How Lehman Brothers nearly followed Bear Stearns into the wild

THE August issue of Vanity Fair, in an extensive article on what it claims "some believe was the greatest financial scandal in history", outlined how, through the ides of March this year, Bear Stearns was brought down.

The manoeuvring, the scandal, the inside trading and short-selling, phone calls high and low were all detailed in what was part of the greatest financial scandal in history.

Had the Vanity Fair team just thought outside the obvious and looked elsewhere, they would have found another part, one that had never been explained.

It involves the share trading in Lehman Brothers at that very time and in the days after.

I have written to Lehman asking if it can enlighten us on what happened in those days and have not received a reply.

While Bear Stearns was being torn limb from limb by the jackals, an identical job was being played out at Lehman.

Indeed one could be excused for believing the scam was under way for Lehman while the body of Bear was being put to rest.

Bear Stearns was gutted with a straight razor in an alley, but with callous smoothness.

As the shares hovered at $US74, the slash came and the brutal fall wouldn't end until $US2.84.

On March 14, it opened at $US54.24; the next day, it closed at $US4.81. Shareholders, some of them lifelong employees with shares loaded into retirement funds, were wiped out.

Most of us are familiar with the blood that flowed at Bear as the sharks ate the wounded, tearing strips off an admittedly rotting carcass and bringing down one of the great houses of US finance.

At Lehman, a similar - but potentially equally grubby - game was being played and my investigation, and those of others, suggest Lehman was the next sacrificial lamb to be slaughtered by the short-sellers, rumour-mongers and those who like to drag stocks down and pocket the proceeds.

With the body of Bear Stearns still warm, Lehman Brothers on Friday, March 14, closed down from its previous high earlier that week of some $US45 to $US39.26.

It opened at $US25.38 the next Monday, fell to just over $US20 and closed miraculously at $US31.75.

By March 18, it had regained its losses and closed at $US46.49.

Word at the weekend had spread that Lehman was next - all the way down to $US2.

Somehow the free, fair, efficient markets valued Lehman Brothers as high as $US41.92 on March 14, took it to $US20.25 on March 17 and back to $US46.49 on March 18.

On that Monday, some 220 million shares were bought and sold but mostly bought, saving the company.

Whoever bought spent what must have been $US5 billion-plus saving Lehman and lost their money and more when Lehman fell again to as low as $US12.

It's now at some $US16.94, pushed up by new rumours, this time of a Korean or Middle Eastern or Singaporean saviour.

But whoever drove the stock to $US46-plus lost a vast sum.

This was when there was even less money around for such purchases than today.

Who bought those shares and lost that money? Someone lost billions of dollars and didn't seem to care.

Was this a direct rescue operation by the US President's Working Group on Financial Markets (the Plunge Protection Team)?

If so, it gives us an inkling of how central bank money is used like Monopoly money to deal with current crises and therefore a hint of just how much taxpayer money is being fed into Wall Street.

It's just a hint but enough to start the investigation into insider trading I suggested in this column, not by sharks but by government agencies.

The Bear Stearns demise as a crime of the century is now folklore.

Is Hank Paulson, so desperate for new powers even as he prepares to leave office, ever going to have this near double murder investigated?

If we have a serial killer out there and we do nothing, they will kill again.

BusinessDay's Michael West has investigated what can happen to funds when they are exposed to traders thousands of miles away.

The Bear-Lehman investigation requires the powers of the US Attorney's office working with the Federal Reserve, the Securities and Exchange Commission, the Department of Treasury and all relevant authorities to get to the bottom of what is happening to our free markets.