Saturday, September 15, 2012

Remembering June 2008 On The Anniversary Of Lehman Brothers' Bankruptcy

One of the best parts of the "story" behind the credit crisis was not what took place on September 15, 2008, but what took place months before leading up to the failure of Lehman Brothers.

I read about the first 5 or 6 books that came out describing in detail step by step what happened in the years leading up to the crisis and one of the most fascinating parts of the story for me was the battle between hedge fund manager David Einhorn and Lehman.

During the early stages of the crisis, during early 2008, Einhorn would get on conference calls and ask questions that made everyone feel very uncomfortable. He not only took tremendous flak from Lehman, who went after him legally for "purposefully" trying to slam the stock and make money shorting it, but he took flak from almost every analyst in the market who essentially had no idea what he was talking about.

The following is an interview he gave on CNBC in June 2008, three full months before the Lehman failure, and it is staggering how close he was to being exactly correct on every single issue even though he was only working with a fraction of the information.

The best part comes at 4:45 in when he says; imagine if the loss they are planning on reporting today (during the conference call) is 3 to 5 to 10 times bigger, they will not announce it because they know they can not raise enough money to cover those lossesThis turned out to be exactly what was happening, confirmed well after the fact with documents discussing how Lehman would try and spin its problems during the conference calls. Unbelievable.

He rode the Lehman short all the way down to zero making a fortune for his clients.



Today Einhorn is once again laughed at for continuing every quarter to make major purchases for his clients in another very, very, strange investment.

Gold

We'll how that one works for him this time around.

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