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The Rumormongers Who Brought Down Lehman: Heroes?

The Rumormongers Who Brought Down Lehman: Heroes? Related Blogs Antiviral Art The Best Restaurant in New York Blackbag Defamer Disputations Documents Dodgeandburn Dog Domesticity Drugs Fine Vining Fortress America FrenchGawker Weird Internet Interviews Justice Morning After PhaseZero Politburo Rankings Gawker Review of Books Sausage Slowgawker Sony Hack One Man's Take The Cuck Themachines The Vane The West tktk True Stories Valleywag The Rumormongers Who Brought Down Lehman: Heroes? 5.59K Moe 09/16/08 12:16PM Filed to: The panic of '08 The panic of '08 Top lehman brothers Short-selling David einhorn Bear Stearns Erin Callan sarah palin Rumors journalismism Finance Wall Street dick fuld jimmy cayne Rumors: did they take down Lehman? This was one of those nagging questions to which we were too overwhelmed to answer yesterday. Now we know: Yes and no! On the one hand, as both rumormonger David Einhorn and pretty stiletto-wearing former Lehman CFO Erin Callan could tell you, that is how capitalism works. You short a stock, you start a word-of-mouth marketing campaign about how, say, "Lehman is the new Bear," which translates roughly to "Lehman is the new venerable investment bank whose demise those terrible short-sellers and their malicious rumormongering will turn into a self-fulfilling prophecy," and, lo and behold, the shit happens. Of course…it doesn't happen if your company has a sane and convincing leader who can go on CNBC and say, "here, look at our books! Our firm has such robust ratios of cash and hard tangible assets to covenants and other accounts payable that it really doesn't matter what our stock price does because, familiar as we are with the pussy nature of Wall Street confidence and the easily-distracted myopic ephemera-addled lemmings who govern such day-to-day fluctuations, we've seen to it to inoculate our business from such attacks by stockpiling enough hard currency and solid — but also liquid! — financial instruments that we can weather a crisis of confidence without having to undermine our case by begging them for money!" Lehman had no such leader. And it had no such assets! One of the less-noted upshots of this whole Lehman mess is that maybe the Fed didn't give it the proverbial "Bear Hug" because it seemed like less of a victim of "scurrilous malicious rumors" than Bear Stearns did. And Bear had that pothead CEO! But Lehman seemed to have a victim complex about the rumors, as Andrew Ross Sorkin noted in July: “I will hurt the shorts, and that is my goal,” Richard S. Fuld Jr. fumed. It was April, and Mr. Fuld was blaming short sellers, one of the most maligned tribes on Wall Street, for spreading rumors about Lehman Brothers, the troubled investment bank he runs. Shorts bet against stocks, and Lehman, they were whispering, looked like the next Bear Stearns. A Wall Street Journal story the next week portrayed him — as Cramer did the same week — as more concerned with shaming promulgators of bad rumors than figuring out the extent to which they were true: Lehman Brothers Holdings Inc. CEO Richard Fuld Jr., whose firm's shares also have been battered, also has contacted Mr. Blankfein. "You're not going to like this conversation," Mr. Fuld told Mr. Blankfein, according to people familiar with their talk, but he was hearing "a lot of noise" about Goldman traders who allegedly spread negative rumors about Lehman. In recent months, Mr. Fuld has contacted traders he felt may have been bad-mouthing his stock, according to someone familiar with the matter. Spreading rumors one knows to be false with the intention of manipulating a public company's price is illegal. The thing is, while Lehman seemed to have an army of friends willing to discredit the rumors at the risk of looking totally fucking ridiculous: Absurd rumors can have legs, like the Lehman-Barclays one, which Richard Bove, an analyst at Ladenburg Thalmann, said “ranks up there with the moon is made out of green cheese in terms of its validity.” (The specific rumor in question, and the subject of the Sorkin piece, was that Lehman might be acquired by Barclay's in a "take-under" whereby the British bank paid a discount to Lehman's stock price. Barclay's is currently in talks to do essentially that, with a whole lot less headache!) But here's the big thing: Lehman had the nicest, most polite short-seller in David Einhorn. He made his short position public, for god sakes. Very few people publicize their shorts, and when Einhorn did, it got Lehman’s attention. The conversation with Callan was to give her a chance to explain discrepancies he had uncovered between the firm’s latest financial filing and what had been discussed during its conference call about that filing… She was evidently not prepared for the complexity of Einhorn’s questions and tried to bluff her way through. “The conversation was reminiscent of the ones I had with Allied,” says Einhorn. “We had our questions, we were organized, but she was evasive, dishonest. Their expla