It’s been about a year since Lehman Brothers began getting ground down by the rumor mill. The decline in Lehman’s stock price began in mid July, and really took off downward by mid August. The pricing on Lehman’s credit default swaps went absolutely wild in August, and rumors began flying that Lehman was facing serious trouble.
Lehman came out a number of times last summer to quell rumors. But that didn’t stop the decline. The most specific “rumor” that was circulating last summer wasn’t a rumor so much as an analysis of Lehman’s financial statements claiming that Lehman was mismarking assets on it’s balance sheet.
“Lehman’s previous 10-q lays out it very clearly,” a DealBreaker commenter wrote. “They have a number of securities they classify in Level II and Level III. The Level III securities seem to be clearly marked-to-model, and Level II is somewhat marked-to-model.”
For a long, long time Lehman denied there were any problems. In the end, it appears the rumor mongers were largely correct. Lehman’s balance sheet was loaded up with so much toxic sludge that it had to raise billions of dollars to keep afloat. Even its most loyal customers have gone on the record as saying that the reason it is safe to do business with Lehman is that the Federal Reserve won’t allow it to fail.
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What a load!
Look at what has happened at every investment bank on the street. Singling out Lehman is preposterous. Short sellers spread rumors to make money. Re-institute the up tick rule. Short selling can be a legitimate strategy but not as it has been played lately. These jackals are pushing to drive a run on the banks, not caring if they panic the market & start the next Great Depression, as long as they have theirs. What a pack of Hyenas!
Interesting to note that a year ago in the comments, you didn’t have to parse through page after page of asinine remarks on mayonnaise, “so-and-so needs to merge with so-and-so to survive”, and other various “too long didn’t read” wastes of cyberspace
TL;DR
Lehman will not be a independent broker/dealer in a years time. The business model for them is broken and there is no reasonable way to fix it. If the Fed ‘saved’ Bear then they will likely save Lehman. But, what if the feds actually get their act together and setup a centralized exchange for CDS contracts, that would greatly reduce counterparty risk…in that case, the Fed could let them fail without risking the collapse of the financial markets.
Which customers and which quotes, please explain:
“Even its most loyal customers have gone on the record as saying that the reason it is safe to do business with Lehman is that the Federal Reserve won’t allow it to fail.”