Dick Fuld's strategy has Lehman fighting for its life

It's no surprise that when the fallout from the subprime mortgage mess made the securities built from those toxic loans start wrecking balance sheets across Wall Street, Dick Fuld zigged when everyone else zagged. But Lehman was the biggest underwriter of subprime debt in 2006, and the nation's fourth-biggest investment bank refrained from shedding the junk or writing it off fast enough.

By March, Lehman was helped and hurt by its smaller rival Bear Stearns Cos. Bear made Lehman look good, because the former was better diversified, hadn't had an unprofitable quarter and, not least, had Dick Fuld at the helm. But Bear and its collapse also suggested how fragile these institutions had actually become. Bear disappeared in about three days after counterparties began bailing out. Before it was even over, these panicked investors began looking at the next weakest link: Lehman.

By Monday, Fuld and Lehman had been forced to do what they had been avoiding for a year, raising close to $6 billion in cash by selling a big stake in the firm. The move was aimed at restoring confidence to Lehman in the markets, but it also clobbered investors who had watched their stakes shrink by more than half in less than a year.

Einhorn, however, isn't finished. He rightly points out that the number that may ultimately do in Lehman is $65 billion. That's the amount of hard-to-sell assets still on its balance sheet. Fuld could have been writing this junk off over the last year just like his rivals, but again, Dick Fuld doesn't operate like his peers. It's for these reasons that Fuld should lead the Lehman army forward -- by making his own retreat.