dominos.
Posted by guest , Jul 11, 2008 9:24AM
These guys are "Reporters". Emphasis on the word "Report" meaning to get the facts and convey them in an honest and forthright manner. However, when they focus on speculation as a vehicle to "break news" ( or breaka da news to yous guys, as Gasbagarumor would say), then they become guilty of fabrication (which is what Gasbagarumor does all the time). CNBC is truly guilty of market manipulation so long as it employs guys like this stupid mo fo.
Posted by guest , Jul 11, 2008 9:34AM
If you think that CNBC held back on Fannie and Freddie in the interest of some public interest to avoid panic, you are out of your fucking mind. The simple fact is that they knew as little as you did.
Hey 9:24. Good post on the Gasbagarumor. Love that nickname. Think it came from Judge Judy. That you? She has a line that "he breaks wind not news". haaaa too good.
Posted by guest , Jul 11, 2008 10:19AM
but you never did the kenosha kid