More Fallout From The Credit Crisis?

Is Lehman Bros. being honest?

A very eye-opening report of discrepencies between the Lehman Bros. 1st Qtr Conference call and their subsequent 10-Q release. The paper is written by David Einhorn, and his company, Greenlight Capital is a hedge fund that is short Lehman.

If Einhorn's report is true, while it's surprising that it is coming from Lehman, it shouldn't be so surprising. If Einhorn's report rings true, it is consistent with other bubbles that have burst. It is consistent with the Enron and Worldcom frauds of the dot.com bubble years. Companies get desperate and they deceive the public in order to attempt to buy time to work themselves out of the situation they're in.

And put the Lehman situation in perspective. Bear Stearns had just been decapitated. Wall Street's spotlight then turned to Lehman. Lehman's neck was on the chopping block. And then they pulled a seeming miracle from out of the hat.

By March 14, 2008 (LEH) had already fallen from $66 in early February (Feb 4) to close at 38.85, a 41% drop. For point of reference, the weekend of March 15 and 16 was the weekend of the Bear Stearns debacle.

On Monday, March 17, Lehman opened at $24.41 and began to free fall. Lehman continued to fall to 20.17, and then, a miraculous rebound ensued. Lehman hit a high of 34.77 before closing at 31.62. All in a single day.

Please read the Einhorn report here.

Lehman Brothers had a bad week, and I am sure that Einhorn’s article didn’t help. The stock plunged -17.3% last week, and is back to it's breakdown point of mid-March. The hero's high-five accorded to Lehman CFO Erin Callan back in March may prove to ring hollow over the course of the summer.

For everyone involved in the mortgage industry, this is a story worth keeping your eye on. It could prove to be another very large shoe to fall, every bit the potential calamity as Bear Stearns back in March.

The risk to the market is the potential for liquidity to disappear, virtually overnight. The is no guarantee that the financial markets are "through the woods" at this point.