After the crash of 2008, I spent some time working with Dick Fuld. Yes, the former head of Lehman Brothers. Yes, the one people describe as “disgraced,” among other terms. Here’s the irony, though — Dick was one of the only people I encountered at that level of business/finance who wasn’t a scumbag. Unlike so many virtue-signaling Silicon Valley darlings, the guy behind the curtain was an honorable dude. And again, that’s a direct account from someone who has no vested interest or a book to sell or anything of that sort.
Dick and I worked closely together, one on one. After enough time, after he trusted me, I finally got to ask him about what the hell actually happened. The man had a ton of PTSD — and probably still does — but eventually it became clear that the real story was completely, utterly, unbelievably stupid.
Yes, Lehman was doing a bunch of stupid stuff, and the management under Dick were behaving like cowboys. But at the end of the day, that was the entire market at that time. What sunk Lehman was, in the end, a decision by all of the other big banks and the regulators that they’d let Lehman die because of something that might be best summarized as “lol idk sorry Dick but we’re just gonna let you go and let the Fed bail the rest of us out sorry bro lol.” Like really. That’s how it went behind those closed doors in the lairs of the lizards that control the universe. Lehman had already suffered near-death in 1994 — the world has now forgotten that Dick was the hero that saved the firm back then — and now it was to be made a sacrificial lamb for everyone else’s benefit.
Why am I telling you this story? What is the point? Well, what I am trying to say is that these supposed “adults in the room” who are so much smarter and better than the the “retail investors” are pretty much the same sort of immature, self-centered children as the other side. The difference is, they’ve got the regulators and the politicians in their pockets. So when they say “lol oops” and literally blow up the global economy to save face, nothing happens to them. But for some reason when it’s the retail guys, a moral panic ensues.
In my eyes, the Internet-connected retail investor is learning the power of what I call “massively multiplayer liquidity.” Yes, there’s some growing pains, but let’s not kill this wild new phenomenon before we learn what it can do. Because, from what I’ve seen from the other side of things, I doubt these self-styled “retards” will ever end up as depraved and corrupt as the people they’re disrupting.
Play ball, kids. And as Dick always used to say, “don’t get left with nothing other than a ham sandwich.”
Says Dick Fuld. I doubt that's true, though, because at the time Lehman was going under, they didn't know that all the other banks were going with them. Remember, the bailouts didn't come until a few weeks later when the money market funds broke the buck triggering $trillions of withdrawals in what would essentially be a financial system wide run on the bank. The regulators didn't like the idea that a failing bank should be bailed out (as they shouldn't), and they couldn't find a merger partner like they did with Bear Stearns, so they let it fail. The bailouts didn't come until they realized that the fallout from Lehman's failure would bring down the whole system. Yeah, Dick Fuld wasn't really any different than any of the CEO's that got a bailout, but to cast him as the good guy among the group is ridiculous.
As far as good and bad people, well... The senior $LARGE_CONSUMER_BANK Vice-President who told me how much he loved the profit he was making off the overdraft fees he thought were “an honest service” to his poorest customers, with a huge smile on his face, was definitely a lot more evil than Dick.
But look, if you’ve had direct experiences with a bunch of the CEOs and senior execs at these firms, feel free to provide a counter! If you’re basing things on journalist accounts, however, you’re going to be in for a surprise when you learn who pays their bills and takes them on trips...
The market is incredibly complex. If you thought that executives can foresee the downstream effects of a given market event because they are "all-knowing, all-wise", then of course you are an idiot.
But nobody you were arguing with even remotely thinks this. Of course, there is uncertainty. There was never going to be a "very orderly" draw-down, but the issues from the moral hazard of propping up Lehman were (and remain) a big consideration when considering bailouts.
The SEC thinks this, the linked statement suggests believe they can foresee rapid and severe losses that normal traders can't. Someone in this argument likely agrees with the SEC.
What reason? Because it demystifies the room. It pulls the veil off and we get to see behind the curtain.
Strangely enough, I had a fleeting thought that this is why few firms went under and most got bailed out. I actually had this thought after watching the Big Short or another Wall Street movie about the 2008 crash. I thought that it was strange that Lehman was the odd one out and it struck me as a frat party. Only the cool kids survive.
@numair, you sound very candid and forthright. I appreciate it. I find it's difficult for people to mask their tone and reading this honest tone is refreshing. I wish you success in your endeavors.
Exactly. and that's why they went under. Let's look at all possibilities :
- Maybe Dick knew that the management under him was behaving like cowboys, and tried to stop it. Then that's sad, but so far no one seem to have given any tangible proof that this was the case.
- Maybe Dick knew the that the management under him was behaving like cowboys, and did not tried to stop it. And he got what he deserved.
- Maybe Dick just did not realize that the management under him was behaving like cowboys. Then the company he was a part of got what it deserved for putting that man - who was not competent enough to realize what was going on - in a position of power.
- Maybe Dick did not realize that the management under him was behaving like cowboys. But the "company policy" prevented him from acting. Then he should have left. You don't reach such positions without playing the game.
Maybe Lehman was not the only one doing all of that. But Lehman was definitely one. As such they maybe should not have been the only one to die, but they definitely deserved what they got. I don't buy the "I was a clueless nice guy that got caught in the middle of it" story. He's not sorry he did it, he's only sorry he got caught, otherwise he would just have left sooner.
As someone once told me when I lamented that I don't talk to a certain person more often, they stopped me and pointed out that the phone system works in both directions. There are two people not talking to each other, not just me.
Dick participated, he could have blown the whistle, and he didn't, so he deserves a share of the guilt. He is not innocent. But if you didn't build the house of cards, then it's not your fault, it's the group's fault. If you colluded to remove people who would have said something, then you get more of a share of the blame. Anyone could have blown the whistle, not just you. Even if it's obvious that you are the most likely whistleblower, there could have been others. (And if you were the most obvious, you can't anonymously tip someone off because everyone will know it's you, so you're doubly screwed.)
One of the things slimeballs have intuited for millenia is that if you really believe something crazy, nobody is going to pick up that you're lying because you believe it. You've lied to yourself, and then fastidiously avoided looking at the lie so that you can maintain your innocence, and your profit stream. You're guilty as sin, with extra sins piled on top.
We should encourage conscientious people to play more poker, I guess.
My understanding is that the GFC happened because the whole economy was levered to hell. At the risk of referencing the big short, there was a scene in that film where a stripper has levered herself up so much she owns five home. The reason the GFC happened was in reality because average people were levered up on real estate and couldn't afford their repayments.
I fully understand that the financial system also took on too much risk and many understood those risks, but the narrative that hedgefunds are entirely to blame for the GFC, and that they were the only ones being irresponsible with leverage, is surely wrong?
If the blame was with anyone it should be the regulators... Why were individuals and hedgefunds able to take so much risk? In the absent of regulation individuals and hedgefunds should be expected to take maximum risk for their own gain. Just like how WSBs did when they were all exploiting the infinite leverage glitch.
Another thing that I don't think is true here is that the government is only there for the hedgefunds... If this last year has proven anything it's that the government is perfectly wiling to bail out individuals if they feel it's necessary to save the economy. And if the financial system is so rigged against individuals then isn't it odd how those individuals seem to be so able to destroy the hedgefunds with relative ease from a free smart phone app?
I'm not trying to be edgy, I genuinely don't understand why people seem to blame hedgefunds for every inequality problem in society.
We have a culture of people not feeling the negative repercussions of "bad actions". Buying multiple homes was irresponsible, mortgage brokers immediately selling every loan is a moral hazard and Wall street levering up on CDOs were all problems. All of them deserve blame BUT the hedge funds and mortgage brokers got bailouts and the home buyers didnt. That smells like BS to me and anger at the people that allowed that to happen, hedge funds and bankers included, looks justified to me
What bail outs are you referring to? Are you talking about the TARP program? Because didn't most of that go to banks (not hedge funds) and wasn't that actually a net benefit to tax payers? I'm not asking rhetorically, I'm honestly just not that well informed on the details of the TARP program being from the UK and having not been old enough to have direct experience of the GFC.
I do agree that more should have been done to help those struggling with mortgage debt, but again it's weird to blame hedge funds for this. To blame the hedge funds you would first have to assume they planned to take down the global economy, and then secondly assume that they have some level of responsibly over the government's decision to purchase toxic assets from the banks. It was the government who took the tax payer's money and gave it to the banks.
It's also not like all hedge funds were involved in the GFC either. I guess I don't really understand what Melvin Capital did that was so bad that people now want to bankrupt the company. Being angry at certain individuals and companies for taking on the excessive risk that caused the GFC is understandable, but being angry at all hedge funds or all of "Wall Street" is silly. A lot (and I'd assume most) of these companies are perfectly responsible and acting within the law.
And to be honest it's worse than just targeting random Hedge Funds, a lot of the posts I've seen on Reddit seem to be complaining about capitalism and the financial system in the general. I think this is partly why I'm feeling the need to question what and who we're angry at here. I want to make sure we're justified when we're bankrupting these companies and making their employees redundant. A mob as big as this without a clear target should worry everyone.
No, you absolutely don't. Consider criminal charges - they differentiate between intentional harm, reckless harm and negligent harm, but they all blame the guy being charged.
I do get why people are angry at those who recklessly over leveraged, although I would still argue that this is more of regulatory issue. If you allow people to take reckless financial risks some percentage of people will always do it.
It's also no reason to be angry at hedge funds as a collective, in the same way it would be silly to be angry at all mortgage owners (past & present) for the GFC.
However, if you're saying it's fine to blame the individual hedge funds involved in the GFC for reckless harm and negligence then I would would tend to agree, but that doesn't appear to be what's happening.
If a bank falters more people are going to be upset. That's just the nature of the situation.
One of the effects is that there is no real pilot onboard anymore. Some people are dressed and talking as pilots and some of them may believe they (and their teams) understand and control, but I think most feign.
The huge 'kinetic energy' of all those systems let them roll forward more and more out-of-control, until some mishap reveals our lack of knowledge.
Ah, if that is your core question, that one is easy. Because most people can't think about so complex questions properly (or are unwilling, lazy, or haven't been taught), and they simplify the world into emotional picture, for example blame someone. Then it's just a question of finding who to blame, today a popular answer is "rich hedge funds".
TL;DR Biden is literally bought, paid for and supported by hedge funds (as is every other politician).
This whole "you people are crazy this is fine" mentality has got to end, we are in WAY corrupt times.
I will ask you a different question: if LEH was so strong, why didn't the Koreans invest? Why didn't BARC invest before BK? The issue, again and again and as explained at massive length in several books, they had very shaky funding, they had a lot of stuff that no-one knew how to value, they insisted to everyone that this stuff was very very valuable...it was not. If the real estate was so valuable, why couldn't they sell it? Every single person who I have ever met in the same position (I have met many) is in denial...that is why they are in that position. Fuld made numerous mistakes that can be summarised as: he thought he had pocket aces, he had 72o.
Asking Dick Fuld for opinions on Dick Fuld is not smart.
Interestingly we might have another name for it - democracy went through similar growing pains as the people took power from the grown ups in the room.
Worked out mostly ok :-)
The appropriate thing to do is for the SEC to subpoena Reddit and RobinHood, correlate trades with posts to prove intent to manipulate the price (which IS illegal), and charge every individual with market manipulation.
Just like any other individuals guilty of market manipulation (Libor riggers, Navinder Sarao, etc).
Robinhood should probably also be investigated for abetting this, although it's a gray area.
The 2008 recession is not really a comparable event to the current GME short squeeze. It was rather a broad series of events, most of which were unfortunately legal, some of which were probably not.
In that case I would be in favour of charging the ratings agencies with fraud, and possibly the financial regulators with gross incompetence.
Edit: I don't see it as "big guys vs small guys". I see it as "law abiding people vs not".
So my reaction is not "its unfair to prosecute the little guy," but rather "we didnt get those criminals but at least we can get these criminals."
I'm not sure I see a clear line in there to call any of it illegal.
First off, not all "market manipulation" is illegal. If it was, a company announcing a new product would be "market manipulation", because it impacts the stock price. But I think you're right that the line is definitely grey in a lot of situations. And really, that's why we have courts.
> Do you think that something like "Elon Musk tweets the word 'bitcoin'" can/should actually be charged as market manipulation?
If Elon Musk had just bought a whole bunch of bitcoin, then tweeted it out, and then sold his newly acquired bitcoin, then yes. He 100% knows that what he tweets affects markets, and attempted to directly benefit from it. If you want to argue that he doesn't know that his tweets affect the market, the SEC has already determined that it does based on the "TSLA private at 420" situation.
> What about people selling their newsletter of stock tips?
Market manipulation requires actual market manipulation. I dno't believe that "attempted market manipulation" counts (but I may be wrong). All of these newsletter attempts fail, so there's nothing to really charge.
If any of these newsletters actually have a measurable effect, or if the person sending them is buying-sending-selling (at a profit), then yes, it is market manipulation.
> What about printing an article in Bloomberg suggesting that XYZ is undervalued/overvalued for $reasons
This is kind of what Bloomberg does, and they typically have arguments in both directions (which I think kind of evens it out). That being said, true information, with real evidence, is not illegal market manipulation. DFV's initial "due diligence" and legitimate bull case are not illegal market manipulation.
> What about some nobody on reddit posting to wsb to say let's go to $321!
Now you're getting grey. I'm not qualified to answer. This answer will likely be very similar to whether or not something is "inciting a riot", and will be super context-dependent.
But note that this is different than saying "GME is going to $1000 because of <totally false and made up reasons>" (especially if you already have a position, and if you make a profit as a result of the market that you influenced. Remember, if you don't actually influence the market, then it doesn't count.
But whether or not you succeeded in influencing the market can easily be determined after-the-fact. Just because you get away with it in the moment, doesn't mean no one will look back.
> What about being paid to tell clients what you think they should invest in?
If this is your job, you are likely licenced in some way, and the rules are likely different.
> What about telling other users on reddit for free what you think they should invest in?
I think the answer here is the same as the WSB-specific question
Feel free to disagree with me, these are just my opinions, and again, context matters.
> If you want to argue that he doesn't know that his tweets affect the market, the SEC has already determined that it does
The SEC found that as CEO his public statements are considered official announcements, but that doesn’t really say anything about him “being able to affect the market” in general. I believe that would not actually be market manipulation because he was telling the truth - the regulations require fraud or misstatement (lies). They don’t technically require statements to have evidence or even be true, because people can be wrong.
> But note that this is different than saying "GME is going to $1000 because of <totally false and made up reasons>"
Exactly. Telling other people to invest in something because you believe they can make money at it is not market manipulation so long as you believe what you are telling them.
Where people think WSB could get into trouble is actually purchasing the shares - because what is perhaps illegal is the act of making a trade to drive up the price for short sellers and make them buy back stock - and some of them may have said things that show this intent.
However this version of manipulation is a very unclear concept - the plain reading of the law makes general trading to make money basically illegal, so it has been heavily interpreted by the courts and there is actually a circuit split on whether any otherwise valid trade can be illegal because of intent.
I believe there is also thought that this concept could get some people in trouble.
There are a fair number of "sounds right but actually aren't" accusations floating around about GME (along with complete garbage); if you know that these are false statements when syaing them (which in some cases is definitely provable), then you could be in a bind.
 I think the most striking example of "complete garbage" that I've seen (but unfortunately can't find any more) is a set of claims that Microsoft is going to acquire GameStop to turn all GameStops into XBox E-Sports lounges. I mean, could it theoretically happen, yes, but I don't think that anyone believes that at all. That's the kind of boiler-room style shit that used to be considered clear-cut fraud.
1) It's still not too late to go after those people. Some NY DA should make his career on this.
2) The biggest financial crime ever has been the years of unmitigated QE which has consistently taken money from the income-earning class and handed it to the wealthy asset holding class. This is a bigger travesty than all other financial crimes. Not clear what to do about it, there is nobody you can vote for who thinks it should end.
Is it "illegal price manipulation" even if it's done completely out in the open for everyone to see? (I'm seriously asking this question).
I feel like laws governing market manipulation imagine secret collusion among actors that one might reasonably assume are either competing with one another or pursuing their interests independently.
But in this case, the actors are entirely transparent with their motives. Anyone can go see what they're up to. Figuring out why these stocks suddenly went through the roof required no formal investigation at all, as far I know; it didn't take long to figure out why it was happening.
I also wonder whether those motives are even an issue here. Certain people in the system might be legally bound to be truthful with their clients, they might be required to pursue their clients' interests faithfully, and so forth. But isn't it true that as an individual investor, I am perfectly free to invest in stocks based on my horoscope, my initials, random throws at a dartboard, or anything else?
In other words, are the "lulz" illegal here? Is it illegal to not be "serious" with the market (whatever that means)?
Let's suppose there's a massive oil spill tomorrow. Everyone goes on reddit and says, "Hey, let's destroy this company by executing the following actions with the following securities . . ." (let's assume this is possible for a moment). Is that "market manipulation?" Is that illegal? Is that "abusive" (as the SEC puts it)? After all, in that case, they are trying to abuse the company for reasons they regard as entirely rational and reasonable, and they're doing it for all to see.
[edits for grammar and clarity]
In both cases I guess you could say "Yes." and I might agree, but I do not believe it rises to the level of illegality.
I could see the SEC looking at this, deciding that it represents collusion and should not be allowed and clawing back the "ill gotten" gains.
Blockchain based settlement anyone?
Anyone who told others to buy and hold with promises of short covering and higher prices is party to market manipulation, and it is absolutely, definitely illegal. Whether they'll be able to unmask and charge people behind the anonymity of WSB is another question though.
A good lawyer can argue that these people are exercising their first amendment right of free speech. They are not reporting false data and most of these people commenting have "average" net worth not millions/billions.
Its also very hard to prove to a jury that a message from such an average joe on a message board is enough to form a "scheme" with million other readers on wsb.
And, anyone who bought shares or told someone to buy shares with the intent of driving up the price also did something illegal - but it's something that is done constantly and considered a fundamental part of the market, either as an attack on a company in the classic hedge fund short->bankruptcy or, more benignly, like buying up shares of a takeover target slowly so people don't notice you are interested and buy it, which would raise the price.
That gets posted to remind people that WSB is a bunch of random people on the internet. They have no duty to anyone.
Seriously, market manipulation goes on all the time at grandiose scales and at small scales. This time, it's probably a handful of people who had critical mass and the mass is following suit.
If you analyze and act on a market based on an analysis, you are manipulating the market, period. HFT for example happens at time scales never conceived before and are almost undoubtedly market manipulation. The only way not to manipulate the market is to not interact with it.
It really becomes this arbitrary pointing game where subjectivity is thrown into play and favors are called as to who is or isn't breaking the rules. Yes, there are some more established less arbitrary examples of manipulation strategies, but if anyone thinks for a second these are the limit of options available to manipulate investor perceptions, they're naive.
And to spin this further, in the world of growing disinformation or selective information herding campaigns by foreign governments and political organizations swaying elections in the US, how do you deal with those sorts of targeted campaign strategies that are almost undoubtedly, in my opinion, used to manipulate markets as well?
If we can't pinpoint actors threatening the fundamental security of our nation, how do we hope to deal with this in regulating financial systems where blatant abuse is left to pass already.
Bank analysts are constantly putting out "ratings" on stocks, price targets, etc. Articles all over the internet and tv are saying to buy this stock or that.
What I find strange is that if all the WSB subreddit just put their money into their own wsb-fund that just bought up all the heavy shorted stocks and did exactly the same thing, they'd call the fund manager a genius.
Market manipulation and pump and dump schemes should refer to the spread of dishonest information in order to move a stock price. But things like short-interest is a public number and the hedge funds self-admitted to being short these stocks--it's not like they went around saying "I got a secret tip that a hedge fund is very short this stock, let's buy it".
Shouldn't it be obvious that just taking the opposite trade to a hedge fund can't be market manipulation, unless taking the same side as a hedge fund would also be market manipulation?
If that were true the hedge funds that shorted GME and then released their reports on why they thought it was going to go down would have been operating illegally already.
Or, more generally, any CEO making public statements about their company performance.
Pretty sure you need some extra spice to make it illegal, such as falsifying information.
I thought everyone knew this? It was an open secret that former GS CEO and Sec. Treasury Hank Paulson threw Lehman under the bus only because he was tight with Blankfein and was on bad terms with Fuld. Not to mention, Lehman was a much smaller sonofabitch challenging all the big banks.
Of course, I'd like to both as you personally and additionally air out a sentiment of the ease of access being delivered to retail investors. What was once prohibitive has now been given to the individual. Do you have any sentiments that you're willing to share on that notion?
As an additional thought; personally, I can't believe the behavior of some of the brokers that have come to light recently. RobinHood who, as they said in a tweet in 2016 "let the people invest" and now, in 2021 we see how true they maintain their values by restricting the very same people they sought to empower by disallowing trading on their platform. It is despicable.
But they sure would like to be. I've seen WSB. The entire system is selecting for sociopoaths.
The only two i-banks that got help from the Fed were Morgan and Goldman, and they only got it by converting to commercial bank holding companies first. So really, no i-banks got help from the Fed.
when I refused to go along they turned me into a scapegoat. THIS is why I had to do what I had to do.
- The contributions from the various institutions were as follows:
- $300 million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan, Morgan Stanley, Salomon Smith Barney, UBS
- $125 million: Société Générale
- $100 million: Paribas and Lehman Brothers
- Bear Stearns and Crédit Agricole declined to participate.
Dick and Trump are examples of scapegoats. Throw someone under the bus publicly, so you can continue doing what you're doing while the public is busy staring at the spectacle.