I think he makes a very interesting point, of course it is all pure speculation. Who knows, maybe in the end guys like Einhorn help LEH survive by forcing them to continuously raise capital while Fuld claims they don't need any extra liquidity and are adequately capitalized since months. The following is from Daniel Loeb's Third Point Q1 letter to investors: Last year, as the mortgage crisis started to unfold, we looked at firms with large holdings in sub-prime securities, which led us to Bear Stearns. We were concerned by not only that firmâs holdings, but the slim layer of equity supporting a balance sheet leveraged nearly 40 times. As most of you know, we removed most of our prime brokerage assets from Bear Stearns last summer and maintained a short position in the name up until the day before its near bankruptcy and forced sale. The Bear Stearns story is a sad one. âThe Bearâ was our first prime broker, provided us with our first home at 277 Park Avenue in their âhedge fund hostelâ and Third Point had many good friends who worked there and gave the firm their careers. I was frequently reminded of this relationship when I informed our prime brokerage contacts of our plans to depart; as much as I would have liked to remain loyal, I could not let sentimentality conflict with my greater fiduciary duty to my investors and sense of business judgment and risk. In the aftermath of the Bear Stearns fiasco, we have heard accusations by serious people that Bear was brought down by a cabal of short-sellers who âspread rumorsâ and âpushed the price downâ through manipulative tactics. In reality, The Bear was felled by its reckless use of leverage, lack of transparency and incompetence of its mortgage âtradersâ (the term is a misnomer as they did not so much âtradeâ as buy and hold), its lack of management and lax oversight by its board. The conspiracy theorists can say what they will, but I can not help but surmise that the Bear Stearns melt-down could have been averted if we and others had felt more comfortable expressing our critical views of the company. However, given the often-litigious response from defensive issuers, free speech of this nature is often sacrificed to the more pressing good of staying out of harmâs way. I believe society is left worse off as a result, and the Fedâs action required to facilitate the bail-out of Bear Stearns by JP Morgan can be seen as a very real and direct cost as a result of this dampening of free speech. In this vein, I can not help but acknowledge the courage of my friend and colleague, David Einhorn, and recommend to everyone his new book, which details his life-altering experience in connection with his short-selling of Allied Capital. David has recently been in the news following a similar curtain-pulling speech regarding the accounting of Lehman Brothers, and we wish him well and support him in his quest to expose what appears to be significant discrepancies in that companyâs financial reporting.