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Lehman's Revelations Long Overdue


The time to draw attention to that mess was before it mattered, when investors could proactively prepare.


Kevin Depew and I are marveling the fact that the Lehman Brothers "revelations" are considered breaking news. In some ways it's fitting, given March 17th is the one-year anniversary of Bennet "Blue Steel" Sedacca's tragic passing.

In honor of his memory, and to demonstrate that Minyanville provides the financial news you need to know before you know you need it, I share the following vibes:

Beyond Fannie, Freddie: Three More Problem Children
August 21, 2008

"Lehman Brothers: This is my favorite and sits as my 'most likely to fail' problem child. Its stock is now on its way to being a single digit midget and just stuck investors with 143,000,000 shares at $28 a share in June of this year. I don't believe many folks are willing to buy more at $12.

"I remain cautious and am concerned about the possibility the system could come unglued if we get simultaneous failures. I believe the Federal Reserve, the Treasury, and the next President will have the fight of their lives on their hands. Risks are extremely high."

Dead Banks Walking
August 25, 2008

I highlight this column for a reason; when this posted, Washington Mutual was an advertiser on the 'Ville and we happened to hoist a banner atop their own epitaph. We got a call from their peeps "strongly suggesting" we take the article down. I called Bennet to let him know we were standing by his words; that, when push comes to shove, our opinions weren't for sale.

Less than a week later, the company was subsumed.

There's more, such as this article, written in May 2008, "Who Has More Level 3 Assets Than Capital?" This was one in a series of scribes offered by Minyanville professors who asserted that the world largest financial institutions were technically insolvent. We caught a lot of heat from the street at the time; fortunately, a multitude of Minyans were paying attention.

In this particular piece, Blue Steel laid down the hard, cold and very scary facts:

"Ten companies now have more Level 3 assets than capital. In order they are (as a % of total shareholder equity:

1. Bear Stearns (JPM): 313.97%
2. Morgan Stanley (MS): 234.88%
3. Merrill Lynch (BAC): 225.4%
4. Goldman Sachs (GS): 191.56%
5. Lehman:: 171.18%
6. Fannie Mae (FNM): 161.48%
7. Northwest Air:: 142.02%
8. Citigroup (C): 125.06%
9. Prudential (PRU): 119.36%
10. Hartford (HIG): 108.52%"

My point? I've got two, actually. First and foremost, I miss my brother; he was a prickly pup with a golden heart. I used to joke that we were both massively misunderstood, which is likely why we understood each other so well. Second, to draw attention to the what's considered "news" in today's day and age. The time to draw attention to the mess at Lehman Brothers (and others) was before it mattered, when investors could proactively prepare.

It's ironic, actually. In this amazing age of the digital media revolution, the quality of content widely accepted as financial media is actually devolving. Perhaps it's a function of the "information deflation" we've spoke of for years; maybe it's because consumer appetites crave bite-size nuggets of information.

While agile content is king, integrity and foresight matter in the court of public opinion.

Thank you Bennet, for helping us prove that point.

Random Thoughts:

  • There was some good late-day banter on yesterday's Buzz regarding Greece and Iceland. We tossed Italy into the mix for purposes of illustration. Remember, when the stateside contagion was in it's early stages, months before the schvitz hit the fan, pundits and prognosticators were equally sanguine.

  • There's a reason I discuss these themes when screens are green, much as I like to take the other side when screams are extreme. While I'm at it, I will offer that "Greece, Iceland and Italy" can be replaced with "California, New York and Illinois" in terms of wary, hairy states of affair.

  • We've spent a lot of time this week talking about the Two-Sided Regulatory Risk; while it's not as captivating as real housewives or March Madness, it's entirely more important for the forward progress of the global economy. As discussed yesterday,

    "Any semblance of policy discord could have ominous implications on top of the unintended consequences so keep that right hand up as we find our way. There's no arguing the tape trades great; we must, however, respect but not defer to the price action if we're to stay ahead of the curve."

  • S&P 1150 is a level of lore and while "real" resistance won't come into play until S&P 1200, we continue to monitor this zone for "hindsight double top" potential.

  • Put a water pistol to my crowded keppe and I'll offer that we poke through this zone, suck in the remaining shorts and reverse lower for a meaningful trade before S&P 1200 gets within spittin' distance.

  • The more I think about it (read: post-rationalize), the Syracuse loss in the first round of the Big East Tourney is a blessing in disguise. The rumble at The Garden is a meat-grinder and the winner will no doubt emerge emotionally and physically fatigued. For the Orange--who I still believe should scoop a #1 seed--we'll get the MRI results for our starting center today. White light Big Dog; we need you to make a deep run.

  • It's Freaky, it's Friday, it's almost over. Let's end this five-session stretch with some jingle in our jeans and a smile on our puss.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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