Wednesday, September 10, 2008

Lehman Brothers executives are simply criminals.

The fulcrum upon which the coming meltdown rests is the concept of financial alchemy. That a lump of coal (a mezzanine tranche of mortgages) could be transformed into a nugget of gold (an AAA rated group of mortgages). It turned into a nugget of something alright, but it wasn't gold.

Lehman Brothers was a key player in the alchemy that caused their own destruction, but I'll be damned if they aren't trying to revive themselves by - wait for it - devising a whole new method of financial alchemy. Honestly, I would like to see anyone above the title of Managing Director subpoenaed and considered suspect for their attempts to defraud innocent Americans.

Warren Buffett once said that when hiring someone, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. That sums up Lehman Brothers nicely, which is why I heavily shorted them with options and stock and any other way I could eight months ago and recommended my readers do the same.

Lehman is now trying to split themselves into a bad bank and a good bank. The bad bank magically takes away all of Lehman's assets, but the good bank doesn't have to record any write-downs. Impossible you say? Where did those "assets" go when they simply disappeared off the good bank's balance sheet? Easy: they basically plan to "loan" the bad bank 75% of the money, and then they will sell the worthless crap to the bad bank. They get to report a sale on the assets! Ken Lay would be proud. But with the assets being so worthless that Lehman needs to jettison them, how can they ever expect the bad bank to repay the good bank the loan? Well, you're never going to get very far in investment banking by asking annoying questions like that.

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