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8:30 AM EST Tuesday, June 17, 2008: I want to bore you with Lehman Brothers (LEH) again. The story is so fascinating and speaks volumes about how Wall Street works.

First, at least two of Lehman Brothers' competitors -- Goldman Sachs and Deutsche Bank -- have come out in recent days with positive "buys" on LEH. Why? Why now? The only conclusion I can divine is that they are deathly afraid of how a collapse (or semi-collapse) of Lehman Brothers might reflect on their own businesses.

Lehman is the ultimate Cockroach Stock. Bad stuff comes regularly. Today we have two more stories. The most fascinating comes from Rob Kirby's Financial Sense WrapUp

Setting the Record Straight

Last week began on Monday, June 9 with Lehman Brothers announcing a worse than expected 2.8 billion quarterly loss and a simultaneous announcement that they were going to raise 6 billion in new capital:

Lehman Brothers Prices Offerings of $4.0 Billion of Common Stock and $2.0 Billion of Mandatory Convertible Preferred Stock
6/9/2008 9:19 AM - PR Newswire

NEW YORK, June 9, 2008 /PRNewswire-FirstCall via COMTEX News Network

Lehman Brothers Holdings Inc. (NYSE: LEH) announced today it has priced a $4.0 billion public offering of 143 million shares of common stock at $28.00 per share.

The Firm also announced that it priced a $2.0 billion public offering of 2.0 million shares of 8.75% Non-Cumulative Mandatory Convertible Preferred Stock, Series Q (the "Preferred Stock").

Then, on Thursday, Lehman Brothers dropped this “material disclosure” bombshell on the street:

Lehman Brothers sack finance, operating chiefs

Jun. 12, 2008 08:21 AM
Associated Press

NEW YORK - Lehman Brothers Holdings Inc. shook up its management Thursday, removing two top executives in a concession that attempts to quell Wall Street anger over recent losses have failed.

The nation's fourth-largest investment bank said Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory have been removed from their positions, days after the investment bank announced a $3 billion quarterly loss.

Also on Thursday, incredulously, Lehman announced that they had “closed” their financing:

Lehman Bros. says it has raised 6 bln dlrs as losses loom
Friday June 13, 2008, 6:30 am

NEW YORK (AFP) - US investment bank Lehman Brothers said Thursday that it had successfully closed two special share offerings aimed at raising six billion dollars to help shore up its troubled finances.

Lehman had announced the share offering drives on Monday, when it also told investors that it would likely post an unprecedented second-quarter loss of 2.8 billion dollars due to trading losses amid a lingering credit squeeze…

In securities law there exists a provision known as right of rescission which enables would-be purchasers of securities to terminate or ‘back out’ of a transaction – prior to closing - if they have been materially misled regarding the circumstances of a given transaction:

Right of Rescission [read about it here]:

“Defrauded purchasers may rescind fraudulent sales by national banks of their own capital stock.”

Now, let’s take a look at what transpired in the world of Lehman stock from the time they announced their financing last Monday until Thursday when the deal closed:

Ladies and gentlemen, the “SACKING of a CEO and CFO certainly qualifies as an “undisclosed material fact[s].” Lehman’s stock price had fallen 6.78 per share [23%] on the back of these new revelations/disclosures and somehow – whoever these new WOULD-BE investors were – did not seem to care, sought no relief, and implausibly had no interest in “levering” their position to their advantage on a 4+ billion common stock transaction.

Capitalism DOES NOT work this way.

This simply DOES NOT HAPPEN in the real world.

This Lehman financing was categorically a “bail out.”

It REEKS of being another pre-arranged / rigged Federal Reserve hand-out; the practice of crony capitalism – starvation and restricted credit for the masses and open spigots at the almighty fiat trough for connected, privileged insiders.

Hard to tell. One would think the price would be set AFTER the sacking. Normally there are rights of recision if a material fact is not disclosed or at least a price reset. Also, it's unlikely that FED involvement wouldn't have been disclosed.

For the second Lehman cockroach, I turn to today's Wall Street Journal's Heard on the Street.

Assets Get Harder to Shake. Balance Sheets Could Swell Again Under Proposal

Financial firms scrambling to shrink their balance sheets may find that for every step forward, they could soon be taking two back.

That is because assets that these firms previously sold off to investors, or securitized, could come back to haunt them in 2010, and in some cases even earlier, under accounting-rule changes proposed last week. For investors who think that financial firms just need to get past mortgage-related write-downs for profits to rebound, this is bad news.

Consider Lehman Brothers Holdings Inc., which Monday reported that it shed nearly $150 billion of assets during its fiscal second quarter, which ended in May. The firm trimmed its sails in the presence of a $2.8 billion loss for the quarter.

Reducing the size of the balance sheet is important for embattled firms like Lehman. It shows investors that a firm is cutting its reliance on borrowed money -- which, in good times, can amplify returns, but can also speed losses when markets sour.

But starting in 2010, Lehman and other firms may have to reconsider whether some assets they securitized in recent years should come back onto the books. Although the assets were sold off, firms often retained interests in the securitization vehicles, service the mortgages in them and in some cases can be forced to take back some of the assets.

In proposing new rules, the Financial Accounting Standards Board said firms will have to use new, more qualitative measures to determine if a company actually controls a vehicle. If adopted, things like retained interests or servicing rights could force firms to bring some assets back onto their balance sheets.

Lehman has a lot at stake, especially since it hopes in coming years to achieve a 15% return on equity. To do that, it needs to boost revenue, which, for a financial firm, means boosting assets.

But that could be difficult if old assets are forced back onto the balance sheet. Between 2003 and 2007, Lehman securitized more than $700 billion in assets, according to its annual filings. About 85% of these, or about $600 billion, were residential mortgages.

It isn't clear how much Lehman would need to take back onto its books under the proposed rule changes. But even the return of just 20% of its securitized assets could offset the firm's recent balance-sheet reduction.

A spokeswoman for Lehman declined to comment.

Investors are rightly concerned about the assets on Lehman's books and whether the firm has sufficiently marked them down. They also may have to worry about assets they can't yet see.

Remember I wrote about David Einhorn, the hedge fund manager who shorted Lehman Brothers and is making a killing. There's a big profile on him in the latest issue of New York Magazine. Worth reading.

Wall Street is in the midst of its biggest, ugliest, worst round of layoffs in decades. Many of its present businesses are broken. Jim Cramer did a piece called Last One Left, Please Turn Out the Lights. It's also in the latest issue of New York Magazine. It's not good for Lehman, either. But I'm not going there, for now. I'm still short LEH.

Are the Saudis trying to bring down the price of oil? What should we make of the Saudi’s call for the heads of state of oil consuming and producing countries -- meaning all countries -- to meet to discuss oil? To answer this question, my oil guru, Jim Kingsdale has written a long, detailed, intelligent piece. His conclusion: Stay away from the oil market for now. Stick with the shipping and oil services and drilling companies rather than the E & P’s (exploration and production companies). You must read his important piece at Energy Investment Strategies.

The 2008 Darwin Awards. The Darwin Awards do not exist. There are no learned judges. And there is no way of checking if any of this actually happened. Still, the stuff is funny and could have happened, maybe. Are people really that stupid? Probably yes.

Eighth Place. In Detroit - a 41-year-old man got stuck and drowned in two feet of water after squeezing head first through an 18-inch-wide sewer grate to retrieve his car keys.

Seventh Place. A 49-year-old San Francisco stockbroker, who 'totally zoned when he ran,' accidentally, jogged off a 100-foot high cliff on his daily run.

Sixth Place. While at the beach, Daniel Jones, 21, dug an 8 foot hole for protection from the wind and had been sitting in a beach chair at the bottom! When it collapsed, burying him beneath 5 feet of sand. People on the beach used their hands and shovels trying to get him out but could not reach him. It took rescue workers using heavy equipment almost an hour to free him. Jones was pronounced dead at a hospital.

Fifth Place. Santiago Alvarado, 24, was killed as he fell through the ceiling of a bicycle shop he was burglarizing. Death was caused when the long flashlight he had placed in his mouth to keep his hands free rammed into the base of his skull as he hit the floor.

Fourth Place. Sylvester Briddell, Jr., 26, was killed as he won a bet with friends who said he would not put a revolver loaded with four bullets into his mouth and pull the trigger.

Third Place. After stepping around a marked police patrol car parked at the front door, a man walked into H&J Leather & Firearms intent on robbing the store. The shop was full of customers and a uniformed officer was standing at the counter. Upon seeing the officer, the would-be robber announced a hold-up!, and fired a few wild shots from a target pistol. The officer and a clerk promptly returned fire, and several customers also drew their guns and fired. The robber was pronounced dead at the scene by Paramedics. Crime scene investigators located 47 expended cartridge cases in the shop. The subsequent autopsy revealed 23 gunshot wounds. Ballistics identified rounds from 7 different weapons. No one else was hurt.

Honorable mention. Paul Stiller, 47, and his wife Bonnie were bored just driving around at 2 A.M. so they lit a quarter stick of dynamite to toss out the window to see what would happen. Apparently they failed to notice the window was closed.

Runner up. Kerry Bingham had been drinking with several friends when one of them said they knew a person who had bungee-jumped from a local bridge in the middle of traffic. The conversation grew more heated and at least 10 men trooped along the walkway of the bridge at 4:30 AM. Upon arrival at the midpoint of the bridge they discovered that no one had brought a bungee rope. Bingham, who had continued drinking, volunteered and pointed out that a coil of lineman's cable, lay near by.

They secured one end around Bingham's leg and then tied the other to the bridge. His fall lasted 40 feet before the cable tightened and tore his foot off at the ankle. He miraculously survived his fall into the icy water and was rescued by two nearby fishermen. Bingham's foot was never located.

And the winner is: Zookeeper Friedrich Riesfeldt (Paderborn, Germany) fed his constipated elephant 22 doses of animal laxative and more than a bushel of berries, figs and prunes before the plugged-up pachyderm finally got relief. Investigators say ill-fated Friedrich, 46, was attempting to give the ailing elephant an olive oil enema when the relieved beast unloaded. The sheer force of the elephant's unexpected defecation knocked Mr. Riesfeldt to the ground where he struck his head on a rock as the elephant continued to evacuate 200 pounds of dung on top of him. It seems to be just one of those freak accidents that proves... 'Shit happens'

It is important to thank these people (if they ever existed) for removing themselves from the gene pool.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.
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