The Crash, etc.

[TheMercenary]

A pretty good read about the market crash. Puts it in perspective.

How the Masters of the Universe ran amok and cost us the earth

SLAM. Slam. Slam. Slam. Like a scene from a gathering of Mafia dons, the doors of 30 black Lincolns slammed shut as their besuited occupants stepped out into a Manhattan downpour – and into a global financial storm.
That storm broke yesterday, with stock markets tumbling around the world. In London, the FTSE 100 plunged almost 4 per cent to 5204.2. Scotland's banking giants were among the biggest victims. HBOS slumped 17.5 per cent; Royal Bank of Scotland lost 12.2 per cent. In the US, the Dow Jones industrial average suffered its biggest fall since 9/11.

The collapse effectively began at 6pm last Friday. The place: the offices of the New York Federal Reserve. The occasion: an emergency meeting of the most powerful figures in American banking and finance aimed at staving off a massive bank collapse.

Those who stepped from their limousines to be present included Richard Fuld, the chairman and chief executive of Lehman Brothers; John Mack, the head of Morgan Stanley; Jamie Dimon, of JP Morgan Chase; Vikram Pandit, of Citigroup; Lloyd Blankfein, of Goldman Sachs; Bob Diamond, the head of Barclays Capital; and senior representatives from Mellon Bank and Royal Bank of Scotland.

"We are the biggest overseas bank in America", explained an RBS spokeswoman. "There was an 'all points bulletin' from the Fed and they called us in".

Awaiting them along one side of the boardroom table was the United States Federal Reserve chairman, Ben Bernanke – nicknamed Helicopter Ben for having slashed interest rates and showered Wall Street with money earlier this year to avoid the very disaster that was about to unfold.

Flanking him was Hank Paulson, the US treasury secretary, and Tom Geithner, chairman of the New York Fed. It was Geithner who opened the meeting – and presented Wall Street's finest with the fright of their lives.

Either there was a Wall Street rescue for Lehman, or the investment bank would have to face the consequences. An eerie silence ensued.

(continues)

http://thescotsman.scotsman.com/late...-of.4494032.jp

[ZenGum]

What the hell have you merkins been doing with your banks?????

Huh?

Seriously, peeps, WTF? Who is running these banks, Mr Magoo?

[classicman]

Originally Posted by ZenGum

Seriously, peeps, WTF? Who is running these banks, Mr Magoo?

That would be an upgrade.

[footfootfoot]

That's gotta suck.

[xoxoxoBruce]

It's the economy, stupid.

[Aliantha]

Are you serious Bruce? Do you really think it's just 'the economy'?

[xoxoxoBruce]

That's the #1 concern of voters right now.

[Aliantha]

Well that's true. It's true in Australia too, and the UK and most other countries with a slumped economy.

What is surprising to me as an outsider, just as Zen alluded to, is that so many major banks have folded in the US. I'd be shit scared if major banks in Australia started folding and we've got a very small economy compared to the US and UK. Fortunately for us we're doing ok so far, but it's early days yet.

I guess what I would find interesting to know is how this could have happened to supposedly strong financial institutions built on a foundation of wise investments.

The story will unfold as time goes on, but there must be some nervous CEO's around the world, including Australia at this most recent collapse.

[TheMercenary]

Originally Posted by Aliantha

Well that's true. It's true in Australia too, and the UK and most other countries with a slumped economy.

What is surprising to me as an outsider, just as Zen alluded to, is that so many major banks have folded in the US. I'd be shit scared if major banks in Australia started folding and we've got a very small economy compared to the US and UK. Fortunately for us we're doing ok so far, but it's early days yet.

I guess what I would find interesting to know is how this could have happened to supposedly strong financial institutions built on a foundation of wise investments.

The story will unfold as time goes on, but there must be some nervous CEO's around the world, including Australia at this most recent collapse.

We need a correction. Some of these banks and big clearing houses are going to have to fold to make things right. It has to be in big part to the housing failures and the depth of the poor loan making.

[Rexmons]

I think one of the reasons Lehman didn't find salvation in that meeting was because the Feds wouldn't give the potential buyers the same insurance policy (non-recourse loan) they gave JP Morgan when they bought out Bear Sterns a few months ago.

[tw]

Originally Posted by Rexmons

I think one of the reasons Lehman didn't find salvation in that meeting was because the Feds wouldn't give the potential buyers the same insurance policy (non-recourse loan) they gave JP Morgan when they bought out Bear Sterns a few months ago.

Why not buy Lehman for pennies on the dollar? Appreciate the reason for these meltdowns. In doing due diligence, nobody understands what is inside Lehmans. The spread sheets are so Enron style perverted. Phrases such as black hole and black box are used to describe Lehman. Yes, the government guarantee is necessary because no one knows how bad Lehman Bros really is. Six months later and no one can figure out what Lehman Bros is.

Why have 3 out of 5 investment banks folded? Greed is good. Profits - not the product - are their purpose. In each case, the spread sheets were manipulated using the new Enron style accounting methods. Reported today was being created and was known most of five years ago. What changed? Government regulations for the past seven years have been ignored or relaxed. Lip service has been paid to risk management. Off balance entities are now common on spread sheets - used to hide excessive risk and massive losses from years ago. Even mortgages are written without any consideration for whether the home owner can pay. Even the government entities Fanny Mae and Freddie Mac were encouraging Americans to take on more debt. A game so wildly promoted that even home equity loans became popular.

Why so much debt? Since George Jr took office, income of the average American has dropped 2%. No problem. He will 'feel' wealthier if he can live in a home he cannot afford. So we must eliminate 'evil' regulations that keep him out of that house.

Meanwhile, higher debt also means the rich can get even richer. Only creditors have been getting rich this past decade. A ponzi scheme that is now starting to collapse. Turmoil in the finance industry, if limited to corrupt practices, would not affect other industries. But the underlying problem is fictional wealth created by these money games and masked by Enron style accounting. Enron style accounting is why no one will touch Lehman Bros.

The average American should expect his net worth to drop maybe 20% in these few past and future years as things like houses and equities drop back to what they were really worth and inflation rages when interest rates are cut to "stimulate" the economy. I say 20% - a conservative number. This George Jr economy is was only created by throwing money at the rich. We still have things like "Mission Accomplished" to pay for. The Chinese, et al eventually must be paid for financing the bubble.

Just another example of Living Standards dropping years later due to fiscal mismanagement. After all, Cheney said deficits don't matter (while he enriched Halliburton).

The 1920s stock market crash did not result in job losses in the 1920s. The crash was followed by job losses years later - in the early 1930s. That is the relation between financial markets and the economy. 700+ banks have folded? When did we see so many banks fail so quickly? And why? Answers to those questions should have Americans worried since fiscal mismanagement has been encouraged by one federal government. Hell. They would not even prosecute Enron until embarrassed by the AG from Oklahoma. Let the free market be free?

Nobody knows what is in those Lehman Bros balance sheets. A black box that nobody trusts because perverting the accounting is good.

[Pico and ME]

Sooooo...that means I wont have go take my money out of the bank anytime soon?

What happens if so many banks fail that the FDIC cant insure our money? Or is that even an issue?

[tw]

Originally Posted by Pico and ME

What happens if so many banks fail that the FDIC cant insure our money? Or is that even an issue?

FDIC has already quietly gone to the government for a bridge loan. They have already paid out so much on failed banks as to have a liquidity problem.

Bank accounts are insured to $100,000. Investment accounts are insured to $500,000. If you have more than that in any brokerage, and if the brokerage goes as Lehman probably will, then you lose all but the first $500,000.

These are not times to be complacent. You should know this stuff. Stock brokers don’t like it when you limit investments to $one-half million. They have multi-hundred thousand dollar incomes to protect.

[glatt]

Originally Posted by tw

Meanwhile, higher debt also means the rich can get even richer.

Was anyone getting richer yesterday, tw?

I didn't read the article but the headline in today's Washington Post said that shareholders lost 700 billion dollars of stock value yesterday. $700 Billion! Ouch. I personally could have purchased a huge ass plasma tv to fill a wall of my living room for the amount my 401k went down yesterday.

So were the rich getting richer yesterday?

[tw]

Originally Posted by glatt

Was anyone getting richer yesterday, tw?

What happens on one day is not significant. For example, how much did the Merrill Lynch shareholders lose? Well the guy who created that problem - O'Neal - got paid how many $hundreds of millions to leave? He is not the exception. Fortunately for investors, Thain saved enough of Merrill (in part, by making the accounting readable) that Bank of America reconsidered and saved it. Yes, Bank of America had considered buying Merrill previously but could not trust what the spread sheets said.

Look at AIG. This company has been suspect for most of the past three years. AIG was most suspect six month ago involving major illegal transactions with General Re. But what has happened recently demonstrates who is most important. Not the customers, employees, or stockholders.

AIG has obviously had a liquidity crisis for most of the last year. Martin Sullivan was removed in June because problems were known for so long, so severe, and finally became public knowledge. Like Lehman Bros, what did AIG do? Last weekend, it was obvious that AIG needed capital. Private market sources offered AIG money in exchange for what was obviously required - some Board of Director seats and some control. AIG refused. Top management has always been more important than the company.

To solve their liquidity problem, AIG needs maybe $40 billion and removal of bad management. But AIG management refuses to concede any power. Did you read where executives would not accept any salary and bonuses this year? Of course not. Instead AIG runs to the government for help.

Well, today it sounds like the government will offer corporate welfare to AIG without top management's resignations. Today, it sounds like those who love welfare to the rich may save Willumstad's job.

AIG has a long recent history of accounting fraud and impropriety. AIG is an example of why this market meltdown is ongoing and will continue. Often, only bankruptcy can solve corporate's problem - its management. That is what saved 1979 Chrysler and 1981 Ford. Bankruptcy imposed early enough can save employee jobs, stockholder value, client relationships, and the company. But that means top management must be working for the company; not for themselves.

Who is getting rich? Well who created most of these problems? AIG would refuse a private capital solution; would wait for a government bailout so that top management jobs are saved. They would risk the company to save their jobs? Of course. AIG is only secondary to the interests of those who create these problems.