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we're seeing the argument at lehman right now about what dangers potentially might exist in very public short selling uh advocacy against that firm um arguably that same could be said for for the bond insurance you you view it as a warning sign as opposed to a a takedown can you maybe and you talked a little bit about it publicly but maybe state a little more broadly your views on the necessity of of disclosure or or advocacy on the short side of given stocks sure look i think uh free speech is a fairly it's about the most important principle of our country it's kind of number one number two the markets are well served by people who have money at risk who do high quality work frankly sharing that information as widely as possible that's that's what creates efficient markets you know david einhorn uh i think in november gave a speech in which he talked about his concerns about lehman and lehman stock at the time was in the 60s and had people listen to david when the stock was in the 60s or had lehman listen to david and said you know what this is not a bad time for us to raise some equity at this price and position ourselves better for for perhaps some losses in the portfolio that would have been good for lehman uh wouldn't have been so good for david as a short seller frankly but it would have protected some investors from from what's happened to those who investors who've owned own stock in the company if you know if you're long and you own a stock you can go into barons you can get on the rooftop you can pump how great your company is and no one for a second looks at you askance but if the same person gets on cnbc not the same person or even you know david einhorn is mostly along as opposed to a short he gets on cnbc and he talks about why he thinks nbc home building company is a great company no one thinks twice but if he gets on he says you know look i have some concerns about lena's balance sheet i have some concerns about how they're marking their assets um this is something where the the new york times writes a scathing article about david ironhorn doing this and i would think the media of all places the media which is the the force for you know digging up the dirt about what's going on in washington should be very interested and and short should be the best source for the media and frankly they should be if i were i would have given a slightly different answer than bob steele if i were treasury secretary i would say instead of meeting with jim chaines twice a year i would meet with jim channels once a month or at least i would have an open door to the short selling community if you have concerns about companies the economy balance sheets etc and we want to hear about them and if it's even if it's just simply you know what here's an email box where you can send your submission we'll take it seriously to you know what the ones that are serious but is there not a subs a substantive danger and a substantive distinction between advocating on the up and and advocating on the short side take lehman brothers right you can quibble well i'm not equivalent that might be right you can argue with the way they presented the information about their assets where they're marking them and so on but you also run the risk of putting that company into serious financial crisis which which has all sorts of effects that you just don't know what's going to end i mean bear stearns is a perfect example so isn't there a substantive distinction that is just more dangerous to the economy at large i'll only distinguish between different types of short selling and disclosure i think if someone spreads rumors that are false right that person should be prosecuted in order to make an investment gain that person should be prosecuted if a person goes on cnbc and says based on my analysis of the 10-q on page 12 you know they said that we've got six and a half billion of cdos and before they said this was mortgage-backed securities what's the substantive difference i think that's totally acceptable if no legitimate business in my view will go out of business because someone spreads a false rumor about it i think that uh you know if lehman is so vulnerable to the criticisms of a short seller i think it has to think about whether it's it's capitalized correctly you know can you is there a room in the world for a forty to one levitt institution which is so confidence sensitive that a 38 year old short seller can get on cnbc and raise a few concerns and it goes out of business it's a dangerous game to play though especially especially especially when it comes to financially centered stocks where confidence is the coin of their own here's what i would say what i would say is why do we have bubbles why do we have financial institutions that with 40 to 1 leveraged balance sheets we have them because the people who because because you couldn't short single family home prices rising okay that's why there was a bubble in single-family home prices and interestingly only when there was a mechanism to go short housing basically the abx index did the bubble finally burst and so if the whole country is only long on margin we're gonna have bubbles after bubbles okay um and systemic risk is created when we have institutions with and i'm not i don't mean to pick on lehman and i'm not i'm not short lehman and i'm not long lehman but uh we want businesses that can withstand the critique of of any investor right uh that's that should you know whether it's a bank or otherwise so by the ackman plan what what are the other means of injecting the short seller ethos or vibe into the markets are there ways we can institutionalize it to create a uh corrective uh force on football look at what happened to me you know i wrote a 66-page white paper it was reviewed by some of the best law firms in the city uh i released it in the most public way i possibly could i disclosed my position it's very important to disclose your position you can't claim to be independent and put out a piece of paper that's we're not um and then i had to go withstand a six-month investigation by eliot spitzer in a several month investigation by the sec david einhorn criticized allied capital publicly in 2002 and in turn he was investigated by the sec um you know it's okay you know i've got a thick skin but uh if if this is the regulatory response to someone criticizing a public company particularly an influential one i mean mbia largest guarantor of new york state and city bonds it was a very easy call for them to the treasurer and the call from the treasurer to spencer's office what you want is what you should be thinking about as an investor is what are the incentives of the person giving me the information and the incentives of a management team of a public company are in some sense stronger to promote their stock than the incentives of a short seller you know the short seller is short and management is long the short seller has a choice in which companies he shorts management doesn't have a choice in which company they're along right and i think that if anything you would look for bias on the part of management as opposed you
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