Wall Street is a nasty place. Cramer:

Lehman Brothers was just a terrible blow because it didn’t have to go down like this. We now know there were multiple buyers, but one man, Dick Fuld, Lehman’s chief, turned them down and was not pressured to accept their offers. (He will no doubt be reviled for as long as he lives and then some.)

That left a series of enhanced margin accounts, actual cash, left overseas as part of the ridiculous unregulated offshore shenanigans that brokers have been conducting for years. The inability to access that cash, which was something the Feds might not even have known about, triggered waves and waves of selling everywhere as frantic hedge funds couldn’t access capital. This was a totally botched black-hole fill from which we are still trying to recover.

Like Fannie Mae/Freddie Mac, it was avoidable. Lehman suffered from the vicious hedge funds — media — ratings agency circle that can bring down pretty much any institution: Short the common stock relentlessly, buy puts relentlessly, buy credit default swaps on the black market — that’s really what it is — at any price for any amount to mark the bonds as losers, take money out of the prime brokerage and tip off the media. That spreads panic, which then causes the stock to decline further, which then triggers ratings agency downgrades, which then cause people not to deal with the firm. Then it’s all over.

The speed with which this can occur also brought down a better capitalized firm, Merrill Lynch, from $28 right through what I thought was a sacrosanct line — but which turned out to be a Maginot line — of $22, where 300 million shares were offered. Capital in stock can’t equal the selling vortex that I described. It is really what I would call a Kesselschlacht by the shorts. That’s German for a decisive battle of encirclement (literally, “cauldron battle.”)

The way Cramer describes the shenanigans on Wall Street, it’s a pity that letting most of these fine fellows go out of business isn’t feasible.

This entry was posted on Saturday, September 20th, 2008 at 5:06 pm and is filed under General, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.