Wall Street

The $700 Billion Robbery

Today the men who run our country for the next three months, Ben Bernanke and Richard Paulson, formally asked the American taxpayers to bend over and take a platinum phallus to their anuses. Think I'm exaggerating?

They are demanding $700 Billion for the public to purchase worthless mortguages, or else, they say, the country will suffer greatly.

'Give us the money or the country gets it!!'

But the treasury does not have the cash. If this goes through, the US would have to borrow $700 Billion.

If this mortgage bailout plan passes through Congress, we're beyond screwed. How, you ask? Here are some well-informed opinions:

Paul Krugman, NY Times (registration required): Cash for Trash

Sadly, No!: Light 'Em Up, 4 reasons why the package should not be approved.

Dave Lindorff:
The Bailout Will Kill The Dollar

Sadly, No!: Forget buying a banker. Buy a Progressive.

Bernie Sanders:
No Bailout on the backs of the middle class.

Henry Blodget: Bernanke and Paulson - Here's why we're screwing you.

Howard Rodman: Buffet will make money on his investment in Goldman Sachs, but we won't.

Lehman Likely To Be Sold

Lehman employees huddle in a conference room this morning at its European headquarters at 25 Bank Street, London.

The last four days have been dramatic at the House of Lehman. Over the weekend, negotiations for Korean bank KBD to buy the firm's Asset Management division fell-through. The stock price dropped 40% on Tuesday. Then on Wednesday morning, Lehman announced their third quarter losses, with Dick Fuld personally opening the 8am CFO conference call. The firm also announced the spin-off of their commercial mortgage business.

What was striking about yesterday's conference call (listen here) was how Dick was announcing that the firm was 'de-risking' its balance sheets and deals. De-risking? That's a new Lehman word. For a CEO who preached the fundamentals of risk management during the late 1990s and early 00's, yesterday must have been the bleakest day of his career. By using this new word, he publicly acknowledged that the firm had partied too much, risked too much, and was now in danger of becoming history thanks to billions lost in bad US and UK residential mortgages and new developments.

And de-risking in the third quarter might mean that it is too little, too late.

Lehman was hoping to sell either control of Neuberger Berman, or NB as a whole. They wanted bids to be placed yesterday. But today, CEO Dick Fuld is reportedly shopping the firm. There are only two firms I know of that could buy Lehman - Nomura in Japan or HSBC in Hong Kong/London. There is a rumor that Goldman Sachs could also buy Lehman for it's top-talented traders and bankers. But no matter which way this ends, most of Lehman's 20,000 remaining employees are going to have to seek new jobs, and soon.

Here are the latest headlines as they come-in today:

Reuters: Lehman Shares Drop As Wall Street Questions Survival

Reuters: Lehman CEO Fuld Finds Reputation At Risk

Reuters: Lehman Faces Hard Bargaining To Sell Neuberger Berman (We now think that the entire firm (Lehman, "the firm") could be sold within days.)

Reuters Quote: Lehman teetering on the edge of 'penny stock' territory.

New York Times (Registration Required): Tough Fight For Chief At Lehman

Update 12:33EDT: Morgan Stanley's Equities Research department has just suspended its ratings and price targets for Lehman stock. Either they think the stock activity is too crazy to know what is going on, or they know big news that is yet to be reported on Bloomberg, Reuters, and CNBC.

Seven years ago today, I walked out of my Lehman office shortly after American Airlines Flight 11 hit the building (1WTC). On the walk back home to Brooklyn, one of my co-workers speculated if the firm would go out of businesses if the insurance companies evoked the 'Act of God' clause. After some discussion, we concluded that wouldn't happen. Three days later, many of us were back to work as the markets re-opened, and we knew then that the firm would survive.

Now, on another beautiful, sunny September day, the firms survival as an independent investment bank is highly unlikely.

Lehman Falls Below $10 Per Share

A report says that the Asset Management division buyout negotiations with Korea's KDB has fallen-through. True or not, Lehman (Quote: LEH) has sunken to a new low - under $10 per share. The House of Lehman cannot stand independently for long at that price.

In the meantime, Lehman employees brace for a third round of layoffs this year (another 1,400 are expected to be released). And the firm plans a conference call to discuss third quarter losses and their plan for the next two quarters at 08:00 tomorrow, Wednesday September 10th.

Lehman Will Land On Its Feet...Probably

But the House of Lehman is taking a hard fall this week. It's been a slow-motion fall, considering that analysts had been putting Lehman under a microscope since the fall of Bear Sterns in March.

Today, Lehman rushed an estimate of its second quarter results to the public, and held a conference call ahead of its regularly-scheduled June 16th earnings report. During the conference call, Lehman, CFO Erin Callan summarized it as best she could:

All in all, this was an extraordinarily active quarter. From an operating perspective, it was a very challenging market environment - where our practice of utilizing derivatives to significantly hedge our less-liquid market exposures did not provide the benefits we've seen in prior quarters. And our defensive positioning strategies also worked against us. We also experienced a fair amount of volatility early in the quarter, arising from the events in mid-March.

I'm going to attempt to talk out of my ass here, since I know Lehman well. Risk Management has been a cornerstone of the company ever since Dick Fuld took over when the firm went public in 1994. It is something he stresses every quarter to both employees and shareholders. The Firm's magnificent record in managing risk is one of the key components of its growth over the last 14 years. Encountering its first quarterly loss since going public has to be quite a shock.

From Joe Bruno, AP Business writer:

Lehman Brothers, which plans to release full details of its quarterly results on June 16, said it expects revenue to be negative $668 million compared to $5.51 billion a year earlier. Revenue during the quarter suffered from "negative mark to market adjustments and principal trading losses." Like other investment banks, Lehman has been forced to write down the value of investments in mortgage-backed securities that have suffered in the past year.

The company also said it lost money during the quarter because of hedging losses.

"The results were far worse than anyone had anticipated," said Goldman Sachs analyst William Tanona in a report to clients. "Results were plagued by continued write-downs and ineffective hedges."

Ineffective hedges. Not something I thought I'd read in a story about Lehman. But what has been done has been done. The troops need to be rallied, sleeves need to be rolled-up, and normalcy needs to return soon. Or else.

Lehman will continue to deliver its very best to clients. It will continue to hire and retain the very best people. But it is in survival mode. What a difference a year made.

But I still believe it is almost always the 'little people' who get destroyed in a market (crisis) like this. And Lehman is not little.

Lehman might get up off the mat, but can Dickey-Boy?