Mortgage-related troubles continue to haunt regional banks. The melt down of the housing market has created a self-reinforcing spiral where lower prices lead to more defaults and unsold inventory, which in turn causes prices to slide further and depress demand because investors shy away from such devaluing assets.

Korea Development Bank said Tuesday it is in the hunt for troubled U.S. investment bank Lehman Brothers, confirming weeks of speculation over its intentions amid expectations the Wall Street institution is in dire need of a capital injection.

The latest rumor was that the world's largest bond fund PIMCO, the hedge fund giant SAC and other institutions were bailing out on Lehman, which then promptly rolled over and crashed 18%. The all important question is - Why is Lehman, and not any other firm, the target for all these rumors and the speculation. What makes it so susceptible to these rumors?

With mounting losses (first quarter loss of $2.8 billion), management turmoil and a falling stock price (70% down this year and no sign of reversing), it seems likely that Lehman, the fourth-largest U.S. securities firm, will follow the footsteps of Bear Stearns and be sold at rock-bottom prices.

Wall Street rallied Tuesday, the first day of the second quarter, on news that two banks slammed by the credit crisis are working to raise cash and that U.S. manufacturing is faring better than expected. The Dow Jones industrial average soared more than 220 points.

It seems that Lehman is going to issue $3 billion worth of convertible bonds despite the fact that it claimed easy access to cash in addition to its $30 billion of cash on hand. So, why issue convertible bonds for what amounts to a piddling amount of cash that will ultimately only dilute shareholder value?

An article written by Babson College teacher and president of Peter S.