Posted on 09/14/2008 1:44:04 PM PDT by library user
** EXCERPT **
In May, David Einhorn, one of the most vocal short-sellers on Wall Street, made no secret he was betting against Lehman Brothers.
Now, some investors are afraid that fund managers like him will take advantage of the climate of fear stirred up by the troubles of Lehman to target other weak financial firms whose declining share price would bring them rich rewards.
At emergency meetings over the weekend, the heads of major financial institutions urged Timothy R. Geitner, the president of the New York Fed, and Treasury Secretary Henry M. Paulson Jr., to consider having the Securities and Exchange Commission reinstate a temporary rule to limit the risky but potentially lucrative practice of betting on a firm’s falling share price, according to two people who were briefed on, but did not attend, the meetings. They are concerned that short-sellers might fix their gaze on big financial institutions like Merrill Lynch and the insurance giant American International Group, which also need billions of dollars in capital to strengthen their businesses.
In July, the S.E.C. briefly halted a practice known as naked short selling after speculators placed large bets that shares of Fannie Mae and Freddie Mac, the troubled mortgage giants, would decline. That also made it harder to short the stocks of 19 financial institutions, including brokerage firms like Lehman Brothers and Morgan Stanley, although the curb wound up having little impact on the price of their shares.
The investment tactic of betting a stock will slide is not new, of course. But it has become particularly controversial in the last year, when Wall Street firms started to be targeted as the credit crisis turned the financial sector upside down.
(Excerpt) Read more at nytimes.com ...
LOL. Pretty safe bet he is shorting it still.
Are Lehman’s troubles chiefly with mortgages, or do they have other big losers in their portfolio?
All of the above.
Mr Einhorn is not the most popular guy on ws. I am almost certain that a permanent fix for Shorting, especially Naked Shorting, will be coming soon.
AIG is also in trouble at the moment, almost all of it due to their credit default swap positions. Basically they agreed to make whole people who lost money on defaults on a lot of mortgage securities, including middle double digit billions worth of subprime stuff. They haven't fully marked those exposures to market levels. They say that is because the loans are still performing and they don't believe the current depressed quotations on indexes, pretty much. Unlike banks and brokerages, much of their liability structure is deferred to long dates, though. (In other words it is insurance "float", on policies that may pay out only 10 to 30 years from now).
Merrill sold its worst performing subprime mortgages and raised extra capital months ago. But it has still posted losses as other pieces of their position decline in price. The main worry with them, however, is just that the earlier losses left them with a thin capital position and high leverage.
For all three, there is also the simple feedback effect of lower confidence. The rates they have to pay to borrow money are soaring, and that makes it hard for them to do routine refinancing of debt as it matures. Lehman bonds yield around 14% for example. Last year they might have paid 5-6%. If they had to refinance even half their liabilities at the higher costs for any length of time, they'd be insolvant - the assets aren't earning that high a rate. You can't borrow at 14 to lend at 8 and make it up on volume...
WS has no problem with shorting. WS has a big problem with naked shorting. Just as the Justice Dept. has a big problem with people running printing presses in their basements printing money. The 2 suicide moves in this last year were the SEC’s repeal of the uptick rule, and the laissez faire attitude toward crooks.
The shorts are the only thing hlding this market up. As an example look at Asia - they don’t allow short selling and their indexes are off up to 60% in a year.
All hail the shorts, if you are long equities still.
Naked shorting has been illegal for years.
Know the difference.
The talk of discussions between Bank of America and Merrill, along with reports that Barclays has pulled back, suggest to me that Lehman may fail, and they are looking to stop the consequences at that point. Merrill may have to announce losses on Lehman contracts, and Bank of America may effectively backstop those losses to keep a run from shifting from Lehman to Merrill.
Supporting that take is the announcement that they are holding a special Sunday trading session in over the counter derivatives right now, to help people square their Lehman related trades. That suggests they are netting out exposures, to minimize the amount entangled in a Lehman bankruptcy proceeding.
If that is how it plays out, Lehman would try to sell its valued asset management business to raise money to satisfy creditors - but without any promise that it will be enough to make all of them whole. Barclays might still be interest in that later, but it is not willing to get stuck with losses of unknown size from the failure of the rest of the bank.
I know the diff and you are correct that NS is already illegal....but it still happens....know that?
Sure. Ask GS, MER, the former LEH, BAC etc etc about it. It’s the connected insiders running the markets now.
Did you see what the Fed did last night with BAC/MER ? They’re going to take equities at the Fed as collateral...and...any gains or losses at the Fed flow thru to Treasury. Bennie B, Hanky Panky and the boyz just put the taxpayers of this country completely on the hook to fund whatever Wall Street does.
The rape of the US Taxpayer is now completely out in the open.
Nah, the real action this weekend was BAC/MER, Lehman was already toast and was just the sideshow.
Ken Lewis looks a little green around the gills this morning. After Countrywide you’d think he’s taken enough for the team; now he’s had to swallow another. That can’t taste good.
The treasury should have let Barclays buy the rest of Lehman after a guarantee of liabilities deal. It would have meant maybe $30 billion in loan guarantees with eventual losses under $10 billion on that amount. Instead, central banks had to inject $150 billion to keep half the banks in the world solvant at today's close. Way to save money, that.
The ideological drivel passing itself off as thought on the right on all this is entirely parallel to the moonbat left on security. And it will cost us several trillion dollars in utterly unnecessary losses, and may also put Obama in the White House.
And you know what it will do for you personally? Not a goddamn thing.
I think you’re delusional; I point out a fact and now I and many like me who did not profit one dime from anything Lehman or Bear Sterns did are responsible ? Are you sure you don’t belong over at Dummies United ?
Reality bites some entities sooner than later. They will all get their “Come to Jesus” moment - some will survive; some will not. In the process, if we don’t ringfence the problems to the institutions that caused them, we will all suffer. The problem is not illiquidity; it’s a matter of insolvency, and the use of the taxpayer to bail out those who engineered this mess in the first place.
I may not have profited from the leveraging as did the boys who took home multimillion dollar bonuses at all these institutions, but I can make some of my taxpayer money that Hank Paulson and Ben Bernanke are so eager to throw around back by shorting them on the way down.
Do you know the definition of insolvency ? It’s when your liabilities far exceed your assets. It’s the case with GMAC, Lehman, Morgan Stanley, Merrill AIG, WaMu, Wachovia, and lots of others. Their model of borrowing short and lending long with massive leverage was never a good idea, and it particularly fails in an era of rising, not falling, interest rates. You want to blame someone ? Blame Alan Greenspan, blame the banks who gave loans that were simply unpayable in the longer term, and finally blame those who continue to hide their insolvency in level 3 accounting gimmicks to perpetuate the myth of solvency. Then you can blame the Fed and Hank Paulson for providing the moral hazard that encouraged Bill Gross of PimpCo to buy billions more in Fanny/Freddie Preferred to gain from raping the US taxpayers. Did you read that PimCo made 1.7 billion after Paulson announced the bailout of Fannie/Freddie ? That’s going to be paid for by you and me, assuming you’re a taxpayer. Do you like it that we just gave Bill Gross a big bonus ?
You want to blame citizens ? Fine, then blame everyone who is not marching on Washington DC with pitchforks and megaphones right now to hold to account the so-called regulators and administration officials who allowed the banks and the GSEs to lever up so much and who promote moral hazard by backstopping these same institutions.
I don’t give a rat’s patootie who gets in office in January if these games of looting the taxpayer continue, for we will be a failed country. Already 9 trillion in debt, add another 5.2 trillion for Fannie/Freddie, now add the equity collateral the Fed is going to accept, add in the 52+ trillion for SS/Medicare - if we don’t get back to reality fairly soon there is no country to care about. If it takes hiding the truth to get McCain elected, I say he shouldn’t be. Same with Obama.
Put the truth out there and let’s rebuild this great country.
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