Too Big to Fail [57]
Donini, skeptical that the uptick rule was Lehman’s biggest problem, interjected on behalf of Fuld. “What are you trying to accomplish, Jim?” he asked.
“The shorts are destroying great companies,” Cramer replied. “They destroyed Bear Stearns, and they’re trying to destroy Lehman,” he said, perhaps trying to play to Fuld’s ego. “I want to stop that.”
“If you’re trying to accomplish that,” Donini replied, “and you believe that shorts are causing the problem, then I don’t believe the uptick rule is the way to do it.” Donini explained to Cramer that he felt the real problem in the marketplace was “naked shorting.” Normally, when investors sell shares short, the investor first borrows the shares from a broker, sells them, and then hopes they drop in value so the investor can buy them at a lower price, replace the borrowed shares, and pocket the difference as a profit. But in naked shorting—which is illegal—the investor never borrows the underlying shares, potentially allowing them to manipulate the market.
Cramer was intrigued but also visibly taken aback by Donini’s answer. He had been invited to the meeting, had offered to help, and now his offer was being rejected. He tried changing the subject back to Lehman’s troubles. “Well, why don’t you give me ammo so that I can tell a positive story?” he suggested.
Sensing the tension rising in the room, Callan interjected, speaking up for the first time. “We just bought this unbelievable portfolio from Peloton, and it’s immediately accretive,” she said, cheerfully offering what she considered a bit of good news.
But Cramer could barely conceal a frown, for he knew a good deal about Peloton. Based in London, the hedge fund had been started by Ron Beller, a former Goldman executive whose wife was a policy adviser to Prime Minister Gordon Brown. It had once been among the top-performing hedge funds in the world but had faltered, selling its assets in a virtual fire sale. “Geez,” Cramer answered with as much tact as he could muster, “I’m surprised to hear it’s any good, given the fact that they were levered thirty to one with what I hear is a lot of bad stuff.”
“No,” Fuld said enthusiastically, “we got this for a song.”
Cramer did not look convinced. “One of the things I’m really unclear about is that, if you talk to Goldman, Goldman’s radically trying to deleverage, and what you’re saying is, ‘I’m gonna deleverage,’ but you actually are increasing your leverage.”
Fuld, who didn’t appreciate the tone of the observation, responded, “What we’re doing is, we’re buying really important portfolios that we think are worth a lot more and we’re trading out of ones that are worth less.”
Callan said that Lehman was quickly deleveraging its own balance sheet. She also said, “There are assets on the books that we have a high degree of confidence are undervalued.” She spent the next ten minutes telling Cramer about the firm’s residential real estate assets in California and Florida, two of the hardest hit markets, suggesting she expected them to rebound soon.
Having come to the conclusion that any alliance with Cramer could only be problematic, Fuld quickly changed the subject and began pumping Cramer for information. “So, what are you hearing out there? Who’s coming after us?”
Fuld said that he had become convinced that two of the nation’s most powerful financiers, Steven A. Cohen at SAC Capital Advisors in Greenwich, Connecticut, and Kenneth C. Griffin of Citadel Investment Group in Chicago, were largely responsible for both the short raid and rumormongering, though he didn’t say their names aloud.
“They are liars!” Fuld said adamantly of the shorts. “I think it’s pretty safe for you to go out and say they’re liars.”
Cramer, while sympathetic, made it clear that he wasn’t prepared to go out on a limb and back Lehman’s stock unless he had more information. “I can say that people could be skeptical of the rumors,” he offered, and then added, “why don’t you go to