Last Updated: June 10, 2008: 2:02 PM EDT
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Captain's Blog, Stardate: 6/9/08

What was Lehman CEO Dick Fuld thinking? Plus: Is it time to buy Brazilian homebuilders?

By Andy Serwer, managing editor

NEW YORK (Fortune) -- On Lehman: A pretty remarkable day for them. Remarkably bad. A $2.8 billion (quarterly!) loss - its first since going public. The bank is also tapping the markets to the tune of $6 billion at lower prices than investors had hoped, creating more dilution than anticipated and driving the stock down over 10% to below $30. Also Fitch downgraded Lehman (way to be ahead of the curve!).

A big question I have is how responsible is CEO Dick Fuld and the rest of the senior Lehman management team. Are they to blame for the mess that this venerable firm is now in? Or was it inevitable that LEH (LEH, Fortune 500) fell into this sort of ditch? Quick answer: I'll take #1 please, which is to say, it is management's fault. Ever since Fuld bootstrapped Lehman back out of the maw of Shearson Lehman American Whatever, LEH has made its living on the fixed-income side of the equation. Which is to say it is a bond house. At Lehman, it's long been a "Credit R Us" proposition. And for years Dick Fuld would tell anyone who listened that 1) of course he knew this and intentionally positioned the firm thusly, 2) that he and his team could handle this positioning and that "the risk committee and the management committee were the same thing at Lehman," and that 3) yes, the firm was looking to diversify away from overexposure to fixed income. For years, this strategy worked well for Lehman. Now it isn't. And while other firms have fared worse, to wit Bear, or arguably just as badly, to wit Citi (C, Fortune 500) and UBS (UBS)*, others have fared much better, to wit JPM (JPM, Fortune 500) and Goldman (GS, Fortune 500). None of this is to say that Lehman won't survive and today may be a great day to buy the stock. The point is though, as far as where Lehman stands today, if it isn't Dick Fuld's fault, whose is it?


GLEANING FROM DEEP BLUE: Mister Observation says: "Corn prices hit an all-time high overnight. There has been too much rain on the farms where it is raised in the U.S. The cost of the stuff is up 47% this year... Lehman called me to raise some money this weekend. I threw in $5k.... Sam Zell bought this century's buggy whip - paper and ink. No way out of this mess. Classifieds want to be free!... Anyone on staff still talking Brazil investments? [Full disclosure: Here's a stock I own. GFA (GFA)] Homebuilders in a booming economy. [Whoa! Another way to look at this Blue is a Brazilian homebuilder stock. Can you say 'bubble'?]... I am really considering Live Nation stock as I believe they have the best take on how the new music model will operate BUT consumer spending has me real concerned.... This is funny."

Loose change

*Did you see that Meredith Whitney and her team at Opco today are saying that: "with increased disclosure from the companies under our coverage, we believe that just for Citigroup, Merrill Lynch (MER, Fortune 500), and UBS, the collateral damage could be in excess of an additional $10 billion; however, we note that such an estimate remains a moving target."... Overheard at a soccer game this weekend. Dad to a group of Moms: "I woulda voted for Hillary, but now I'm voting for McCain." Or is that just spin?... So, an attack on Iran is "inevitable"???? Yeah and we had to invade Iraq too. It was inevitable. It's also inevitable the Lakers win the next game. It is inevitable that Lehman will go kaput. It was inevitable that Henry Nicholas allegedly hosted orgies, did massive quantities of drugs and built a secret love nest under his mansion. Inevitable. It is inevitable that John McCain wins; I mean that Barack Obama wins. Me getting drunk at lunch is inevitable. Bottoms up. To top of page