I always thought Paulson would eat those "worst is behind us" words. I wonder if he likes his verbs bland or spicey??? In today's news (and I mean early today, it is only1:44 am and already my puts are bursting at the seems with premium reading to match the week Bear Stearns went bust):

From Bloomberg:

Bradford & Bingley Plc, the U.K. lender struggling to raise cash in a rights offering, must honor a 2006 deal to buy about 2.1 billion pounds ($4.1 billion) of mortgages by the end of next year from GMAC LLC.

Customer payments are more than three months late on 5 percent of loans already purchased from Detroit-based GMAC, the car and home lender trying to avert bankruptcy for its residential mortgage unit. That's more than double the average rate for mortgagesheld by the Bingley, England-based bank, it said yesterday in a statement.

``This is what has spooked everybody,'' said Alan Beaney, who manages $2.1 billion of stocks as head of investments at Principal Investment Management in Sevenoaks, England. ``They are committed to keep buying these things.''

Rising loan defaults were ``by far the biggest factor'' in Bradford & Bingley's decision to sell a 23 percent stake to U.S. leveraged buyout firm TPG Inc., Chairman Rod Kent told analysts on a conference call. The bank fell 24 percent in London trading yesterday, the most since an initial public offering in 2000, after it slashed the price of the rights offering by a third and said the U.K. housing market is deteriorating.

The bank first agreed in 2002 to buy loans from GMAC. Steven Crawshaw, who stepped down June 1 as Bradford & Bingley's chief executive officer, renewed the deal in December 2006 and committed to buy as much as 4 billion pounds of loans a year through 2009.

Wachovia, Alt-A speculators , Countrywide, WaMu and Merrill weren't the only one's who binged on bad debt during the top of a bubble!

From WSJ:

Lehman Brothers Holdings Inc., set to report its first quarterly loss since going public, is considering raising billions of dollars in fresh capital to help shore up its balance sheet, according to people familiar with the matter.

The exact amount of the capital hike isn't known, but analysts and Wall Street executives estimate it is likely to be $3 billion to $4 billion. They said Lehman would probably announce the capital raising in conjunction with its quarterly results, due the week of June 16. The amount of new capital under consideration suggests Lehman's quarterly loss could be larger than the $300 million or so that some analysts have been expecting. Now I made it very clear that Lehman was guaranteed to take a loss this quarter because, they took an economic loss last quarter but covered it up with accounting shenanigans and smoke and mirrors. Lehman was one of the few companies that I shorted heavily despite not performing a full forensic analysis because they had too much smoke and too many inconsistencies. Starting in September of last year, I started uncovering a lot of Lehman lemmings. See my chronological smoke trail below.

On Monday, shares in the 158-year-old firm fell $2.98, or 8%, to $33.83 on the New York Stock Exchange after negative comments from two Wall Street analysts. The shares are down almost 50% this year compared with year-to-date drops of about 20% for rivals Goldman Sachs Group Inc. and Morgan Stanley. The Street's Riskiest Bank will have some surprises for us. Amazingly, S&P picked up on my view of riskiness with MS, I was shocked, and concerned to be in such company - considering their accuracy in these matters over the last year or two. The new capital would likely be raised by issuing common shares, diluting current shareholders, people familiar with the matter said.

Lehman is Wall Street's smallest independent firm now that the sale of Bear Stearns Cos. to J.P. Morgan Chase& Co. is complete (see Is this the Breaking of the Bear?). Lehman says it is well-positioned to weather the current credit-market turmoil, and its management has been aggressive at facing down its critics. Isn't that what Bear Stearns, Thornburg Mortgage, Indymac Bank and Countrywide said??!!! I am not one for litigation, but these guys seem to be pushing their luck!

In the past year, Lehman has raised $6 billion in capital, including $4 billion last quarter. The firm's financial position was further strengthened in March when Lehman, like all U.S. investment banks, was allowed to borrow directly from the Federal Reserve against a variety of collateral, which gives it ready access to considerable funding. The availability of Fed funding significantly reduces any worries that Lehman and other firms might suffer a cash crunch.

Nonetheless, some investors remain concerned that relative to its size, Lehman is holding more securities tied to both residential and commercial real estate than any other big Wall Street broker, according to Bernstein Research.

Mortgage Exposure

"Lehman still has a lot of exposure to the mortgage market, and they are going to need capital to get through it," said UBS analyst Glenn Schorr.

On Monday, Standard & Poor's cut long-term debt ratings on Lehman, Merrill Lynch& Co. and Morgan Stanley. The credit-rating agency focused in particular on Lehman, saying it expects a "relatively meaningful deterioration" in the firm's earnings for its second quarter, which ended May 31.

Also Monday, Merrill Lynch analyst Guy Moszkowski lowered his rating on Lehman stock to underperform from neutral. Oppenheimer & Co. analyst Meredith Whitney swung her earnings forecast to a loss from a profit. What took so long Meredith? You are usually lock step with me...

The immediate impact of the S&P downgrade will likely be minor, but the downgraded firms may face slightly higher borrowing costs. The cost of buying protection against a default at Lehman Brothers increased by $15,000 Monday, bringing the cost to $245,000 for five years of protection on $10 million of debt.

In contrast to Bear Stearns, Lehman has successfully raised capital, sold off risky securities and responded forcefully to rumors about its situation. After its most recent capital raising on March 31, its gross leverage ratio -- a measure of borrowing relative to assets -- fell to a more conservative 27.3 from 31.7 at the end of its first quarter in February. The figure is expected to be down to 25 as of the end of the second quarter. Semantics! There's more conservative, and then there is conservtive. None of the banks that use proprietay trading as a revenue source have conservative leverage ratios. In addition, I believe this reduction to be smoke in mirrors, in part because they have reduced the balanc sheet but retained the risk of the assets that that they shed, simply in another form. It can be seen as actually concentrating the risk in and attempt to placate naive investors (as in less knowing, not meaning to be offensive) shareholders. See the CLO funny business towards the end of the long list below.

In a statement, a Lehman spokesman said: "It is our clearly articulated strategy to reduce the size of our balance sheet this quarter." What you need to do is reduce the risk of your balance sheet, and make that your stated goal. No more smoke an mirrors.

Lehman's long-serving chief executive, Richard Fuld Jr., has experience in tough situations. In 1998, he fought off rumors about a cash crunch that were triggered by the near-collapse of hedge fund Long-Term Capital Management.

But Lehman's second-quarter results are expected to show some fresh difficulties. The firm is saddled with billions of dollars in hard-to-sell commercial real-estate assets and leveraged loans and is expected to face further write-downs on these portfolios. That has led the firm to consider raising additional capital. Wall Street firms including Merrill Lynch and Morgan Stanley have also raised billions of dollars as losses from the mortgage meltdown have mounted.

If Lehman proceeds with plans to raise capital, it is expected to do so by issuing common stock, the first such issue since it went public in 1994. In its earlier capital raising over the past year, it issued preferred shares, a stock-bond hybrid that doesn't dilute the ownership of common shareholders. D-I-L-U-T-I--V-E at a time when there are scant earning to go around to the shares that are already in existence. When will (foreign) investors learn that you are throwing your money down the tubes by funding these institutions at this point in the game. Just sit back and look at how much money was loss with the BSC, C, MS, and the whole list that is too long to run through, gamut of I-bank investments that were made over the past year. I don't want to hear that "this is a long term commitment nonsense either. Why don't you guys make your long term commitment at HALF the price by waiting until next year. Hey, I'm a long term player too. That doesn't mean I voluntarily burn my money like matchsticks.

While a common-share issue will hurt Lehman's already-suffering shareholders by diluting their ownership stake, rating agencies and regulators like to see a balance of common and preferred shares. That is why Lehman will likely go the common-share route.

Stung by Hedges

During the second quarter, Lehman was stung by hedges used to offset losses in real estate and other securities, according to people familiar with the matter. The firm bet that indexes tracking markets such as real-estate securities and leveraged loans would fall. If that happened, it would book profits that would make up some of its losses from holding these securities and loans.

However, in an unexpected twist, some of the indexes rose, even as the assets they were supposed to hedge against continued to lose value or stayed relatively flat. Lehman's losses from both write-downs on assets and ineffective hedges will likely top $2 billion, people familiar with the matter said. Lehman will also realize additional losses related to its decision to reduce its work force, according to a person familiar with the matter. I warned about bad hedges in February in the Morgan Stanley opinion: Street's Riskiest Bank .

The S&P downgrades came after the ratings agency completed a review of the entire securities industry. S&P said it believes Lehman and other securities dealers' revenues may decline more than anticipated based on the firms' still large exposures to illiquid and hard-to-value assets.

S&P analyst Scott Sprinzen said the Federal Reserve's decision to allow brokers to borrow money directly from the Fed, "gave us the comfort not to go further with some of the downgrades that we did," he says. "But we can't count on that indefinitely."

S&P cut Lehman's rating to A from A+, and also cut the ratings of Morgan Stanley to A+ from AA- and Merrill Lynch to A from A+. Despite the downgrades, the firms are still considered high-quality investment-grade credits. S&P affirmed Goldman Sachs's ratings at AA-, but revised its outlook of the firm to negative.

Now reflecting on why I haven't doubled down on Lehman more than the once or twice that I dipped in to the coffers... I am resource constrained. If I had more analytical firepower I would have really had a homerun position. I have hefty proportionate position as it is, but let's reminisce on the ruminations that was (notice the dates on each snippet while remembering that I started bloggin in September). Call this the chronological anatomy of a short selling blogger's tale of speculative anecdotal research and use the chart to peg the comments to Lehman's share price...