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September 10, 2008 (7:00 AM)
Do U.S. Taxpayers Want To Gamble on Lehman?

Obviously the above title is penned in an attempt to be facetious. After all, U.S. taxpayers don’t have a choice: if the powers that be deem that Lehman is too connected to fail it gets bailed out and risk is transferred to U.S. citizens.  Welcome to 2008.

Regardless of how the Lehman story plays out – an update from the company is due out this morning - it is becoming blatantly obvious that free market capitalism in the U.S. has deteriorated into incessant speculation about bailouts and blowups.  For example, akin to the previously erroneous Bear Stearns speculations, if you think that the Freddie/Fannie seizure marks a ‘bottom’ you buy financials, if the speculative bubble in crude oil has popped you stay away from energy (even as OPEC cuts production), and if you believe that Lehman is doomed or about to dealt a lifeline you act accordingly. 

There is the hope that these derivatives to that of shrewd speculation in the marketplace will prove transitory; that there will come a day when investors no longer reckon that their financial success/failure rate can only be determined by correctly guessing which 100-year flood will strike and which will be averted. Unfortunately, that day is not today.  Rather, with choice no longer an option, here goes:

Recent capital flow trends and risk aversion curves, not to mention the dearth of interest in the preferred market, suggest that Lehman may encounter difficulties attracting sufficient capital to remain afloat in its current form.  Moreover, LEH’s recent stock price collapse suggests that an equity offering is no longer an option and Paulson and company may be unwilling to intervene openly (perhaps secretly?) because two major bailouits in the same week would look bad. As for private equity, their interest in Lehman, reported by undisclosed sources, may prove less than genuine.

Wait a few minutes and these speculations can change.  After all, the Yen, whose minute-by-minute gyrations are apparently more important a consideration than that Lehman’s incomprehensible balance sheet, is showing signs of weakening. Hallelujah!  Lehman may be saved after all…


Bloomberg: The yen weakened on speculation Lehman Brothers Holdings Inc. will survive a credit-market slump, prompting investors to increase holdings of higher- yielding assets funded in the Japanese currency.

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