Is the Lehman situation patently illogical, or brutally logical?

6 responses

  1. Pete Toth says:

    Lay-me Bros. and Yogi Bear Stearns – soon to be joined by Wacky-Bee and Wa-Moo.

    Saturday morning cartoons anyone?

    Bedee-bedee-bedee…That’s (not) all, folks!

  2. Brad J. says:

    Mark, I have a warm case of RC Cola and two bags of Doritos. You think Dicky would give me the whole thing in a straight up swap?

  3. Alpha says:

    Don’t forget about the once mighty AIG, which fell 30% today to an all-time low of $13.

  4. Mark McQueen says:


    Right you are. Looks like the market is gearing up to focus on AIG after Lehman situation is cleared up.


  5. Pete Toth says:

    So many wieners to pick from…

  6. Pelican says:

    Your article is one of only a few I’ve read that actually looks at LEH’s situation rationally. Absolutely, with the Fed backstopping the investment banks there is no counterparty risk. My only guess is that investors, caught up in the hysteria, forget that.

    As to your points why LEH is trading below $4, I think its true many do not believe Lehman has correctly priced the value of its assets. But at the same time, they probably cannot tell you what the true value is, so it seems more of a nervous reaction along with the assumption that current book value is much lower. Hard to believe though that with all of LEH’s writedowns, many quite aggressive, that the true value is that much askew from reality. In addition, even the rating agencies are not concerned about liquidity; rather, they see this as a problem of confidence, which sort of annoys me because they are basically making things worse. Finally, I think Lehman’s 2009 EPS forecast is too high but as little to do with what’s going on here. Most of the housing companies will lose money next year, for example, but most aren’t selling below $4 a share (although their balance sheets are probably in worse shape).

    If more people looked at this logically like your article did, we would not be seeing the level of panic that we are, in my opinion. One article today reported the Koreans were willling to pay $26/share for 25% of the company just last month. But hysteria trumps reason in the short term and so LEH is in a pickle. I think Fuld has handled this situation horribly but its possible that he thought it would be patently illogical for the market to react the way that it has, so he didn’t react quickly enough.

    And possibly a combination of all three. That’s where the brutal logic of the recent Lehman trading comes into play.

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