Elsewhere in the finance conundrum, investors are betting against Lehman Bros. at a record level. Short interest in LEH has soared over the past month, to 13%, an all-time high for the struggling investment house, even higher than at the peak of the Bear Stearns crisis.
Lehman supporters assert that shares of LEH are being unfairly driven down by short-selling funds, namely David Einhorn of Greenlight Capital, who has waged a very public war against Lehman. More likely, short interest in Lehman is skyrocketing because… well… it’s an overleveraged investment bank with huge mortgage-related liabilities.
As with Ambac and MBIA, we couldn’t care less if Lehman went out of business. But like the bond insurers, Lehman poses a huge systemic threat… if LEH bit the dust, its portfolio would hit the open market and its array of mortgage-backed securities would go for fire-sale prices. A la Bear Stearns, if that happens, every mega bank holding similar securities will get a similar price. Tens of billions of dollars in additional write-downs -- at least -- will ensue.
If you haven’t read Dan Amoss’ report on this matter, it’s a must-do. Check it out here.
One more item on the second leg of the credit crisis… the nation’s top accounting standards body has altered a policy that could cripple financials. The Financial Accounting Standards Board has chosen to “eliminate the concept” of the qualified special purpose entity (QPSE). Long story short, QPSEs are a way for financials to keep illiquid assets off their balance sheets. In today’s terms, a way for banks to hide mortgage-backed securites and other dangerous assets.
So if this board of standards moves forward with the change, the QPSE will be kiboshed and banks will have to either find another way to hide untradeable assets or bring ’em onto the balance sheet. The latter could easily trigger more billions in losses.
Good news though for financials (and their investors)… even though the standardization is on the fast track, it sounds as if it won’t be relavant until this time next year. Still, we’ll keep this on the radar for you.
Lehman supporters assert that shares of LEH are being unfairly driven down by short-selling funds, namely David Einhorn of Greenlight Capital, who has waged a very public war against Lehman. More likely, short interest in Lehman is skyrocketing because… well… it’s an overleveraged investment bank with huge mortgage-related liabilities.
As with Ambac and MBIA, we couldn’t care less if Lehman went out of business. But like the bond insurers, Lehman poses a huge systemic threat… if LEH bit the dust, its portfolio would hit the open market and its array of mortgage-backed securities would go for fire-sale prices. A la Bear Stearns, if that happens, every mega bank holding similar securities will get a similar price. Tens of billions of dollars in additional write-downs -- at least -- will ensue.
If you haven’t read Dan Amoss’ report on this matter, it’s a must-do. Check it out here.
One more item on the second leg of the credit crisis… the nation’s top accounting standards body has altered a policy that could cripple financials. The Financial Accounting Standards Board has chosen to “eliminate the concept” of the qualified special purpose entity (QPSE). Long story short, QPSEs are a way for financials to keep illiquid assets off their balance sheets. In today’s terms, a way for banks to hide mortgage-backed securites and other dangerous assets.
So if this board of standards moves forward with the change, the QPSE will be kiboshed and banks will have to either find another way to hide untradeable assets or bring ’em onto the balance sheet. The latter could easily trigger more billions in losses.
Good news though for financials (and their investors)… even though the standardization is on the fast track, it sounds as if it won’t be relavant until this time next year. Still, we’ll keep this on the radar for you.
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