I’ve been doing the slow burn on a very foolish article in Tuesday’s NYT Dealbook, about European Short Selling rules.

The author is somewhat clueless about shorting. He writes:

“Companies have long complained that short-selling can lead to stock manipulation. In the financial crisis, managers at Bear Stearns and Lehman Brothers accused large investors of spreading rumors that sent their prices plummeting and created liquidity problems for the investment banks.

At the time, several countries — including the United States, Britain, Germany and France — banned the practice for shares in certain companies. Since then, the bans have largely been lifted.”

Its hard to imagine that in 2011, a financial journalist could actually write something like that — it is a shockingly ignorant repeat of the false claims made by those insolvent firms. Beyond merely one-sided and dumb, it ignores the facts as they became known after the collapse, as the truth came out.

Yes, it is true, the managers of BSC and LEH made those accusations. But it is also true that both of these firms had insufficient capital levels, enormous amounts of leverage. massive exposure to sub-prime mortgages, vast derivative risks, and in the case of Lehman Brothers, regularly engaged in accounting fraud, $50-100 billions at a clip (via the infamous Repo 103).

Damn those short sellers for spreading rumors that were true!

>

Source:
In Europe, an Effort to Shed Light on Short-Selling
AZAM AHMED
NYT, FEBRUARY 7, 2011

http://dealbook.nytimes.com/2011/02/07/in-europe-an-effort-to-shed-light-on-short-selling/

Category: Bailouts, Financial Press, Really, really bad calls, Short Selling

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “NYT: The Shorts Did in Lehman & Bear!”

  1. Expat says:

    I think you are missing the point. The journalist is repeating the same story because that is the official story which is peddled by the media, Wall Street, and Washington. The banks were all solvent. It was a liquidity crisis. The short-sellers were evil; had they not spread stories and sold short, the banks would have continued merrily on their way.

    How are the false claims made by those banks then any different from the false claims made since? The crap is still on the books somewhere so there is an even worse accounting fraud going on.

    The NYT Dealbook article is simply continuing propaganda. Keep saying it was a liquidity issue. Keep saying the banks were sabotaged. Then, when the crisis rears up again (it ain’t dead), you can blame short-sellers, commies, Al Qaeda, the Shriners, etc. Anyone but the banks and Washington.

    ~~~

    BR: I get the point — thats why I called SHENANIGANS on them for it

  2. [...] Seriously, the NYT is still going to blame the shorts for Lehman and Bear?  Really?  (TBP) [...]

  3. Bill W says:

    No one on the long side has ever spread a rumor or told a fib.

  4. anonymous says:

    Damn those short sellers for spreading rumors that were true!

    no doubt that everything was just fine until those nasty short sellers came in and started spreading the truth

  5. PhilB says:

    The sad part is that this “journalism” has become routine. Its a deliberate attempt to recast history and quell or redirect the anger around the greatest banking heist in world history.

    The very fact that you have to fight repeatedly to spell out the truth in unequivacable facts and to push back against the wave of false and biased information just shows you how twisted our world has become. Governments and Corporations around the world are constantly waging a campaign of propaganda against the middle classes.

    Dont tire of reiterating the truth as often as necessary. We never tire of hearing the truth and we must work to dispell the notion of the widely held aphorisms that “a lie told often enough becomes the truth” or “There’s nothing so absurd that if you repeat it often enough, people will believe it.”

    We must hunt cyberspace for those willing to repeat the truth, and everyday governments around the world are trying to make this harder. Its gotten to the point that people just dont believe anything anyone says anymore. What a foundation to build a recovery on. The few that fight for transparency are villified.

  6. infracanis says:

    Sounds like they haven’t heard of the “small penis” rule.

  7. peter north says:

    Well said, PhilB. It’s infuriating to have to battle bogus “facts” that have been disproved many times, but we all have to keep trying.

    What kills me is the major media outlets parrot crap like this often out of some duty to be “fair and balanced” (and not just Fox News). I swear, it wouldn’t surprise me to hear some serious talking head say, “Some people believe the earth is flat,” at the end of a bit about our solar system. /bangs head on desk

  8. Robespierre says:

    @Barry
    “It’s hard to imagine that in 2011, a financial journalist could actually write something like that?”

    It is not hard at all when you actually believe that there is a well orchestrated campaign to direct public anger away from the bankers who broke the law. This is the News/Bankers/Government working together to keep things the way they are.

    From Joseph Goebbels:
    18. Propaganda must facilitate the displacement of aggression by specifying the targets for hatred.

  9. Expat says:

    I am tempted to be snarky and get into another pissing match over who gets the point, but frankly it’s childish and I am exhausted from grading assignments.

    Can anyone tell me why I can’t log into this blog with Firefox? I have to open IE just for the Big Picture so I can write witting, snarky, and ultimately pointless comments designed to provoke Barry for the meagre self-gratification of seeing my comments on the screen. Every other site works fine with Firefox, comments included.

    ~~~

    BR: Firefox is weird lately

  10. Lukey says:

    Sure there was some crying going on but I think their point was that the shorts took advantage of the crisis to hype their problems and massacre their shares. Had the crisis not occurred and/or had the shorts been unable to panic their shareholders into selling into a seriously damaged market, they might well have been able to survive. So while it is correct that much of their problems (leverage, suspect collateral, etc.) were self inflicted, their demise was not a foregone conclusion absent the credit crisis and no limits on short selling (like having to wait for an uptick to establish a short position, not being able to use margin when shorting, etc.). I’m not sure that’s a good enough reason to eliminate (or limit) short selling, but it seems like destroying (otherwise) viable businesses isn’t a very good reason to trumpet unfettered short selling.

  11. Sechel says:

    Hugh Hendry likes to say the short sellers are the truth tellers pointing out that the “emperor has no clothes”. It’s more than ironic that the companies that were in fact shorted were dangerously insolvent(e.g. MBIA,Lehman,AIG). The short seller is providing valuable market information and helping the markets function. If there are villains in the short selling it should be the CFO’s, CEO’s and Board of Directors of these firms for allowing them tobecome over-leveraged and engaged in unsound business ventures.

  12. Irwin Fletcher says:

    It scares me a little when I hear people bang the drum against short selling.
    Shorting serves a huge need in the markets and keeps people honest.
    These people don’t realize how risky it is to sell short and the fact that you can lose unlimited amounts of money.

  13. Bill W says:

    Lukey,

    You make a good argument, but I think your argument highlights the fact that Lehman and Bear were running themselves like hedge funds. I have no problem with hedge funds leveraging up and banking huge profits, but when things turn against you, don’t complain about it, or blame anyone but yourself. Winner take all capitalism is a two way street.

  14. gordo365 says:

    Expat – I use Firefox successfully.

    After login – click semi-circle arrow in upper right (reload current page). “Leave a rely” box should then appear for your use. Opine away!

    I’m not technical. But I think successful login returns you to previous page which is stored in memory (cached). Refresh updates page.

  15. gordo365 says:

    Did I type upper right? I mean upper left.

    Gordo.

  16. obsvr-1 says:

    there is nothing wrong with selling short to balance the price action on the stocks or to hedge a positoin, however there should be tougher capital requirements on naked positions. Perhaps there should be a 1:1 margin requirement when the market goes against the short position (shorting against stock held is 100% covered).

    As said above there is an unlimited loss potential on a short, but only if it is a naked position as a short against the box can be closed at anytime by giving up the stock to cover the position.

    Or just not allow naked shorts and use Put/Call options instead.

  17. DeDude says:

    Lindsey Lohan looks good in shorts, but those dudes – no way. The shorts did them in.

  18. obsvr-1 says:

    No, too much leverage, concentration of assets, control fraud, corrupted executives and enabling employees, accountants and auditors, off balance sheet and SIV shenanigans did them in. The fact that there are very few that have been prosecuted is the crime against the investors and public via taxpayer funded bailouts.

    Had the information been forthcoming to the market, the stock price would not have held up through the 2007-2008 meltdown. There would have been a much smoother transition from where the stock was trading when the company(ies) were healthy to the eventual collapse. It was eye opening to see the level of support that the FED was providing as early as 2007 throughout the crisis window up to the creation of TARP; had the public and investors known this information the crisis response would likely have taken a very different path.

    Once the FED/Treasury got involved in trying to save these and other companies in the dark recesses of the corporatocracy the “market” became a sham. By secretly supporting the continuance of the walking dead, propping them up with taxpayer funds or backing, they are guilty of allowing the market to continue to operate on invalid and misleading information.

    In this corrupted market the shorts received ill-gotten gains from the longs as they probably had inside information or leaked information. But what can you do other than dig through all of the transactions to try to ferret out improper trades and unwind them, however is this an impossible task ?

  19. Jack says:

    @expat: firefox ok this end (US). Wondering how many times “witting” has seen print in the last 50 years> Too lazy to check.

  20. V says:

    Once again this video should be recorded for posterity:

    http://video.nytimes.com/video/2008/06/05/business/1194817109639/betting-against-lehman.html

    Can Azarm Ahmed can be blamed? Listen to what his boss said at 11:53 in the video above!

  21. ToNYC says:

    The paradigm of “journalism” which is all about collecting facts and presenting data to the body politic, has evolved in the financial space like fake’n food into delivering opinion and logical-as-heck prognostication helper. The instrument of MSM being brick’n mortar are committed to their mortgage obligation status -quo. That’s their book.
    Think about Google delivering an Egyptian Prime Minister because he’s family and comes from “do no evil” space. Internet being free is becoming an inalienable Global human right. If the medium isn’t clean, it degrades the message.