1. A Bedtime Story "The discussions at this point aren't about our viability or the fact that we will be here or the fact that we have sufficient liquidity," said Lehman Brothers ( LEH) CFO Erin Callan on a conference call with investors Monday. "I think we put that to bed on a number of different levels through our own actions." In order to further reassure jittery investors about Lehman's ability to survive the credit crunch, the firm put Callan's job to bed four days later, along with that of COO Joseph Gregory. So, how did Lehman put worries about its survival to bed? It did what any healthy finance firm does in a rough patch: It sold equity at a 20% discount to book value while diluting existing holders by 30%. Everything's under control, folks. This is just your typical, run-of-the-mill, cyclical downturn on Wall Street. Nothing to see here. Shares of Lehman, the fourth-largest U.S. investment bank, are down 61% for 2008, and 35% in the last 12 days alone. The selling has come mainly at the behest of rumor-mongering short-sellers who love to use the media to talk their books. It's a conspiracy that Securities and Exchange Commission Chairman Christopher Cox is busy investigating in the midst of a financial crisis after the CEO of Bear Stearns blamed its collapse on the same rabble-rousers. Oops, we're not supposed to mention Lehman in the same context as Bear Stearns. The two firms have nothing in common. Let's focus on David Einhorn, the media hound that is currently busy bullying Lehman. The firm lashed out at him for spreading scurrilous rumors that it was facing heavy second-quarter losses and that it would have to raise fresh capital. Einhorn was all over CNBC making forecasts that support his own financial interests, but unlike all the other people that go on television to make forecasts promoting their financial interests, Einhorn's comments quickly proved to be correct. Lehman said Monday it's raising a mind-boggling $6 billion in new equity and that it will likely report a second-quarter loss of about $2.8 billion -- its first loss since it went public in 1994. Its CEO, Dick Fuld, has not participated in the conference calls in which Callan and others put all the worries about the firm's survival to bed. He has been busy finding new positions at the firm for her and Gregory. Also, we're sure he has phone numbers handy for Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke. Dumb-o-meter score: 95. Sleep tight, Lehman. Don't let the bed bugs bite.
2. In Spin We Trust After avoiding the subject like the plague for months, President Bush and other top federal officials have suddenly become chatty about the U.S. dollar. Unprompted by the Washington press corps, Bush brought up the greenback on his own early this week before departing on a European tour, saying he aimed to tout "our nation's commitment to a strong dollar." Later, in an interview with the Times of London, Bush strayed completely off the U.S. government's "strong dollar policy" script, saying "we want the dollar to strengthen." Not exactly a groundbreaking statement from the commander-in-chief on its face, but for the geeks trading in foreign exchange markets, this was like Leonard Nimoy addressing a Star Trek convention. The dollar rallied sharply against major foreign currencies. Previously, as the five-year decline in the dollar turned into a precipitous drop amid the credit crisis, Bush would discuss the currency weakness only when asked about it. Even then, he would only repeat the mantra: "I support a strong-dollar policy." That mantra, of course, is meaningless now, with the Federal Reserve printing money furiously again while federal spending soars and the federal deficit widens. But for this White House, those concerns are better left to the "reality-based community." With the stock market freaking out over astronomical oil prices and gas prices averaging more than $4 a gallon, the Bush Administration has taken to a new communications strategy to try to steer the market instead of taking any substantive action. The weak dollar has played a big role in driving the relentless bull market in crude oil. Last week, Treasury Secretary Hank Paulson hit the dollar circuit, reassuring investors in the Middle East that the greenback will remain the world's reserve currency, and Fed Chairman Ben Bernanke himself has started jawboning about the strong dollar. Unfortunately, this is a tough time for the administration to mount an effective communications strategy, given that its former head of public relations is now busy shopping a book that says it's fond of using "propaganda." By Thursday, the dollar was tumbling again, and crude oil futures were nearing $140-a-barrel. Dumb-o-meter score: 91. Repeat after me: I support a strong dollar policy. I support a strong dollar policy...
3. Vetting the Vetters Here's a campaign season lesson for presidential hopefuls: when you're a Democrat running against special interests in Washington, the first thing you need to do is appoint the former head of a government-sponsored home finance giant to a committee that will help choose your potential successor to the most powerful office in the world. After all, when the U.S. is neck-deep in a mortgage crisis, who needs to vet a guy that ran Fannie Mae ( FNM) for seven years before it became mired in accounting scandals and forced to make billions of dollars in earnings restatements? Not Barack Obama. The presumptive Democratic nominee for the presidency chose former Fannie chief and consummate beltway insider Jim Johnson to be part of a three-person committee charged with vetting his veep. Shockingly, the world was blind-sided this week with the news that Johnson was involved in a shady lending program offered by none other than Countrywide Financial ( CFC), the disgraced mortgage giant that is currently being acquired by Bank of America ( BAC) and has also been a longtime business partner to Fannie. Johnson was a major beneficiary of a Countrywide program known as "Friends of Angelo," according to a report from The Wall Street Journal. The program arranged loans at below-market rates for pals of Countrywide CEO Angelo Mozilo, the suntanned sultan of subprime. In the program, The Journal reported that Johnson was designated a "High Profile Borrower," and by mid-2007, he had more than $5 million in outstanding debt to the company. Johnson recently got a $1.5 million loan for a real-estate project in Big Timber, Mont., in which Countrywide waived its usual limitations on loan size, amount of allowable debt and number of loans to a single borrower. "The borrower of this loan is the former CEO of Fannie Mae," Countrywide records state, according to The Journal. "This is a very high-profile and visible loan that needs...immediate attention." Johnson also served on the board of KB Home ( KBH) where he led the homebuilder's compensation committee, which in 2007 restated seven years of earnings because it had backdated executive stock options. At the same time, Johnson led a board committee at UnitedHealth ( UNH) overseeing an internal probe of that company's options backdating. To Johnson's credit, he left Fannie in 1999 -- before the accounting problems occurred -- but a May 2006 report by Fannie Mae's regulator, the Office of Federal Housing Enterprise Oversight, said the company failed to disclose that Johnson received a consulting contract from the mortgage buyer after leaving its board on top of his $852,000 annual pension. Then in December 2006, Fannie Mae disclosed that Mr. Johnson was receiving annual "consulting fees" of $300,000. In other words, by choosing the man who previously vetted potential running mates for Democratic losers like John Kerry and Walter Mondale, Obama managed to tap into a goldmine of "new politics" and "change." That's why it was a shame that the candidate decided to cut Johnson loose this week. Beforehand, Obama complained that at this rate, he would have to "hire the vetter to vet the vetters." Little does he know, he'll have to vet the vetter to vet the vetter to vet the vetter. Dumb-o-meter score: 85. Welcome to Washington, pal. Oh, I almost forgot, you've been there for years.
4. MBIA Fights the Law Now that MBIA ( MBI) is facing the end of its Triple-A credit rating, the bond insurance giant seems to be losing its dedication to its existing policy holders. The firm, which has used its stellar credit rating to write insurance policies on billions of dollars in mortgage-related debt securities, received a potentially mortal blow last week. Credit rating giant Standard & Poors cut its Triple-A rating, and its counterpart, Moody's, signaled it will likely do the same. In response, MBIA said that it won't funnel $900 million of cash from its holding company into its main bond-insurance subsidiary. Previously, the firm planned to do so in order to protect its Triple-A rating. In a statement, MBIA Chief Financial Officer C. Edward "Chuck" Chaplin said that the company already has enough money to cover its policyholders. "Now that the landscape has changed, we will re-evaluate our business strategies and capital deployment plans, including the deployment of the $900 million proceeds, while balancing our obligations to policyholders with optimizing returns to our shareholders," added Chaplin. The company's CEO, Jay Brown, said it's considering "one of our two fully licensed subsidiaries as a triple-A subsidiary for new public-finance business." He also said MBIA is considering a share buyback. "I know this is on every shareholder's mind, and the continued drop in our stock price is a clear indication that we need to resolve this at the soonest possible date," he added. There's a small problem with Brown's plan: the insurance industry is heavily regulated, and its regulators insist that the interest of policyholders take precedent over the interests of shareholders. Meanwhile, New York State Insurance Commissioner Eric Dinallo doesn't sound convinced that MBIA has the financial wherewithal to meet its obligations to policyholders. MBIA raised $1.1 billion selling new shares in February, and in a regulatory filing in May, the company said that, after consulting with the New York State Insurance Department, it decided to funnel the $900 million to its insurance subsidiaries to support "existing and future policy holders" as well as its triple-A rating. Apparently, MBIA is done consulting with the New York State Insurance Department. It's busy consulting with shareholders, who are down 92% since the beginning of last year. Dumb-o-meter score: 79. The stock is going up now.
5. Fist Jabs for Cable News For the latest sign of how Old Media is faring in the digital age, let's take a quick survey of some of the finer reporting segments of late from cable news networks on Barack Obama. The Democratic Party's presumptive nominee for the U.S. presidency owes much of his political success thus far to young, cyber-savvy voters who harnessed the power of the Internet in unprecedented fashion to support their candidate in the primaries. This week, News Corp.'s ( NWS) leading cable network, the Fox News Channel, showed that it has its proverbial finger on the pulse of America's youth in a segment analyzing the harmless, celebratory gesture that Obama shared with his wife just before claiming his party's nomination last week at a rally in Minnesota. The couple briefly touched fists, a common practice these days between friends for basically anyone under the age of 50, but Fox News anchor E.D. Hill couldn't help but wonder on the air whether the Obamas had exchanged a "terrorist fist jab." The comment showed how Fox News is all hip to the blogosphere. Hill's speculation was prompted by a blog entry on the right-wing Web site, Human Events, which ran circles around the mainstream media by reporting that the first African American to win the presidential nomination from a major U.S. political party had engaged in "Hizbollah hand jabbing" with his wife. The story was particularly relevant because, as Fox News incessantly reminds us, this country is currently involved in a "War on Terror," and its enemies hate us for our freedom. Exhibit A: In their undying efforts to be "fair and balanced," our fearless news organizations are free to associate the Democratic Party's nominee for the White House -- who currently leads in the national polls -- with the suicidal maniacs who murdered 3,000 American civilians on Sept. 11, 2001. Not only is this good for democracy -- it also has to be good for business, since Fox is reeling in a new generation of loyal viewers hand over fist. Nevertheless, Hill later apologized for her intrepid reporting, which also included commentary from a "body language expert" to help viewers better understand the mysterious actions of the Obamas and countless other people all over the world. Her show, America's Pulse, is going off the air next week, but a Fox spokeswoman says that has nothing to do with Hill's comments. Not to be outdone, General Electric's ( GE) leading business network, CNBC, showed its mettle on the Obama story last week when anchor Bill Griffith caused viewers to lose their "Power Lunch" by reporting that the Dow Jones Industrial Average dropped 100 points after the Associated Press reported that Obama had clinched the nomination. Griffith noted that he was "a little hesitant" to point that out, which is strange because it was a huge scoop for a network that charges itself with "Keeping America Great." After all, virtually every other news organization reported that day that the prospect of Lehman Brothers ( LEH) becoming the next Bear Stearns amid the credit crunch, skyrocketing oil prices, inflation and rising unemployment had sparked the selloff. Meanwhile, most people on Wall Street were under the false impression that Obama had a lock on the nomination for weeks if not months. Dumb-o-meter score: 68. Heckuva job, Old Media. Terrorist fist jabs all around.