Monday, March 31, 2008

Do You Want the Good News or Bad News First?

It may reach 60 degrees tomorrow. I am looking forward to that possibility. The last vestiges of winter need to go away and give me some peace. Fishing still seems so far away.

New Regulatory Plan Song and Dance
I have actually read through most of the Treasury plan for more (maybe?) regulation of big bad Wall Street. Pretty useless as a whole, it basically amounts to reshuffling some organizational charts and, well that's about it. All that build up and all those announcements and this was all they had to say? Pretty weak. Add to that Mr. Paulson himself says none of this is going to happen before years end! Waste my time why don't you! This kind of baloney move fits perfectly with the theme I have discussed over the past few weeks of delusion and appearance dressing. There is nothing that will change anything in this plan. There is nothing that would have stopped the mortgage issues we are seeing from happening if these new ideas were in place. Just by going through the motions, the markets are soothed I guess. Whatever.

What IS interesting is that Hank Paulson, between giving speeches and interviews, has been on the news an awful lot. The poor guys voice is about gone at this point. I wonder if it just all the speaking, or if he has been screaming at all these secret meetings and all night planning sessions? Oh to be a fly on the wall!

Do You Want the Good News or Bad News First?
Lehman Brothers (LEH) came out after the close with an announcement about raising some capital. They are looking to raise 3 Billion dollars through a Convertible Preferred share deal. The final details are a bit hazy at this time, so I will wait to see the exact specifics.

LEH, who stated this week that they have all the capital they need (here we go again) apparently wanted to show everyone that they can get even more if needed. In fact, the cash raising is just for instilling confidence! How about that? From Bloomberg story is this quote:

"Lehman Brothers Holdings Inc. ... is selling at least $3 billion of new shares to U.S. institutions to reassure investors it has ample access to capital."

So to prove LEH has capital access, it is going to issue a boat load of new shares, pay out dividends on those shares, and attach a convertible premium to those shares, all to reassure investors? OK. I would be reassured.

What is interesting here is if you like conspiracy theories, I have two of them:
  1. The FED is buying the offering - The FED has arranged to buy the offering on the same day of the Treasury Departments big revamp. This timing has the effect of projecting a new found market confidence. Remember one of the new departments for the FED is going to be a "stability team" or some crap. Maybe they got started early? A nice and smooth 3 billion dollar cash infusion to an investment bank as troubled as LEH could be just the confidence booster the FED wants to get out there.
  2. LEH is Going Bankrupt, but FED Promised Bailout Makes Preferred Shares Guaranteed Money - LEH is going to go bust and the necessary FED bailout (you know to avoid a "world ending credit event") is easy money for the buyers as the FED will pay some crazy amount to make the bond holders and preferred shares whole.

I am not even sure either of those 2 theories are that insane. A few years ago, yes, but not now.

I think that LEH should have to disclose just WHO is buying this offering. I would love to know if it is indeed the FED. If not the FED, I want to know who I can make fun of for buying into LEH. What about more transparency? I say we start right now with the LEH deal! Vote in the new poll on the LEH deal.

This presents another funny Street angle. The CNBC folks were all happy about the deal. Their logic was that LEH is able to raise capital, at poor terms of course, and this is bullish for the financials. This is of course silly logic. LEH is in big trouble and has to offer heavy terms to attract financing, but they are able to find some crazies to buy the offering? Good news or bad news first? If you just found out the bad news that your wife was a hooker, would it be good news that she is a high priced one making big bucks?

Have a good night.


Anonymous said...


Bad news: Mother nature dumped 4" of white stuff on us last night and today.

Good news: Half of it has already melted.

I think who ever is buying knows the FED has their back, now whether or not it is a good deal for Lehman and they can survive on their own or not remains to be seen.


Anonymous said...

This is worth pondering,

It is absolutely clear that the "acquisition" of Bear avoided triggering Bear Stearns related credit default swaps and swaps against CDO, SIV, etc. positions they may have held (assuming a potential Bear BK would have forced a mark to market event), which would indeed have happened had Bear formally entered bankruptcy and their bonds/debt became potentially very meaningfully impaired. There is simply no question whatsoever in our minds that this was the key reason a theoretical acquisition of Bear HAD to happen. Remember the details. JPM took out Bear for a couple of hundred million at the headline $2 per share initial offer level, but concurrently announced it was going to need to charge off about $6 billion as a result of the so-called acquisition. Even at the ultimate $10 level (which is basically shut up money offered to help prevent litigation, which might also have led to asset price discovery) JPM was "telling" us Bear was worth far less than zero by the charge-off number alone. Of course the truth simply had to be that if Bear had filed bankruptcy and the credit default swaps written against their bonds/debt/asset positions had been triggered, the credit default swap liabilities in the market would have been well north of a $6 billion hit to whomever had written those Bear specific CDS contracts. Well north. And that simply could not have been allowed to happen. By the way, just as an item of curiosity, JP Morgan has exposure to over 55% of the total banking system credit default swaps outstanding. Are we connecting the dots clearly enough for you?


Noodles said...


watchtower said...


The bottoms in, time to go buy that house.

Rob Dawg said...

It may reach 60 degrees tomorrow.

It has been dropping below 60 degrees most every night here. i don't see what all the fuss is about. [ducks]

I guess all this talk of "everything being fine but" is the code for deleveraging. When you are overleveraged it is far easier and more effective to increase the denominatoor (raise capital) than reduce the numerator (actually deleverage).

Anonymous said...

Hey Rob Dawg,

If your in CA about all you have that's Worth a crap is the weather. I lived there 51 years and it was pretty nice about the fist 40 so so but now that I've been out of there 3 years I wouldn't move back to that shit hole if you paid me to.


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