SEC Subpoenas 50 Hedge Funds In Lehman (LEH), Bear (JPM) Rumor Sting

[Cutten]

Quote from krazykarl:

Incorrect. They were leveraged so much because they had no reason to not be: they had great lines of credit and were operating fine. It's only when the rumors started that the credit lines were pulled, meaning they couldn't get loans to keep their positions open. If they could have kept those rolling loans they would have been fine, but the underwriters got scarred because of the "rumors" and pulled the financing.

You make money by using leverage. If someone pulls the carpet out from under you for no reason other then some bad information, there is nothing you can do.

So get long-term financing, what's so difficult about that? They don't wanna pay a few hundred basis points to secure funding? Then they'd better be able to face the consequences.

No one is forced to borrow. No one is forced to take rollover funding risk. No one is forced to make the entire survival of their business susceptible to a few rumours. Remember the old saying:

Lending long and borrowing short
Is the quickest way to the bankruptcy court

If you finance illiquid, volatile securities with short-term funding, then you took the risk, you get fucked if you can't roll over. No different to a piker who goes long some BS stock on margin, the only difference is that BSC and LEH are far more leveraged than 2:1.

 

[stock777]

Quote from Cutten:


.....Note that it is perfectly legal to spread rumours if you are not short the stock. So this action won't stop rumours at all, it will just discourage shorting.

What are you smoking?

Thinking like that will get you a girlfriend named Bubbah and exciting times in the shower.