Daniel Loeb: More vocal short sellers could have helped BSC avoid illiquidity

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 firm’s 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. “The Bear” was our first prime broker, provided us with our first home at 277 Park Avenue in their “hedge fund hostel” 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 “spread rumors” and “pushed the price down” through manipulative tactics.

In reality, The Bear was felled by its reckless use of leverage, lack of transparency and incompetence of its mortgage “traders” (the term is a misnomer as they did not so much “trade” 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 harm’s way. I believe society is left worse off as a result, and the Fed’s 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 company’s financial reporting.

 

Thanks for posting. Someone is going to buy me that book for Fathers day, it looks good.

 

The vast majority of the book is about the accounting at Allied Capital, but there are alot of nice short stories about their positions since they started the fund.

I sat down at the bookstore and browsed it in less than an hour.

 

What a bunch of bullshit. Loeb is all over the Elgindy transcripts. He was a paid member. Elgindy is in the slammer. Loeb is in there bragging about 500mm he ran. He's now over 2bb. You think that's talent? In the transcripts, Elgindy makes a short call based on and "impending" SEC investigation. Think the members took advantage? Sykes could have made money with that call.

In a very short period of time, the Investing World will be turned on its ear. It took some time, but we're here. Let's see if the Feds think these guys are 'courageous'. What do you think the Come to Jesus letter is about? Sounds like Cramer, doesn't it.

Courageous??!!!!??? Makes me wanna puke.

 

Yea I think it's a lot of hard work, talent and discipline. Oh and make that $5.5 bln under management.

 

Well, you're fucked up, and we're about to prove it.

These miserable pricks have destroyed the system, bribed politicians... enuf of that is out there, but you wanna bes don't want to hear it. You're going to. Very soon.

These people do nothing but game the system, this time to the brink, and fleece everybody else.

 

Gotta love ET.

 

Sorry, but with the system crumbling around our ankles, with CNBC becoming the Einhorn network, with REGSHO growing daily, (the new data FROM THE SEC) shows, in one month, 64,000 incidents amounting to 17bb shares of FTD's, and these are aggregates), with Milberg Weiss going to going on lot to prison, with scandal and corruption daily, with the Elgindy transcript s being released and showing who was on it, and what they have done, Yeah, guys who admire that stuff are fucked up.

How long can you piss in the drinking water before we all get sick? How long? AAAhhhhhhhh Ahhhhhhhh Ahhhhhhhhh AHHHHHHHH ., Wall Street Man!!!!

 

Not sure if you're aware of it, but Einhorn, Loeb & Ackman are not dedicated short sellers. They short a dog when they see it, but their primary business is investing into deep value and activist situations on the long side.

 

Sure they are.

They run inordinate amounts of money, and they maintain the same returns. Impossible. Simply impossible. They can't afford to wait, so they become "activists." That was what Elgindy was all about, and Loeb was a "member". Real simple. Worst secret in the world. Now, let's see how long the authorities stand around and let John Q take it in the ass, before they have to move.

Smell the coffee, Sparky. Look around you. You don't see things are totally screwed up?

Isn't a bit obvious when they go on their network, the first thing the anchor asks, and the first thing they reply, is the amount of long vs short? We've know for a long time, given the cost of locates, the borrows, etc, they cannot wait to be right. To maintain those returns, they have to "act".

Let's see what Overstock comes up with with his discovery in two cases. Let's see what the records have to say. Let's see how they move money around. There's plenty brewing behind the scenes: this story is no where near played out.

Oh, btw. I wouldn't trust Leh with watching my dog. I agree w/Einhorn. I think he's right. I don't think he knows why he's right. He's no analyst. I think he got it from somebody, and he's playing his hand as he knows the answer. I just don't like his methods.

Now, as I type, Greenberg is out defending him. What a surprise. Of course, when they raided Elgindy's house, 2000 hours of tapes, filled w/Greenberg and Cramer.

I just hope you guys bring your kids up better than this. I would hope llil' Tommy doesnt come w/ a pocket full of cash, and Dad's first response is, "you didn't get caught, did you?" Because, that's what this is. Ok, if you don't get caught.