Somebody Belongs in Jail
By Jeff Clark
How is this not a criminal act?
Months before Lehman Brothers officially closed for business, the insiders and the regulators knew the firm was going belly-up. Yet company Chairman Dick Fuld and numerous government officials appeared almost daily on television and assured investors everything was OK.
The bankruptcy examiner's report doesn't explicitly say so, but it's obvious to anyone with more than a single-digit I.Q., the folks running Lehman and the folks in charge of regulating the company knew the firm was in trouble. And they blatantly lied to investors while talking up the value of their collateralized securities.
Never mind the accounting gimmicks and "off balance sheet" transactions that hid Lehman's obscene debt level. That was fraud. Accounting rules made it an "excusable" fraud – if there can be any such thing.
But when a corporate executive shows up on TV and insists that all is right with the company, that the rumors of any problems are being spread by short sellers looking to make profit as the stock falls, that liquidity isn't and will not be a problem, and that leverage ratios are just fine... then it all turns out to be a lie... well, that person belongs in jail.
Of course, that'll never happen. After all, we can't go imprisoning corporate executives for doing what our elected officials do every day.
But keep this in mind...
The U.S. government is about to begin the process of unwinding the TARP and TALF programs. So it's going to start selling some of the hundreds of billions of dollars worth of stock in companies like AIG and Citigroup, and the $1.2 trillion worth of mortgage-backed paper it took off the hands of troubled banks.
Anyone can look at the balance sheet and income statement of a company like AIG and realize the stock certificate ought to be issued as a two-ply roll. The mortgage-backed paper doesn't even qualify for that distinction.
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But when it comes time to sell, you can bet someone from the government will show up on TV and assure investors everything is just fine. Rumors to the contrary are being spread by short sellers. Liquidity isn't and will not be a problem. Deficits don't matter.
Just as it was with Lehman, it'll all turn out to be one big lie.
Don't buy it.
Best regards and good trading,
Jeff Clark
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