The next few weeks, running up to Lehman Brother Inc.'s earnings announcement in about two weeks, are going to be fascinating in a very scary way. Once again, Lehman is at the center of vicious, accelerating spiral of rumor, fact, charge, response, cost cutting, capital raising -- market speculation of the most feverish kind. How Lehman fares will depend on lots of factors, not least how it conducts itself and makes it case.
Continue reading below
It goes without saying that Lehman is not Bear Stearns Cos.: It's larger, more diversified, lacks the executive drama and infighting at Bear, and particularly lacks Bear's feisty arrogance, which, in the end, proved to be a great weight. Lehman has the Federal Reserve behind it. Lehman has been amassing assets. Lehman has more to sell if necessary. And importantly, Lehman seems to have more time than Bear.
But at what point, a la Bear, do Lehman's efforts to defend itself swing against it? At what point does Lehman's every move -- real or imagined -- prove to be a self-fulfilling prophecy? And if Lehman does hit the Fed discount window, what consequences -- market and policy -- does that trigger? That's the point the firm should never arrive at. But you never know you're there until it's too late. Ask Alan Schwartz.
Is Lehman a viable business? Absolutely, but then so was Bear. But the markets have entered another dark, anxious phase, and Lehman's stock has been tumbling, despite a buyback program. The New York Times Wednesday tried to boil what's going on as a sort of boy vs. girl catfight between Greenlight Capital's David Einhorn, who's been shorting Lehman, and the firm's CFO Erin Callan, who's been leading the defense. This is silly. Beyond the two photos that gracelessly illustrate the story -- Callan looks like a refugee from a tanning salon, Einhorn a high school valedictorian -- the piece offers a dated, comic book version of a complex, unfolding drama.
The Wall Street Journal's two stories are a lot better, focusing on what appears to be an attempt by Lehman to raise money overseas, a fact the Times lacked. Besides stomping out rumors and arguing their case, Lehman's top folks face a series of complex decisions as the situation keeps changing. And time, as it does in these cases, is getting, well, short.
So this will go on. One plea: Can we please dispel with the hysteria over the shorts? It may well be that Einhorn is tossing out distorted information; but then it may well be that Lehman is spinning too. (Hell, if Lehman isn't spinning, it should be.) The issues between Lehman longs and shorts are abstruse, abstract and elusive; that is, the fodder for endless argument. Separating out true from false is what markets are supposed to do. It is quite a spectacle of hypocrisy to hear Wall Streeters -- who always presented the markets as close to divine -- bitching about shorts. Whining about shorts is like complaining about an umpire's call. If you lost, how did you get into a position where that single call killed you? And how many times did you complain when calls went your way? Will a few bad calls really affect a long, long season?
The issue here is not Einhorn or any of the other shorts -- no matter how reprehensible -- it's the power we have invested in the markets. When someone complains about the shorts, they're really arguing that investors are sheep, driven by bad information and gulled by irrational fears. Shorts themselves are only the point of the spear; big stocks like Lehman (or Bear) move because lots of investors get worried. If the markets are really crazy, perhaps we need to think more deeply about the fact that they shape nearly every aspect of American life. Perhaps we need smaller markets or less leverage. Perhaps we need better regulation. Perhaps we should rethink shareholder-centric corporate governance. Perhaps we should all be wiser. But since these reforms are out of reach over the next two weeks, Lehman and the rest of us are going to have to live with the shorts. Lehman needs to make its case and pray that nothing bad happens to it. The alternative, which is to ban any soul who shorts or even thinks an evil thought, is undoubtedly worse. Wasn't there a scandal a few years back about research only looking on the upside? Guy named Eliot? - Robert Teitelman
Comments
Dear David,
Personally, I think Erin Callan looks great! Why did you not compliment her on her fantastic haircut, instead of insulting her? Why did you compliment David calling him a valedictorian, instead of referring to him as a nerdy geek, which is what I think you meant (I dont think he is at all - mind you)?
Not nice! If you are going to insult one, please insult both. If you are going to compliment one, please compliment both! If you are going to play battle of the sexes, please play fair!! Thanks!