New York (HedgeCo.Net) – The past few weeks have been a whirlwind of sinking financial institutions, government bailouts, plummeting stock prices, last minute mergers and a sweeping panic that extended far beyond Wall Street. Like any series of drastic events, there are those who emerged unscathed, with an optimistic vigor and perhaps a once withering company to now call their own. While top ranked Lehman execs locked themselves in their offices while avoiding the media frenzy outside, Barclays head Bob Diamond waltzed in and praised Lehman employees with admiration, bolstering confidence while saving some 10,000 jobs. Diamond stands to acquire all that is good about Lehman without its toxic debt for just under $2 billion. For Diamond, it was a pretty good series of events. For others, not so much. So here, in the wake of the storm that has rocked our economy in recent weeks, are the biggest losers, or in the very least, those that just need to be called out.
Christopher Cox
As head of the Securities and Exchange Commission, Christopher Cox could’ve stood to pay a little more attention to walls crumbling around him. Michael Lewis did a fantastic expose for Bloomberg News in which he used hedge fund Greenlight Capital as an example. David Einhorn, who runs the fund, publically talked about his strategy of shorting Lehman Brothers, only to be met with disdain by Cox, who was convinced Einhorn was part of some cohort to bring down the bank. Instead of listening, Cox continued to take the defensive when he should have been investigating as to why Einhorn somehow knew that Lehman was in trouble. Now in the wake of the aftermath, Cox and the SEC have come up with a new regulation, one that requires hedge funds to disclose when they are shorting companies. Does Cox want this firsthand knowledge so he can investigate what inside activities are prompting these analysts to predict a grim future, or does he just want to be the first one who blasts them with the accusations that their speculations are aiding in the demise of others?
Taxpayers
In just six months, the government has shelled out $700 billion to finance these bailouts starting with the backing of the Bear Stearns purchase by JPMorgan. Months later, the government threw Fannie Mae and Freddie Mac a lifeline, only to nationalize AIG just weeks later. Each time, the same argument is made. We hear the statements, “fear of greater market turmoil,” “domino effect,” “worldwide market implications.” Did I miss something? Or is there not already a domino effect happening regardless?
Dick Fuld
After 158 years of tradition and weathering events such as the Great Depression, Lehman CEO Dick Fuld found himself frantically searching for a buyer for his collapsing bank this past weekend. Month-long talks and interest from major investors all faded away, forcing Lehman to file for the largest bankruptcy in history. Not only did Fuld have to stand by and watch the government hand out bailouts to everyone except his company, but he now has to explain to Uncle Sam what exactly went wrong. He is scheduled to appear in Washington next week and give an explanation to the House Committee on Oversight and Government Reform.
Washington Mutual
While the nation’s largest savings and loan bank frantically searches for a buyer, WaMu must try to convince customers not to rush for withdraws amidst all the bad press and rumors of a pending liquidity crunch. Unfortunately, the bad press is already circulating, and all that’s needed for share prices to plummet is fear and speculation. The U.S. government is pushing JPMorgan to make a bid, though any potential buyer may demand that the government backstop the purchase. Other banks that have been approached but have yet to show interest include HSBC, Wells Fargo and Citigroup. Whether WaMu takes an offer or begins breaking off the business and selling parts, something needs to happen soon.
U.S. Auto Industry
If the Fed’s actions this past year has set any sort of precedent, then the U.S. auto industry’s $25 billion request for refinancing assistance should be met with open arms. Especially by the two presidential candidates, who in an attempt to win the state that could go either way, are bolstering the auto industry as the heartbeat of the American economy. Nevermind the fact that GM focused more on mass producing gas guzzling Escalades and Hummers that get an astounding 10 mpg. After all, how were they to predict that gas prices would render those vehicles essentially unobtainable?
Candidates
John McCain wants a “9/11 type” probe to delve into our country’s financial system and figure out why on earth the government is now stuck footing a $700 billion bill to pay for these bailouts. While everyone agrees this country cannot afford to repeat the same mistakes, a probe isn’t needed to sniff out the source of the problem. The problem was simple: anybody who asked was granted a mortgage and a few people at the top got greedy. A concept that was so obscure two years ago that John Paulson managed to make billions by being one of the few individuals who could sense trouble was brewing. After the collapse of the two Bear Stearns hedge funds last summer thanks to the plummeting values of mortgage backed securities coupled with massive amounts of leverage, the inevitable downward spiral began. And no “probe” is going to tell us anything different. But kudos to John McCain for actually giving us something. All Obama delivered was a speech on how we need leadership. And while that might very well be true, the last thing we need is anymore generic political rhetoric. What we need right now is strategy, a gameplan, not for our candidates to be tiptoeing around the issue for fears of alienating key voters.
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: [email protected]
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