West Coast Connection Forum
Lifestyle => Train of Thought => Topic started by: pootypooty on September 15, 2008, 08:26:05 AM
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http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=abVpg8xJDMWk
Sept. 15 (Bloomberg) -- In the biggest reshaping of the financial industry since the Great Depression, two of Wall Street's most storied firms, Merrill Lynch & Co. and Lehman Brothers Holdings Inc., headed toward extinction.
New York-based Lehman, founded 158 years ago, said early today that it filed for bankruptcy protection after failing to find a buyer. Merrill Lynch, 94 years old and also based in New York, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal hashed out yesterday.
``The tectonic plates beneath the world financial system are shifting, and there is going to be a new financial world order that will be born of this,'' said Peter Kenny, managing director at Knight Capital Group Inc., the Jersey City, New Jersey-based brokerage that handles about $1 trillion worth of stock transactions a quarter. ``It's an ugly and painful process.''
The engines that powered record growth in the financial industry over the past decade -- cheap credit and surging property values -- have been thrust into reverse. Companies that once thrived on making real estate loans and holding assets bought with borrowed money are now under siege, giving the upper hand to those less reliant on leverage and holding the fewest assets tied to property.
Bear, Fannie, Freddie
The industry convulsions that started last year have already eliminated Bear Stearns Cos., forced into a cut-price sale to JPMorgan Chase & Co. with government support in March. A week ago, the U.S. Treasury placed mortgage companies Fannie Mae and Freddie Mac into conservatorship, guaranteeing their widely held debt securities while all but erasing their equity value.
American International Group Inc., once the world's largest insurer, is struggling to raise cash to avoid a credit-rating downgrade that could cripple its business. AIG shares fell as much as 52 percent in New York Stock Exchange composite trading today and were down $5.49, or 45 percent, to $6.65 at 10:50 a.m.
The five New York-based securities firms that dominated Wall Street have been reduced to two: Goldman Sachs Group Inc. and Morgan Stanley. While both firms are scheduled to report a drop in third-quarter earnings this year, their business has remained profitable throughout 2008 -- unlike Lehman and Merrill. As concerns swirled about their futures, Goldman's stock dropped as much as 7.9 percent and Morgan Stanley's fell as much as 13 percent in New York Stock Exchange composite trading today.
`Ride This Out'
``I think highly of Morgan Stanley and Goldman Sachs, so I expect them to ride this out,'' Evercore Partners Inc. Chief Executive Officer Roger Altman, a former deputy Treasury secretary who spent his early career at Lehman, said in an interview on CNBC. ``But as to whether we've seen the last of this crisis, I think the answer to that is clearly no. And exactly where it goes from here and how it unfolds, I'm unsure.''
Lehman, which employed 25,935 people at the end of August in 61 offices around the world, had a balance sheet totaling $786 billion as recently as February. Merrill Lynch, with 60,000 employees, is known for its ``thundering herd'' of financial advisers that brought Wall Street financial products to Main Street investors.
`Vaporized'
``I've been on Wall Street for many years, and I've never seen a weekend like this one,'' said Michael Holland, 64, chairman and founder of New York-based Holland & Co. ``We are unwinding what has been years of silliness in the financial markets, and the silliness is being vaporized as we speak, unfortunately with the stock price of a number of companies involved in it.''
To help cushion the fallout, 10 banks created a $70 billion fund to lend to firms that are having trouble financing their assets in the markets. The Federal Reserve also said it will be willing to lend money in return for a wider array of collateral including stocks.
Still, the repercussions may be widespread.
Meredith Whitney, an analyst at Oppenheimer & Co., wrote in a note to investors that sales of Lehman's assets will push down the value of securities, forcing other firms to write down their own holdings.
`Fundamentally Flawed'
Nouriel Roubini, an economics professor at New York University, said the independent securities firm model is ``fundamentally flawed'' and that every securities firm will need to combine with a bank to gain a deposit base and greater access to loans from the Federal Reserve.
Just five months ago, Lehman Brothers Chief Executive Officer Richard Fuld, 62, was telling shareholders that ``the worst is behind us'' in the credit contraction. As concerns escalated about the value of Lehman's assets tied to residential and commercial real estate, Fuld replaced Chief Financial Officer Erin Callan and President Joseph Gregory in June.
Deteriorating markets put more pressure on the value of Lehman's assets and the firm, unable to negotiate an investment from the Korea Development Bank, instead tried to reassure investors last week by revealing third-quarter results early and unveiling a plan to sell part of its fund management unit and create a separate unit for its real estate holdings.
Fuld's efforts were undermined on Sept. 10, when Moody's Investors Service put Lehman's credit rating on review for downgrade, noting that the firm needed a ``strategic transaction with a stronger financial partner'' to help support its rating.
Stock Tumbles
Lehman's stock fell 50 percent on Thursday, Sept. 11 and Friday, Sept. 12 and the collapse spread to Merrill, which has reported four consecutive quarters of losses and is expected to lose money again this quarter.
New York Federal Reserve President Timothy Geithner called a meeting of Wall Street's top firms starting at the Fed's downtown headquarters that began at 6 p.m. on Friday, with a goal of helping ease a sale of Lehman, according to people familiar with the situation.
The two banks most interested in Lehman, London-based Barclays Plc and Charlotte, North Carolina-based Bank of America, balked at a deal unless the government would protect it from any losses on some of the hardest-to-value assets. The government, already shaken by criticism of its actions to support Bear Stearns, Fannie Mae and Freddie Mac, refused to budge and tried to persuade the CEOs of the biggest Wall Street firms to pitch in instead.
Weekend Discussions
The talks lasted through the weekend, with groups of executives breaking off into smaller groups to discuss options and teams of traders examining positions at every major firm. Yesterday, Barclays, the U.K.'s third-biggest bank, dropped out, deciding it couldn't agree on a deal so quickly without some type of protection from losses.
As hopes dimmed for salvaging Lehman, attention turned to the future of Merrill, Lehman's bigger rival. That business, with its 16,690 financial advisers and almost half of fund manager BlackRock Inc., was more attractive to Bank of America than Lehman could be. Merrill CEO John Thain, persuaded by the weekend's events that a deal was necessary to avoid a loss of confidence and a fate similar to Lehman's, entered into negotiations with Bank of America's Ken Lewis.
The liquidation of Lehman, last year's top underwriter of bonds backed by mortgages, is an amplified version of investment bank Drexel Burnham Lambert Inc., which filed for bankruptcy in 1990. Drexel made its name financing corporate takeovers in the 1980s using junk bonds pushed by Michael Milken.
Keeping the Talent
Maintaining the confidence of the markets is only one of the challenges for an investment bank -- the other is retaining employees, recalled Fred Joseph, Drexel's CEO from 1985 to 1990.
``It's an awfully good business, but the assets go down in the elevator every night,'' said Joseph, 71. ``Despite the tough times, the Street's so small, everybody wants the really good guys.''
A key difference with Drexel is Lehman's central role in the over-the-counter derivatives markets, which have ballooned to $454 trillion since Drexel was in business. A default by Lehman on its obligations in that market could cause chain reactions throughout the markets that have never before seen a major financial counterparty fail to honor its obligations.
``The implications of one of the `too big to fail' institutions being allowed to fail is incredibly difficult to grasp, but suffice to say that a huge number of firms and securities are going to get affected,'' said Michael Auyeung, who manages about $500 million as chief executive officer at Pacific Mutual Fund Bhd. in Petaling Jaya, Malaysia. ``The reach of the carnage will be global and system-wide.''
Lehman's collapse wipes out a company that had a market value of $45.5 billion in February 2007. Merrill's sale to Bank of America for $29 a share, while about a 70 percent premium to Merrill's value on Friday, compares with the company's $86 billion market capitalization in January 2007.
``It's breathtaking that we've gone from five standalone firms to two very quickly,'' said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs. ``It's certainly going to cause Wall Street to rethink the strategy.''
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The very people that we thought would benefit the most from the unregulating of banks and all these forclosers have now FUCKED themselves over. I think if I look into my post from like 5 years ago, I think I mentioned something that we were headed into depression. Well we'll see how things turn out.
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i think its about time to be looking at Ron Pauls economic policies.
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i think its about time to be looking at Ron Pauls economic policies.
Hmmm, might have to check that out.
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Start stocking up on food and get a piece.
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i think its about time to be looking at Ron Pauls economic policies.
less regulation got us in this mess to begin with. Want great Ron Paul type presidents, look at the 1920's. That ended in a Depression.
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i think its about time to be looking at Ron Pauls economic policies.
less regulation got us in this mess to begin with. Want great Ron Paul type presidents, look at the 1920's. That ended in a Depression.
You don't understand banking. Government involvement, the fed, and the credit system have devastated the country. The govt fucks up everything it touches. Those fucktards need to stay the fuck home and let a free market determine the winners and losers.
And I've told u 1000 times, the creation of the fed in 1913 caused the great depression
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i think its about time to be looking at Ron Pauls economic policies.
less regulation got us in this mess to begin with. Want great Ron Paul type presidents, look at the 1920's. That ended in a Depression.
You don't understand banking. Government involvement, the fed, and the credit system have devastated the country. The govt fucks up everything it touches. Those fucktards need to stay the fuck home and let a free market determine the winners and losers.
And I've told u 1000 times, the creation of the fed in 1913 caused the great depression
The creation of the fed had nothing to do with it.
In this current time, how would Ron Paul pay off the debt. If Ron Paul was president, how could we possibily have a military when there are people who don't like us, and would invade, and I'm not talking terriorist.
Now iwhen it comes to this topic of Wall Street, what would Ron Paul would have done when the banks set up these morgages that people were losing there homes over. Let the market determain the outcome. Well that's exactly what's happening. The market has called Lehman Bros. and Merrill Lynchm failures, and now people are calling the market itself a failure. Ron Paul would do nothing but let the market work it's way. Look up Herbert Hoover.
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yeah america is going bankrupt, that much was already obvious. at the same time other nations are stopping trading in dollars cause the US is riddled with this debt. stuff like this will keep happening while the government is still spending countless billions interfering and occupying other nations. what a stupid foreign policy, any idiot should be able to see that very clearly now...
but 9/11!!! must stop terrorists!!! the rich get richer :-*
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i think its about time to be looking at Ron Pauls economic policies.
less regulation got us in this mess to begin with. Want great Ron Paul type presidents, look at the 1920's. That ended in a Depression.
You don't understand banking. Government involvement, the fed, and the credit system have devastated the country. The govt fucks up everything it touches. Those fucktards need to stay the fuck home and let a free market determine the winners and losers.
And I've told u 1000 times, the creation of the fed in 1913 caused the great depression
The creation of the fed had nothing to do with it.
In this current time, how would Ron Paul pay off the debt. If Ron Paul was president, how could we possibily have a military when there are people who don't like us, and would invade, and I'm not talking terriorist.
Now iwhen it comes to this topic of Wall Street, what would Ron Paul would have done when the banks set up these morgages that people were losing there homes over. Let the market determain the outcome. Well that's exactly what's happening. The market has called Lehman Bros. and Merrill Lynchm failures, and now people are calling the market itself a failure. Ron Paul would do nothing but let the market work it's way. Look up Herbert Hoover.
Dog, you have no grasp of the The Fed and the credit system in general. I'm not a know it all, but I was a finance major and I've worked in banking for 6 years. The Fed is THE MOST POWERFUL organization in the US. They have zero oversight and it's not even known who exactly owns it. They single handedly determine inflation, interest rates, wall street, etc. Since the inception of the Fed, they have manipulated markets not just in the US but trillions of dollars in derivatives in many other countries. They have hoarded TONS of gold, they have agressively confiscated gold from those who have large amounts.
Not sure why you started asking me about Ron Paul, I didn't mention him. But Paul would easily combat the deficit by altering our foreign policy which would save, oh, i don't know a cool trillion. You're making up lies or are grossly misinformed if you think Paul wouldn't have a military. We just wouldn't have military presence in 120 countries around the globe like we currently do, that's for goddamn sure.
You're speaking of the bank failures? Those failures occurred BECAUSE OF THE FED!!! The Fed is the governing body over national banks. They are the top authority and are completely complicit w/ what is going on right now. There is nothing different happening in the last 2 years than what was happening in the last 8-10. The Fed audits every bank annually and saw the exact same types of lending practices for years but overlooked it. Now that shit has hit the fan, they are going into all the banks and saying how bad everything is! Where the fuck were they at 10 years ago? The same shit happened w/ the S&L collapses in the 80's - they readily admit they took heat because it was their job to oversee all the banks and they were asleep at the wheel. They don't want that to be the perception this time around.
With all the buyout / acquisitions - who do you think orchestrates that? THE FED. Bancorp, Bank of America, JP / Chase are all essentially government run institutions. They are forcing these mergers because if these banks fail there will be hell to pay.
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Is anyone hoping the entire US economy collapses, and capitalism fails? Shit, Mexico and Canada better start building their own fences to keep those Americans inside and locked away from the rest of the world. Without you're approval, every American citizen is to blame for what's happening. Can't waste and burn all that cheap food, oil and water forever. Welcome to the rest of the planet, where everything is expensive, and we can't overconsume every natural commodity.
America is flawed because they simply over consume what they can't afford.
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Is anyone hoping the entire US economy collapses, and capitalism fails? Shit, Mexico and Canada better start building their own fences to keep those Americans inside and locked away from the rest of the world. Without you're approval, every American citizen is to blame for what's happening. Can't waste and burn all that cheap food, oil and water forever. Welcome to the rest of the planet, where everything is expensive, and we can't overconsume every natural commodity.
America is flawed because they simply over consume what they can't afford.
America will get hit the hardest but many other developed nations are going down the same drain.
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Today was a lovely day, too, for a change...
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gold went up 9% this week.
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That really is fuckin my life up now... no more money to earn....
fuckin' I don't know what to do now..
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gold went up 9% this week.
gold is always solid when the economy is doing bad.
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yup. i'm trying to get my folks to buy some more gold coins. good insurance against possibilities if the stock market etc gets worse...
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Time to clear out Costco then down to the store to get some more ammo for the .45. It's about to be I Am Legend status in this piece.
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gold went up 9% this week.
gold is always solid when the economy is doing bad.
gold is always solid when the economy is doing bad. you have a fiat currency.
I've been telling peeps to buy gold over a year and a half ago.
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gold went up 9% this week.
gold is always solid when the economy is doing bad.
gold is always solid when the economy is doing bad. you have a fiat currency.
I've been telling peeps to buy gold over a year and a half ago.
I have heard liberals say that too for the last few years.
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i think its about time to be looking at Ron Pauls economic policies.
less regulation got us in this mess to begin with. Want great Ron Paul type presidents, look at the 1920's. That ended in a Depression.
Depression was due to a lot of reasons but biggest reason was the creation of the federal reserve
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gold went up 9% this week.
gold is always solid when the economy is doing bad.
gold is always solid when the economy is doing bad. you have a fiat currency.
I've been telling peeps to buy gold over a year and a half ago.
I have heard liberals say that too for the last few years.
That's why I can't fucking stand talking to you about this shit. You label everything w/ Dems and Republicans like somehow one behaves differently than the other. Quit fucking taking someones side because they have a fucking (D) next to their name. It's close minded and ignorant.
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gold went up 9% this week.
gold is always solid when the economy is doing bad.
gold is always solid when the economy is doing bad. you have a fiat currency.
I've been telling peeps to buy gold over a year and a half ago.
I have heard liberals say that too for the last few years.
That's why I can't fucking stand talking to you about this shit. You label everything w/ Dems and Republicans like somehow one behaves differently than the other. Quit fucking taking someones side because they have a fucking (D) next to their name. It's close minded and ignorant.
see... but you take such a hard stance one way that it's like extreme gibberish. It's like me saying... fuck raising taxes and adding programs... lets just go all out Communist. There is no middle with you. There are points were we'll agree... but for the most part I'm a raise the rich tax and spend money on the poor kind of guy. I think that we should regulate banks, have anti-trust laws, and that Social Security is the greatest thing to happen since Abe Lincoln was elected president. Prior to the Industrial revolution, then yes I'd say a more free-market society would be great. Merchants were the backbone of the economy, they go to the market sell their goods, people trade, sell and everything runs well because others were farmers and they made money and we could supply ourselves. With the Industrial Revolution we were introduced to corporations, abuse of child labor, people losing body parts in huge machines, and Teddy Roosevelt fighting for the common people. Times changed, they changed prior to the Great Depression, and since the Great Depression it has changed greatly since.
There are some historians that do blame the Depression on the creation of the federal reserve, but there were so many other factors. Europes recovery from WWI, Germany was experience so much inflation that people were really burning money to stay warm, the harsh punishment to the losers of WWI was the backbone to people like Mussolini and Hitler raising to power, and besides that we had a National Bank since 1863 to help fund the Civil War and our economy was doing well since then. So much more was going on, Americans were introduced to credit and we basically fucked ourselves over, like we did today. The sad part was starting with Bill Clinton, we had regulations to prevent this, but they were taken out to boosted the economy, which in turn allowed banks to put out loans people could not afford. Also, I will agree that some non profit programs hurt us as well, as they gave false hope to people who should not buy a house. There is so much more to economics now, that it's not as simple as saying, take this out.
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Educate yourselves.
Part 1
http://www.youtube.com/v/ZvcgGp5mz_E
Part 2
http://www.youtube.com/v/O_RFIXcj4ik
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There is one positive about all of this and that is slowly the veil is being lifted on the men who really control the world and just how their scam works. I am ruing ignoring the advice I was given to buy gold when it was $200 though.
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the fed is a privately owned corporation set up by prominent NY bankers of the time like JP Morgan. To this day i think 5 or so private banks benefit from this central banking sytem from association
or something.
the way the fed works is that it loans out money ON interest that has to be paid back. however here's the catch, they're the ones who control the money supply, so they control inflation, and create an endless cycle of debt. ain't that fucked up? anyways mdogg, listen to virtuoso, he knows what he's talking about.
btw, props on the finanace major, i'm a business major and we have to take a couple of core finance classes and i hAAAAAAAAAAAAAAAAAAAAAAAted those with a peppered passion.
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Is anyone hoping the entire US economy collapses, and capitalism fails?
Perhaps the economy should collapse when it's malfunctioning, but what difference would it make now? It's pretty obvious that people currently aren't in agreement about the causes of this crisis, so what makes you assume things would change for the better after a total collapse?
America is flawed because they simply over consume what they can't afford.
That much is true. Now ask yourself, is that to be blamed on the workings of capitalism, or on a government and federal system which keeps trying to please everyone regardless of whether they have earned it? In a truly free capitalist market, no bank would get the idea of handing out loans that probably won't be paid back. If you want to make money, invest it so that the final outcome shows a maximized surplus. How is handing out irresponsible loans going to achieve that? How are people who spend more than they're worth, production wise, going to do any good for an economy? That's where the corruption starts: right where federal organizations start to mess with the economy.
In a real capitalist market, banks would disappear if they went bankrupt because of their poor policies. People would lose their money if they handed it to someone who spends it on poor investments. That's what should happen to malfunctioning banks and their customers. It's everyone's personal responsibility to look after their cash, and not hand it to some retards who'll blow it all on loans for people who'll never be able to pay back. Problem is that there's too many government policies controlling the economy, for those workings to be functioning properly. Capitalism is a self regulating system. It works precisely because of its ability to autocorrect itself. If a bank's misusing the money you deposited, you take it to another bank that will make it safe. But as soon as the government gets to decide what happens with loan and interest rates, they're forcing a certain value on the money which overrules the natural workings of supply and demand. The result leaves little to be questioned. How can you possibly say it's capitalism failing, when really, it's the government that's been messing with its basic principles? Does that really mean capitalism is failing, or does it show how much the government policies are an unfitting failure?
The saddest part is, that the sloppier the economy gets, the more the government starts regulating. But really, all that that might do, is make things worse. If you're going to save banks who otherwise would have been in a bankruptcy, you're keeping them alive as zombies. Such government policies are keeping maladministrations in existence, with all due consequences. There is no way to mess up when your enterprise can't go out of existence. The boards of banks might just do whatever, because it won't matter anyway. The government will save them, regardless of their errors. Do you still think it's capitalism that's failing?
Now that such policies are activealready, all they can do to save the economy, is to give people back their savings and get these banks off the market. Hands off the market, and let it recover. Capitalism requires responsibility from all parties involved. You can't let yourself weaken for a moment without feeling the consequences. That's exactly why the government should never try to get involved...