Tuesday, April 1, 2008

Market manipulation - totally missed by the media (again...), the false rally and the coming credit bubble

Thanks to my friend and on and off reader of this blog, slates, for alerting me to this story.

The big story on CNBC, CNN and other networks reporting financial news should be the huge market manipulation that just took place.

It involves the financial institution (similar to Bear Stearns) Lehman Brothers.

Source: Adelaide Now from Australia, from March 20th 2008 dateline:

WALL Street's regulator has launched an inquiry into whether false rumours about Lehman Brothers were circulated to profit from short-selling shares in the investment bank, reports said today.

On Monday, shares in Lehman Brothers fell by as much as 40 per cent amid panic that another Wall Street bank was experiencing severe funding problems, The Australian's website said.

While all investment banking stocks tumbled on Monday, Lehman's rivals were broadly down around just 10 per cent.

The Securities and Exchange Commission (SEC) is now investigating whether hedge funds and other dealers in the equity market had sought to drive down Lehman's stock price by disseminating unfounded rumours about the bank's liquidity position.


This is an incredible story.

The hedge fund managers and others spread rumors - in effect, lies - that the Lehman Brothers institution was in trouble, not having enough money (just like Bear Stearns) and ready to fall and disintegrate, just like Bear Stearns.

Well, it is (so says the Lehman Brothers CEO) not true.

Here's what he said: "Richard Fuld, the bank's chairman and chief executive, sought to quash the speculation on Monday by issuing a statement insisting the group had $US35 billion ($38.4 billion) of cash and liquid assets and a further $US160 billion of unencumbered assets that could be sold to generate cash."

Of course, no names are named, and no one will be prosecuted for taking advantage of the free falling economy to make the economy situation worse than it is and make financial gain by both worsening the economic situation by destroying yet another financial institution and then buying them for much cheaper than they should be able to.

Now THAT is a hostile takeover bid. Of course, the story is only about profiting from short selling Lehman Bros. shares and not actually destroying Lehman Bros the way Bear Stearns was... Who knows, maybe that's all there is, or maybe the other financial institution(s) wanted one less market rival.

So what did Lehman brothers do? The sane thing - they squashed this rumor in the bud, by offering stock to boost up their liquidity. And now, this modest market rally initiated by a desperate financial institution, is being touted (with trumpets and drums and pundits cheerleading oh my!) as a market rally that occurred because the investors believe that the credit bubble is now over. So says the TV. Hooray (snicker).


The sad part is, after the housing bubble burst, the credit bubble is going to burst next, and the after shock of that explosion will be felt worldwide.

We are going into a very deep worldwide recession, all thanks to the CEO's of financial institutions like Bear Stearns. These companies, guided by their CEO's, gave loans to people who shouldn't have received them, of the adjusted rate mortgage and subprime variety (i.e. total ripoff of their customers) and played some games in the hedge funds that exposed their companies and indeed the whole "free" market to disaster. Their pyramid scheme is being exposed, and the FED is trying to prop up the falling house of cards.

The US government will react aggressively to squash any failures in the market. They will bail any and every failure in the investment sector. No matter if the CEO's of these companies were guilty of driving those companies into the ground, and making thousands of their employees lose their jobs, and making the whole world economy hiccup.

No matter - the good old boys network will take care of them, and they will make their $200+ million even if their company made less total profit than their own CEO salary.

So what can we expect now?

A deep recession, the CEO's who caused it to get off scot free with their $200+ million retirement, the employees of investment institutions to be laid off, and now, with the idea firmly planted that the FED will rescue every private investment that fails in order to not rock the boat, the hedge fund assholes will speculate, spread rumors, and do ... well, everything they were afraid to do, because they know that the FED will bail them out.

The market will fluctuate so wildly, based on rumors and innuendo and outright lies, that I wish anybody who is vested in it - good luck and please, hopefully no heart attacks.

Have a nice decade, we are in for a bumpy ride.

American Goy non expert analysis
If Lehman Brothers are sooooooo solvent, have so much liquidity, and have no problems whatsoever, why were they obliged to push the panic button and do that share offering?

Source: CNBC, Lehman CEO fuld says: "“Unfortunately, we’re in a market where perception trumps reality,” Lehman Brothers Chief Financial Officer Erin Callan said in a live interview.""
Yes, the whole US economy is right now smoke and mirrors... and bullshit pyramid scheme aka the credit bubble. Everything hinges on people believing that the economy is OK, the mom and apple pie America is still here, and it is not greedy mother fuckers at the helm of American and indeed worldwide financial institutions making money by lying to their customers, their employees and indeed themselves.

"This is an industrywide problem, Callan said, but last week, “we, in particular came under the white hot lights around rumors and suppositions with respect to the strength of our firm.”"
Right - so instead of squashing the rumors by pointing at your accounting books (which would probably be bad for you, Fuld...), you had to do a stock offering to raise money. Because you have no problem with money, that's why you had to push the panic button and raise $4 billion - quick.

"Lehman raised $4 billion of capital Tuesday in a deal that could boost Lehman's outstanding share count by about 15 percent, but could also stop questions about the investment bank's stability."
Yes, the firm is not in trouble - they just wanted an emergency infusion of cash.

"Callan said the firm was careful to make sure how the deal was distributed -- that the stock wasn't going to investors who would take a short position or bet against it."
And how the fuck would you check this out? You vet every investor? Who, WHO EXACTLY are these investors from the market? The FED, without announcing it thru the media? Other financial institutions, propping up one another? Or just ordinary Joe Schmoes, buying shares a few hundred or thousand at a time (snicker)?

""The deal appeared to have gone pretty well. People feel comfortable with Lehman, unlike the situation around Bear Stearns," said Lee Delaporte, director of research at Dreman Value Management."
Yeah - please no analogies to Bear Stearns. Because you see Bear Stearns was an aberration, and every other Bear Stearns style financial institution is just fine.

"Lehman's convertible preferred share sale is not completely positive for the investment bank -- in addition to the potential increase in outstanding shares, it will result in another $290 million of annual dividend payments, thanks to its 7.25 percent dividend yield.

"You don't want to have to pay 7.25 percent for capital, but in this market environment, it made a lot of sense to do this deal," Delaporte said."
Hmmmmm. They pay 7.25% for this infusion of money - no, no desperation there, no panic. It makes sense in this market (cough bullshit numbers, cough smoke and mirrors). All is going according to plan...

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1 comment:

Greg Bacon said...

Think i'll go to the local bank and see if they won't loan me 167 times what my yearly pension is, which comes out to... around Seven Million dollars. Think they'll go for it or tell me i'm insane and call for the security guard?

The voyage of the Economic Enterprise
By The Mogambo Guru

So you can see how big commitments like this are dangerous, but Mr Evans-Pritchard ignores me and my penetrating, poignant analogy, and says that the problem at Bear Stearns was that through using "swaps", "swaptions", "caps", "collars", and "floors", they were able to float $13.4 trillion of this weird financial derivatives crap, and that "this heady edifice of newfangled instruments was built on an asset base of $80 billion at best".

$13,400 billion was what was leveraged on a measly $80 billion? Leveraged 167 times? Bear Stearns had less than 1% in the pot? Hahahaha!

http://www.atimes.com/atimes/Global_Economy/JD02Dj01.html