Skip to main content

On Reputation Capital

There is an old adage that the currency you bank by keeping your vessel tidy and ship-shape can be withdrawn again in times of need, drawn off against the foibles of inclement weather. Leave that line tangled on the bow and the next time you have to go up there with the deck pitching in high seas, you are fighting an octopus tentacle.
So I'm not particularly sympathetic to the premise that the likes of Lehman Brothers should be insulated from widespread panic because their ship is so poorly kept that loose lines are tugging at the ankles of the crew.
Lehman's pattern of denial, delay, and deflect sunk them. In conference call after conference call they assured the market that they were properly capitalized. (What it means to be properly capitalized when you have double-digit leverage ratios, I'm not sure, and this, in itself, is somewhat deceptive). I would shed few tears for a Lehman which could not have withstood rumors (based in fact or not) because they had cut corners on disclosure going back three quarters and got caught on the foredeck in weather when Einhorn asked some pointed (but honest) questions about their earnings and accounting.
Rumors only sink a stock that hasn't the credibility left to resist them. When that can be traced back to a long-standing pattern of less-than-full disclosure by management, my care-o-meter stops registering.
If we really are entering a zone where "we are sufficiently capitalized" is a lie we tolerate and "their level 3 assets haven't been written down sufficiently yet" is a crime, well, it's time to punt.