This was quite the weekend. We’ve seen buyouts and bankruptcies in what many are calling “the biggest financial story of the past half century.” When all the dust has settled there was only two remaining independent Wall Street investment banks left !!!
Now is the time for crisis and opportunity or what I like to call “Crisitunity”! On the one hand what a time to buy!! To qoute Warren Buffett:
“I will tell you how to become rich. … Be fearful when others are greedy. Be greedy when others are fearful. The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.” Not to mention the government finally let these lame duck banks go down. The market badly needed to clean some bats out of the attic.
On the other hand everybody in the press and on wall street at screaming for regulation. All over the press people are saying this is the result of the failure of the free market and lack of oversight. We just cleaned our slate and already these morons are preparing for the next recession. These next few months are going to be very critical. There is another post asking if the ARI is effective; now is the time to see if they are worth their salt. I curious to see what press reports they release and if they can get noticed. Capitalism and free markets are going to need every one of its allies in the coming weeks.
In a sense, in a small way, it was a good weekend from the point of view of the economy as a whole. As long as we have a mixed economy, we’ll typically have these market cycles:
government helps people evade reality in the short term
the medium term arrives, and reality looms
government applies more evasion-aid, but selectively, letting some lose while protecting others
taxpayers are left with the long-term costs, which becomes the new reality
We’re in the third stages and the question is: to what extent will the government allow reality to bite? Since Lehman was allowed to go bankrupt, there is hope that the government is willing to draw some line somewhere. That is good news.
Bank failures are bad things because when a bank fails, the money it loans out disappears from the system entirely, and it creates a massive domino effect affecting every bank and every person with money in a bank. Lehman’s wasn’t in retail banking, so the problem can be avoided I think.
I’d love to be in charge of a large financial institution right now for the same reason Buffet was talking about. It’s a great time to buy out all of your competitors. Plus, it’s an oversimplification but any financial ship I ran would be 100% aware and wary of jumping on bandwagons like the real estate one everyone jumped on.
As far as I’m concerned, the verdict is still up in the air if the failure here was a failure purely because of management or purely because of market conditions. Naturally, the employees don’t seem to happy about it.
I guess we have to wait til the SEC releases the reports?
Sept. 16 (Bloomberg) – Republican presidential nominee John McCain lashed out at ``reckless’’ investments by Wall Street as his Democratic rival, Barack Obama, tied the crisis in U.S. financial markets to policies McCain supports.
McCain struck a strongly populist tone, blaming greed and corruption for putting American workers and the economy at risk.
Too many people on Wall Street have been recklessly wagering instead of making the sound investments we expected of them,'' McCain told a crowd today in Tampa, Florida. If I am president, we are not going to tolerate that anymore.‘’
In Golden, Colorado, Obama said McCain’s ``newfound support for regulation’’ belied a record of backing deregulation and support for the economic philosophy of President George W. Bush’s administration.
``Make no mistake: My opponent is running for four more years of policies that will throw the economy further out of balance,‘’ Obama said.
A bank failure through Chapter 11 doesn’t unwind the asset base of a bank. It restructures the debt positions to appropriately value the assets. The balance sheet remains. It doesn’t evaporate, but it will get discounted.
The Fed has now announced an 85 billion dollar plan to save AIG from failure. I can’t say what that all entails, if that implies other companies offering credit lines or what I’m not sure.
In a sense, in a small way, it was a good weekend from the point of view of the economy as a whole. As long as we have a mixed economy, we’ll typically have these market cycles:
government helps people evade reality in the short term
the medium term arrives, and reality looms
government applies more evasion-aid, but selectively, letting some lose while protecting others
taxpayers are left with the long-term costs, which becomes the new reality
We’re in the third stages and the question is: to what extent will the government allow reality to bite? Since Lehman was allowed to go bankrupt, there is hope that the government is willing to draw some line somewhere. That is good news.
In school, they teach us that this is and the business cycle are both unavoidable and unchangeable part of life and that we must just try to soften the effects via government as there is no other solution. Have they always taught that?
You will be hearing the cry:
“It’s the free market’s fault! Capitalism’s fault! Greed caused this!”
I will be more towards the wall of my bedroom, bruising my skull on the wall. Something of this nature: banghead.gif
Yeah, I heard it today on the bus ride home (the greed part). My face got all red and I nearly jumped out of my seat as I turned around and then tried to calmly explain to the kid that loaning people tons of money that can’t pay back is NOT greed, and sending your bank into a tailspin and having an economic collapse is NOT greedy.
The Fed said in return for the loan, the government will receive a 79.9 percent equity stake in AIG.
I guess they wouldn’t call it a nationalization for several reasons: The didn’t go in with force to take over the company – as in Venezuela; they gave them money for it; and they didn’t do the whole 100% of the stock.
But, if the government takes over a business, I would call it a nationalization.
And I’m sure none of them will be run for a profit – which means more taxes will be poured into it.
It may have started with the Clinton Administration forcing them to accept loans that could not be supported, but instead of reversing that law, Bush nationalizes the companies the government led to the breaking point!
When will this stop? Wonder who gets nationalized next: GE? Goldman? GMAC?
The irony is that since the Fed is a private bank, they get any future AIG profits from their 80% stake, while taxpayers cover the losses. Bernanke is laughing all the way to the bank today.
The typical response on the news is that these companies have behaved criminally greedy. I wonder how long it will take for Enron-like public outrage to lead to the government putting on a show and trotting the execs before some committee to badger.
– Barclays Plc, the U.K.'s third- biggest bank, will acquire the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion, two days after abandoning plans to buy the entire firm.
Not the same guys. Read closer.
Lehman Brothers Holdings Inc. is the parent company that went bust. The investment-banking business is a child company of it.
I guess they wouldn’t call it a nationalization for several reasons: The didn’t go in with force to take over the company – as in Venezuela; they gave them money for it; and they didn’t do the whole 100% of the stock.
I’ve looked up the term “nationalization” to see if there is some rationalization to bring news reporters from not calling it a nationalization.
From wordreference.com: changing something from private to state ownership or control
While none of these reference sources says that to nationalization the government must take over, say, something like 85% of the assets and control, some such websites have said that it is not a bad thing if the government compensates the owners with money. I disagree with this, as I think the government running a business will lead to more and more controls favoring the government entity (perhaps even monopoly). In short, given my brief research, I don’t see why they are being called bail-outs instead of nationalization, except, perhaps, to save face for the Bush administration, which is supposedly anti-big government…yeah, right!
A bank failure through Chapter 11 doesn’t unwind the asset base of a bank. It restructures the debt positions to appropriately value the assets. The balance sheet remains. It doesn’t evaporate, but it will get discounted.
What about people in retirement whose pensions depended on the value of those banks’ stocks. They suddenly have no pension. Shouldn’t they somehow be compensated? Or are pensions based solely on stocks a risky endeavor in general? Aren’t most teachers’ pensions that way?