Wednesday, July 16, 2008

Go after Goldman

Because they're one of the few left with money!

"Goldman Sachs Group Inc. is the envy of Wall Street, navigating the credit crisis relatively deftly as many of its peers have been battered.

Now, the big securities firm has come under suspicion, at least from the chiefs of two rivals who have questioned in recent months whether Goldman, even indirectly, might have put pressure on their firms' stocks.

Alan Schwartz, who headed Bear Stearns Cos. when it collapsed in March, has pointedly asked Goldman Chief Executive Officer Lloyd Blankfein whether there was any truth to talk that in the days preceding Bear Stearns's fall, traders in Goldman's London office manipulated the struggling firm's stock, according to a person with knowledge of the conversation.

Lehman Brothers Holdings Inc. CEO Richard Fuld Jr., whose firm's shares also have been battered, also has contacted Mr. Blankfein. "You're not going to like this conversation," Mr. Fuld told Mr. Blankfein, according to people familiar with their talk, but he was hearing "a lot of noise" about Goldman traders who allegedly spread negative rumors about Lehman. In recent months, Mr. Fuld has contacted traders he felt may have been bad-mouthing his stock, according to someone familiar with the matter. Spreading rumors one knows to be false with the intention of manipulating a public company's price is illegal.

Mr. Blankfein was taken aback by the inquiry from Mr. Schwartz, according to a person with knowledge of the discussion, even though the former Bear Stearns CEO was quick to add that he didn't believe Mr. Blankfein would ever knowingly tolerate misconduct. Mr. Blankfein responded that he had no knowledge of any alleged manipulation, this person said, adding that he told Mr. Schwartz he would respond severely if he ever discovered such behavior by Goldman traders. Through a spokesman, the Goldman CEO says he doesn't recall the conversation with Mr. Schwartz.

Goldman strongly denies wrongdoing. "We went out of our way to be supportive of Bear and were rigorous about conducting business as usual," spokesman Lucas van Praag said. He said Goldman never altered its terms for doing business with Bear, even as lenders pulled their financing and some trading partners retreated during the troubled securities firm's struggles in early March

The rumors, however, aren't rumors. Insolvency is when the debts exceed their assets. Does anybody know what Lehman's or any bank's assets are worth? In this environment?

Lehman's Neuberger Berman is worth more than the entire market cap of the company. But that's an asset whose price we can at least estimate. What's Neuberger Berman worth netted out against Lehman's Level 3 assets?

As long as you can rumor and whisper and short with impunity, there is substantial risk to the financial system because if you give a decent haircut to the unknown assets on the banks and brokers, then from a balance sheet perspective, most are "insolvent." But this isn't supposed to happen, because these assets are marked in a "normal" market. But who are you going to believe when you see bank lines?

So get a bank to report some good earnings!

And bang oil, because China is getting ready for the Olympics. You've taken out a player in that market.

And by hitting oil, you'll allow the system to breathe.

It will work better than any of these short selling lobs being thrown out in the papers.

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