[Cid_Yama]

Anyone care to take a bet on Lehman surviving the weekend in its current form? Here, let me help you out....

....Now I have no way to know what's really going on with Lehman, but I can read the tea leaves, and it ain't good.

There were also an awful lot of PUTs bought down to the $15 strike for July. So far, the "KaPUTts" (the $5s and below) haven't been bought with any sort of volume, but that could come tomorrow....

Forbes picked up on it too, saying:

"The losses accelerated into the close on what TradeTheNews.com called "vague chatter" that the capital raising plan had run into trouble. (See: "Lehman's Bear Necessity")

The report said speculation suggests funds could renege on the deal before Thursday's closing."

No kidding? You mean that people won't pay $28/share for stock when they can buy it on the open market for $24?(now $22) What an unbelievable SHOCK!

This morning it appears that both the CFO and COO are gone - reported on CNBC live. The stock cratered further on the news. Gasparino is also saying - repeatedly - that the company cannot survive as an independent firm!

link

<i>The Bank for International Settlements (BIS) is essentially the central bankers' central bank. They are warning of the potential for another Great Depression.</i>

<b>Central bank body warns of Great Depression</b>

The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.

According to the BIS, complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.

link

<b>Lehman's lessons to learn</b>

Wall Street stock analysts were predicting a much smaller loss. Yet Lehman's market capitalization, at $19.2 billion, is now almost $7 billion less than the company's $26 billion book value, or assets minus liabilities. That suggests the market believes Lehman hasn't fully cleaned up its balance sheet and that the worst is still to come, management's assurances notwithstanding.

Whatever the case, let's focus on what we can take away from this mess.

First Lesson

When a company attacks short-sellers, run.

You didn't need to know much about Lehman's financial statements to see it was in trouble. All you had to know was that the fourth-largest U.S. investment bank was jousting in the media with fund manager David Einhorn, who had bet against Lehman's stock and told a bunch of other investors (and journalists) why.

Good management teams embrace criticism, address it and move on. Lehman attacked the messenger.

"Mr. Einhorn cherry-picks certain specific items from our 10-Q and takes them out of context and distorts them to relay a false impression of the firm's financial condition, which suits him because of his short position in our stock," Lehman said in May.

The smart read on that line, now obvious, was that there were cherries to be picked. And for a guy whose compensation last year was $34.4 million, you would think Lehman's chief executive officer, Richard Fuld, would have known better.

This is the same strategy once embraced by stock-market flameouts like Overstock.com Inc., MBIA Inc., Biovail Corp. and, yes, Enron Corp. Now you can add Lehman's name to that list.

Second Lesson

There's no such thing as an economic hedge.

Linda Richman, the chronically "verklempt" host of Coffee Talk on "Saturday Night Live," would have loved this one. "Economic hedges are neither economic nor hedges. Discuss," she might say, if only Mike Myers hadn't left.

Lots of banks have downplayed their writedowns by stressing net figures that include gains on so-called economic hedges, or as Lehman calls them, "economic risk-mitigation strategies." In fact, the only thing these terms tell you is that the company made some bets that don't qualify as bona fide hedges under the accounting rules. The words mean nothing, because there is no uniform standard.

Witness Lehman's second-quarter results. The company said its gross writedowns were $3.6 billion. Including hedges, its writedowns were $3.7 billion. In other words, some of the hedges, uh, misbehaved. How's that for managing risk?

Third Lesson

Don't eat the Level 3 mystery meat.

Lehman would have shown a loss for the quarter ended Feb. 29 were it not for $695 million of noncash gains on $9.4 billion of equities that it classified as Level 3 assets.

The designation, which I like to call mark-to-make-believe, means the values included estimates that couldn't be observed in the marketplace. Lehman didn't disclose the names of the company or companies where these gains appeared. Meanwhile, the Standard & Poor's 500 Index fell 10 percent.

If you had concluded this was a tip-off that Lehman's earnings power was declining, you were correct.

Fourth Lesson

Gains on declining debt values mean something.

The Financial Accounting Standards Board has taken a lot of flack about new rules that let companies book earnings based on declines in their own creditworthiness. There's much to be criticized, namely the wide latitude the rule makers gave companies to pick and choose which balance-sheet items they want to measure at fair value.

That said, from the start of fiscal 2007 through Feb. 29 of this year, Lehman posted $1.9 billion in gains from writing down the value of its own debt. It reported $3.3 billion in net asset writedowns during the same period.

Now look at Citigroup. Since Jan. 1, 2007, it has booked $1.7 billion in gains on its own debt. Yet its asset writedowns were $37.3 billion.

Although there's no way for outsiders to know what the right proportion at a given company should be, there's a message in those gains: When the fair value of a company's debt slips, the market is telling you the company's assets must be deteriorating, too. If you had guessed from the ratio at Lehman that its asset values had further to fall, you wound up with the right answer.

Fifth Lesson

Beware CEOs saying "the worst is behind us."

Fuld uttered those words at Lehman's annual shareholder meeting in April. (What was he thinking?!?)

It wasn't. Some folks just have to learn things the hard way.

link

[heroineworshipper]

Lehman will be bought by your government & the CEO will retire with half the money. Half the employees will be laid off. The media will praise it as a triumph of Ubama's campaign putting pressure on Republicans to stop housing deflation.

[Cid_Yama]

Didn't the Fed just say they wouldn't allow the acquisition of Lehman Brothers?

[Fishman]

Excellent post Cid, well documented. Scary stuff. An older friend of mine recently bought a large safe, pulled lots of money out. Family called me to talk some sense into him, I informed them of his wisdom (unless inflation eats it all up).

[mmasters]

I would guess on Goldman picking them up in the near future.

[Tyler_JC]

Lehman is in serious trouble. If they survive the year, I'll be very surprised.

Wachovia is in trouble too.

I probably shouldn't be saying this...but...Wachovia hasn't paid one of its accounts for over 5 months. It's a $200,000 software package that they haven't paid for yet because the guy in charge of sending the cash said THEY DONT HAVE THE MONEY RIGHT NOW.



I highly suggest closing out your account and swapping the money to a different bank.

Just sayin'

[I don't own stock in any of the above mentioned companies and I don't intend to]

[cube]

$this->bbcode_second_pass_quote('Tyler_JC', '.')..
I probably shouldn't be saying this...but...Wachovia hasn't paid one of its accounts for over 5 months. It's a $200,000 software package that they haven't paid for yet because the guy in charge of sending the cash said THEY DONT HAVE THE MONEY RIGHT NOW.

[hope_full]

well, I'm in serious trouble now and would be grateful for a hand out of the pit I seem to have fallen into.

My husband - a really smart guy - got thoroughly ticked off with me this morning for saying that Lehman's was in deep, deep trouble. He said that I was dead wrong and that their stock only went down a "small amount" yesterday and that they had a little "management shift" and that doesn't mean anything especially ominous. He said I need to stop talking about this because I'm making him and other people think that our economy is in trouble. It was not a happy morning in our home. In short, he told me to stop talking about the economy, oil, gas prices, financial news, bank troubles, buildling a cistern, planting a veggie garden, etc.

It's true that I'm not as experienced in financial matters as he is. However, I've had my own small business for 20 years and I have a lot of good old-fashioned "horse sense" when it comes to dollars and business things. I'm of the opinion that our economy can have a "soft landing" but I do think we're in for some big changes.

I've read this whole thread and would be profoundly grateful if someone here could send me a link and/or give me a 100-word "summary for simpletons" as to why Lehman's is in trouble.

Is it possible they can pull it out of the fire? Is it possible that this is just a blip for them? Thanks in advance for any and all responses.

[geojap2]

$this->bbcode_second_pass_quote('hope_full', 'w')ell, I'm in serious trouble now and would be grateful for a hand out of the pit I seem to have fallen into.

My husband - a really smart guy - got thoroughly ticked off with me this morning for saying that Lehman's was in deep, deep trouble. He said that I was dead wrong and that their stock only went down a "small amount" yesterday and that they had a little "management shift" and that doesn't mean anything especially ominous. He said I need to stop talking about this because I'm making him and other people think that our economy is in trouble. It was not a happy morning in our home. In short, he told me to stop talking about the economy, oil, gas prices, financial news, bank troubles, buildling a cistern, planting a veggie garden, etc.

It's true that I'm not as experienced in financial matters as he is. However, I've had my own small business for 20 years and I have a lot of good old-fashioned "horse sense" when it comes to dollars and business things. I'm of the opinion that our economy can have a "soft landing" but I do think we're in for some big changes.

I've read this whole thread and would be profoundly grateful if someone here could send me a link and/or give me a 100-word "summary for simpletons" as to why Lehman's is in trouble.

Is it possible they can pull it out of the fire? Is it possible that this is just a blip for them? Thanks in advance for any and all responses.

[Twilight]

$this->bbcode_second_pass_quote('hope_full', 'I')s it possible they can pull it out of the fire? Is it possible that this is just a blip for them? Thanks in advance for any and all responses.

[pedalling_faster]

$this->bbcode_second_pass_quote('hope_full', 'M')y husband - a really smart guy - got thoroughly ticked off with me this morning for saying that Lehman's was in deep, deep trouble. He said that I was dead wrong and that their stock only went down a "small amount" yesterday and that they had a little "management shift" and that doesn't mean anything especially ominous. He said I need to stop talking about this because I'm making him and other people think that our economy is in trouble. It was not a happy morning in our home. In short, he told me to stop talking about the economy, oil, gas prices, financial news, bank troubles, buildling a cistern, planting a veggie garden, etc.

[Cid_Yama]

Lots of Lehman links at The Automatic Earth and plenty of other ecomomic ammunition. Don't let him back you down. Blow him out of the water.

http://theautomaticearth.blogspot.com/

[Cid_Yama]

Lehman reports earnings on Monday.

[anarky321]

$this->bbcode_second_pass_quote('hope_full', '
')My husband - a really smart guy - got thoroughly ticked off with me this morning for saying that Lehman's was in deep, deep trouble.

He said I need to stop talking about this because I'm making him and other people think that our economy is in trouble.

[Cid_Yama]

That was very diplomatic of you. My first thought was that he is farm-animal stupid. Just like those people today who bid up Lehman because Blackrock's President said they bought some shares earlier in the week. The price is still $3 less than what Blackrock paid.

Same thing happened with Bear Stearns. They bid it up to $30 (if my memory serves correctly) on Friday, and were offered $2 on Monday.

[JJ]

$this->bbcode_second_pass_quote('Cid_Yama', 'T')hat was very diplomatic of you. My first thought was that he is farm-animal stupid.

[Denny]

There has been muss and fuss about banks failing, and how this can impact the whole conomy.

I do not think so. Banks are fairly interchangeable, if one shuts down, its the easiest thing to use another, whether that be for loans or deposits. Money is the most fungible of materials.

Look way back in 2001, how that large financil comopany,m Cantor Fitzgerald was so hard hit by the twin towers collapse. But, the economy moved along, although that ocmpany wa sleadeer ints field of bonds. Pretty sad for the families, but no lasting impact on the world of business.

This is much unlike a major producer of goods or important services, in whcih the loss of a major company can create hardships for customers of those goods or services, especially to do with warranties.

So, what is the big deal if a bank shold close? The deposits are guaranteed, generally for most depositors and the loans are still payable to womever takes over.

[Cid_Yama]

You're her husband, right?

[seahorse]

Denny wrote:

$this->bbcode_second_pass_quote('', 'T')he deposits are guaranteed,

[DantesPeak]

It's regards to understanding PO, some intelligent people just can't wrap their mind around it. Maybe because to accept PO, you are basically agreeing that our way of life is doomed and that unpleasant changes are coming.