Lehman Mess Puts Shorts on Hot Seat

Editor's note: Our "On the Brink" series will provide daily insight into the financial firms facing capital shortfalls and the growing pressure from short-sellers in the market.

That Lehman Brothers' (LEH Quote) stock is under assault is not in question. Who is most responsible for the firm being on the brink of collapse, however, is a topic of much fiercer debate.

Lehman Brothers shares closed down 41.8% to $4.22 Thursday, and traded as low as $3.79 earlier in the day, as several analysts downgraded the shares, citing a lack of confidence about the company's strategic initiatives and even the firm's viability.

The session prolonged months of declines for the beleaguered stock. Terms like "uncertainty," "confidence issues," "perception of weakness" and the need to "turn around market sentiment" pervaded analyst reports, despite the fact that some, like Ladenburg Thalmann analyst Richard Bove, still see great value in Lehman.

"Outsiders driven by as much ill-advised conviction as they had in the belief that the Internet had eliminated negative economic cycles, the likelihood of housing prices never falling, and the credit derivatives market eliminating risk in subprime securities are focusing their biggest guns on Lehman Brothers," Bove said in a Thursday note on the firm.

Bove's is a thinly veiled reference to short-sellers, the standard bogeyman in times of panic on Wall Street. Shorts bet on a stock to fall by borrowing shares and selling them in the hopes that prices decline before they have to sell them back to the original owner.

Defenders say they help keep bubbles in check by tempering enthusiasm. On the other hand, critics charge shorts have been on a spree, taking down one financial firm after another this year with whisper campaigns to spread negative information.