Too Big to Fail [58]
But Fuld, growing increasingly agitated, only repeated, “Why don’t you just give me the names of people telling you negative things about us?”
Cramer was flushed. “Look, there isn’t anybody. I do my own work, and my own work makes me feel that you’re taking down a lot of crap and you’re not selling a lot of crap, and that therefore you really need cash.”
Fuld didn’t like being challenged.
“I can just categorically dismiss that. We’ve been completely transparent. We don’t need cash, we have tons of cash. Our balance sheet has never been this good,” he asserted.
But Cramer was still skeptical: “If that’s the case, why aren’t you finding some way to be able to translate that cash into a higher stock price, buying some of your bonds?”
Fuld scoffed as he brought the meeting to an end.
“I’m on the board of the Federal Reserve of New York,” Fuld told Cramer. “Why would I be lying to you? They see everything.”
It was mid-May and David Einhorn had a speech to write.
Einhorn, a hedge fund manager controlling over $6 billion of assets, was preparing to speak at the Ira W. Sohn Investment Research Conference, where each year a thousand or so people pay as much as $3,250 each to hear prominent investors tout, or thrash, stocks. The attendees get to absorb a few usually well-thought-out investment ideas while knowing that their entrance fee is going to a good cause—the Tomorrow’s Children Fund, a cancer charity.
Einhorn, a thirty-nine-year-old who looked at least a decade younger, was sitting in his office a block from Grand Central Terminal, pondering what he would say. With only seven analysts and a handful of support staff, his firm, Greenlight Capital, was as peacefully quiet as a relaxation spa. No one was barking trade orders into a telephone; no one was high-fiving a colleague.
Greenlight was known for its patient, cerebral approach to investing. “We start by asking why a security is likely to be misvalued in the market,” Einhorn once said. “Once we have a theory, we analyze the security to determine if it is, in fact, cheap or overvalued. In order to invest, we need to understand why the opportunity exists and believe we have a sizable analytical edge over the person on the other side of the trade.” Unlike most funds, Greenlight did not use leverage, or borrowed money, to boost its bets.
Einhorn’s analysts spent their days studying 10-Ks in conference areas with wonky names like “The Nonrecurring Room,” a reference to the accounting term for any gain or loss not likely to occur again—a categorization sometimes used by companies to beef up their statements. For Einhorn, it was a red flag, and one that he used to spot businesses he could short. Among the companies he had identified from recent research was Lehman Brothers, which he thought might be an ideal topic for his speech. While questioning Lehman’s solidity may have become the most popular recent topic of Wall Street gossip, Einhorn had been quietly worried about the firm since the previous summer.
On Thursday, August 9, 2007, seven months before Bear went down, Einhorn had rolled out of bed in Rye, New York, a few hours before dawn to read reports and write e-mails. The headlines that day struck him as very odd. All that summer, the implosion in subprime mortgages had been reverberating through the credit markets, and two Bear Stearns hedge funds that had large positions of mortgage-backed securities had already collapsed.
Now BNP Paribas, the major French bank, had announced that it was stopping investors from withdrawing their money from three money market funds.
Like Bernanke, he had canceled his weekend plans to try to better understand what was really happening. “These people are workers in France, they’ve got a money market account that they’re earning no money on. Their only goal is to have that money available to them whenever they want it; that’s what a money market account is. You can’t freeze the money