New column: David Einhorn, Lehman Brothers, and financial morality

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My new column is online and in the issue of Time with the excellent cover story about a fence by the Next Editor of the Washington Post (well, maybe) inside. It begins:

Last October, I stood in the back of a packed Manhattan ballroom listening to hedge-fund manager David Einhorn explain to an audience what had gone wrong with Wall Street. Packaging home loans into securities was a “mediocre idea,” he said. Repackaging those securities into yet other securities was a downright bad one. Credit ratings were a joke. Investment banks–he mentioned Bear Stearns and Lehman Bros. by name–took too many risks and disclosed too little.

To be honest, I didn’t think much of the speech at the time. One could hear similar critiques every day from finance professors, regulators and even some Wall Street executives. Yet there turned out to be a crucial difference: Einhorn was actually doing something about it, betting that the gig would soon be up at Bear and Lehman by selling their shares short.

It is a bet that he has now largely won. With Bear Stearns, which the Federal Reserve forced into a fire sale to JPMorgan Chase, he cashed his checks quietly. But in the case of Lehman Bros., Einhorn engaged in a riveting public campaign to goad the firm into confessing its shortcomings. In mid-June, it more or less did. Einhorn, 39–a soft-spoken, baby-faced hedge-fund manager previously best known for winning $659,730 at the 2006 World Series of Poker–had briefly made himself the most important crusader for financial morality on Wall Street. Which may say less about him than about our society’s general inability to do anything about financial excess before it’s too late. Read more.

Einhorn’s speeches are available here. If you’d prefer video of his various CNBC appearances over the past month, that’s here.

Felix Salmon wrote a post the other day speculating that Einhorn had probably covered his Lehman short by now. Einhorn’s on vacation this week, but I asked him last Friday if he was still short Lehman, and he said yes. What I failed to ask him was whether his short position was still as big as it was, say, a month ago. Not that he would necessarily have told me even if I had.

And on the same general topic, Floyd Norris has a fascinating post today on efforts by British regulators to tighten the screws on those who sell bank shares short.