prescient11

Credit Default Swaps: The Show Isn't Over

You've got to look behind the data, as some "indices" are acting entirely irrational, the ABX index trades as if the subprime loans will default at a rate over 100%, that's not even possible.

An index is not the be all end all, and at many times can reflect trader's irrationalities as well. Something to monitor and be aware of, but not the true measure by any means.

Liquidity or Solvency? Sometimes It's Hard to Tell

This is exactly the question that needs to be asked.

Lehman is Toxic at Any Price

Excellent point, these monday morning quarterbacks always chirp up about this time...

AIG: The Mark-to-Lehman Market

Where are you at Felix? I suppose an intelligent response to your articles is too much. You were wrong with your exchange with Dear John Thain, and you are wrong now. The idea that this is just an efficient market is a lie perpetrated and repeated by fools.

Do not be one.

Down With Rating Agencies! Plus, Lehman for Laymen

Ratings agencies should be sued out of existence, how has that not happened?

AIG: The Mark-to-Lehman Market

There is an interesting article about CDS speculators essentially engaging in aggressive naked short selling TO FORCE THE DEFAULT of companies by driving their share price to the ground. Thus, they cannot raise capital because of this ridiculous low share price and most do not want to purchase the company because the shares don't stop dropping.

Now, we can argue about the merits of whether they should have raised capital when their share price was higher, but that really puts the cart before the horse, doesn't it. In other words, I find it ridiculous that if LEH has adequate capital levels, that it should be forced to dilute shareholders at $20/share to raise ADDITIONAL capital so that the "market" will feel comfortable with its business. You do see the vicious cycle that is happening here, don't you.

Banking is about trust. Assume LEH has adequate capital at $20/share, thus no need to dilute shareholders at this price or raise additional capital. Then, "rumors" about LEH's assets and losses start to percolate on the street. Hedgies with enormous assets and the ability to leverage ridiculous pressure, drive the share price down, scaring all of the investors and LEH's customers/counterparti... that perhaps LEH isn't stable. Thus, funds are removed from LEH even though they had sufficient capital, and now LEH's share price is at such a ridiculously low level and unstable that no one wants to invest. Thus, their capital continues to bleed as a result of this, and problems occur. How about that Felix, why don't any of you uber-bears ever address that frigging point.

It's so frigging obvious it's ridiculous. Look at the action in the bonds and the CDSs, to the extent one can. After BSC no fool is going to be as transparent as buying crazy out of the money put options. But I bet the real play is in the bond and CDS market. If one restored the uptick rule and banned naked shorting out right FOR ALL COMPANIES then this would cease. Cramer is absolutely right here.

And where is the damn SEC, the damn OTS, the damn Fed, the damn Treasury, our FRIGGING OFFICIALS PAID TO STOP THIS. They fiddle while Rome burns and these companies' debts are forced upon the taxpayer. My own conspiracy theory is that they want this forced consolidation of financial companies. For what purpose, who knows. But I find the fact that nothing is done about these obvious manipulations to be absurd. Naked shorting is already illegal, why has it not been stopped?

Of course, LEH must bear a bit of the blame. In this environment, diluting shareholders at $20 is much better than a forced sale at $2, given that what happens above is obvious and will continue to happen until "the Street manipulators" are satisfied. Until then, the carnage will continue. But the wealth destruction we are witnessing, and subsequent taxpayer burdens, without any intervention by regulators, is ridiculous.

As goes the famous saying, "when they came for me, there was no one left to stand to object..." True words indeed.

Debating the Lehman Collapse

Both are right. Dear John Thain is more right, much more so. The damn SEC sits on its hands and does NOTHING while short sellers and hedge funds ILLEGALLY naked short sell LEH to death which CAUSES counterparties to lose confidence and this leads to the spiral we are witnessing. Plain and simple.

However, LEH should know better and have become much more transparent about its situation, and they should have done so 2Q. Which is why MER might be a good bet to pick up on these drives down - I haven't studied it but at least they appear to try and deal with these issues.

At the heart of this though, DEAR JOHN THAIN is exactly right. And further, this whole mark to market fiasco needs to stop. If your neighbor's house goes into foreclosure and sells for $10,000, does that mean your previously $300,000 house is worth $10,000.

But we have leaderless government that does nothing proactive other than goofy "bailouts" rather than getting to the heart of the matter. Ever wonder why? They want consolidation, they want more control over the matters, and if bankers weren't so damn stupid, now they're going to have Uncle Sam in their business for years to come.

Short selling abuses - illegal naked shorting - was supposed to be stopped in July. It is now September and it is occurring by every sheeple hedge fund with an "idea" to throw around.

Lehman Won't Be the Last Major Bank Failure

A few major banks may "fail", but you're wrong on the CDS deal, that will be taken care of. Same way FDIC will not accept a WM failure. Imho.

Could Lehman's Failure Cause a Systemic Meltdown?

The answer, obviously, is yes. Does no one read? JPM looked at what would happen if BSC was just allowed to fail and it concluded, with I think a 90% certainty, that the major IBs would ALL FAIL, including GS.

Think about that for a second, the exposures are so great that it would bring down GS.

If you think the government is going to allow that to happen, think again. However, equity holders will likely be wiped out since the Fed./Treasury is rumored to be involved. Sad case.

Lehman Follows Good Bank/Bad Bank to Redemption

Roger,

How exactly would the mechanisms of this take place though? Obviously this is a model that many may follow, but what would the likely effect on the stock price be, there has to be some pain for dealing with all this garbage either when selling it or spinning it off?

thanks

Richard X. Bove on Lehman: An Assault on Reason

Charlie, thanks for your response. Fair enough, then I misunderstood the purpose of your article. I would point out however that liquidity is not an issue for LEH, thus, theoretically they can continue to prop up their balance sheet through the Fed window.

This is much different than BSC. Therefore, they do not necessarily have to liquidate very solid assets at below fire-sale prices. LEH's mortgage book is supposed to be much better than most on the street. Perhaps that's not saying much, but they do have very solid assets with which to work with.

I think that perhaps a well-capitalized institution that can handle some of LEH's junk could make a great deal to try and snap up some of LEH's valuable assets and just hold on to the rest. Obviously, I agree that they couldn't just sell the good ones and not be on the hook for the rest, but at current valuations I think the idea of being the "savior" is not a bad one for entry into one of the IBs. In other words, I think that LEH's book is likely manageable by an institution with solid capital.

I am not as optimistic that July 15th was the bottom for financials, but I hope that you are right. I would also refer you to DoubleAA's comment regarding Fuld purchasing shares. Let's just say that when you're trying to shop the company it is a very difficult legal situation as an insider to purchase shares. Cheers.

Richard X. Bove on Lehman: An Assault on Reason

Please, the entire article is focused on what happens if LEH is insolvent. And again, how does he dispute the claim that they could be bought and partitioned for profit? By arguing that they are likely insolvent, or merely "pointing out" what would happen if that were the case. Learn to think yourself. You are right, he doesn't say "LEH is insolvent" he just implies it with every sentence.

And then he concludes with the brilliant thought why doesn't Fuld by more stock himself. This author is truly a thinker.

And I said "if" BAC doesn't choke. Who knows if they can handle it, I think they likely can. New housing bill will be a huge help.

Richard X. Bove on Lehman: An Assault on Reason

Squashnut, hey genius, I didn't write an article saying they were insolvent. So rather, why don't you ask the damn author to prove that they are insolvent. Thanks.

But shorts can just say whatever they feel right?

Richard X. Bove on Lehman: An Assault on Reason

Bove called the first warnings about the financials early. The rest is too fun. Show me your call why don't you? The chicken littles never end, it's too funny.

Listen geniuses, in the Great Depression 1/2 of all mortgages were delinquent. Now it's what, 1%?? Now the securitization of the junk, and option arm loans, etc., are gonna cause a lot of pain, but would you stop it already like this is the end of the world.

Guess what, it's not. And nor is Lehman insolvent. ABX is predicting over 100% rates of default, is that likely?? All the town criers late to the game have read a couple of blogs and think they can predict the end of the world.

First, it's subprime. That's done, been written down almost completely. Then, it's high oil, guess what, coming back. Then FNM and FRE, bailed out. WB and WM may be done. boo hoo. It'll be a forced marriage of types.

Let me tell you, if BAC and swallow up CFC without choking, WM and WB should be a walk in the park. JMHO.

But the chicken littles lack both perspective and understanding, in my opinion. And this author has provided no detailed analysis of LEH other than to tangentially mention fraudulent conveyances.

Richard X. Bove on Lehman: An Assault on Reason

Shorts are just mad they can't force LEH out of business via rumor mongering like they did to BSC. Listen genius, I would love to know how LEH is an insolvent entity. Will they record losses, absolutely. Is the pain over, absolutely not. But it's not as if they don't have any assets on the books and when a stronger institution could take them over there would be real value for working the junk out.

You see buddy, that's what the smart players are going to do. They are not going to let hysterical flibberdigibbits like yourself force stressed sales into an irrational market. They are going to buy for pennies on the dollar and work the assets out for many multiples of their purchase price. That's the nice thing about having tons of $$ in a crisis. And it's "lose" not "loose."

Bove is quite intelligent, your non-analysis does not come close to refuting his position.