Redscape - View topic - Lehman and Merrill

Lehman and Merrill

Page 1 of 1

Author

Topic

Machiavelli
Emissary

Sun Sep 14, 2008 3:37 pm

Word on the Street is that Lehman will file BKK before midnight tonight. For a variety of very good reasons I won't be commenting on Lehman's apparent demise beyond saying "Wow, what a weird year this has been." There are also rumors swirling that BOA will buy Merrill, again perhaps by midnight tonight.

If you'd told me in January 2007 that within 2 years Bear, Merrill and Lehman would be history, I'd have told you that you were predicting a world-wide meltdown that would make 1929 look like a cakewalk. Still, the economy (both ours and the world's) seems to be clunking along. Amazing.

I'm beyond predicting at this point. We're in uncharted waters, but the fact that we're still floating is heartening.

_________________
Give strong drink unto him that is ready to perish, and wine unto those that be of heavy hearts. Let him drink, and forget his poverty, and remember his misery no more.

Proverbs 31:6-7

posts: 7109 | location: God's Country - Texas, USA | joined: 16 Feb 2000 | medals: 1

geojanes
Dignitary

Mon Sep 15, 2008 11:43 am

What is happening right now is really incredible, and it is a really big deal. I'm just watching from the sidelines (thankfully) but I would not be surprised if the game on the field at some point or another involved all of us.

Stay liquid, look for opportunties, but be careful. There are a lot of really smart people who just lost their fortunes.

posts: 1290 | location: New York, NY | joined: 01 Oct 2000 | medals: 2

Danivon
Ambassador

Mon Sep 15, 2008 11:57 am

It just goes to show that the lunacy of trying to make money out of bad debt based on something as ephemeral as the price of houses (if Pigsy wants to find a speculative bubble, the housing market is a far better place to look that the oil market).

The parts of the economy based on the real world are doing better, but the liquidity problems clearly are not going to go away.

_________________
World Cup 2010 - England

P 16(3) W 0 D 3 S 6(1) L 7(2) NMR 5
History

posts: 8520 | location: Rugby, Warwicksire, UK: Home of the oddly-shaped ball | joined: 15 Apr 2004

Pigmalia
Dignitary

Mon Sep 15, 2008 12:55 pm

Ah Danivon, the reason that I'm not presently making a call on the housing market speculative bubble is because the time to have made that call is long past. If you want to make that call you could be our very own Mr. Obvious.

The oil market prediction was worthwhile because the steam was starting to blow off yet many still thought oil was headed for the moon.

Currently we are seeing the fundamental problems that occur from a credit bubble. The problem is that our entire economy is leveraged. The abuse of credit by mortgage lenders risked pushing the leverage to to its snapping point.

_________________
“I enjoy crushing bastards.” Assange

posts: 4729 | location: Autonomous Inland Empire - Occupied | joined: 02 Feb 2006

rickyp
Statesman

Mon Sep 15, 2008 3:14 pm

Pigmailia what do you think brought about this collapse? Deregulation is the culprit isn't it?
Interesting story on the hero of deregulation.... The guy who got the lobbyists what they wanted... And he might be the next Secretary of the Treasurey!

http://www.motherjones.com/new.....-phil.html

_________________
http://img376.imageshack.us/im.....ingrs3.jpg

posts: 4768 | location: Oakville, Ontario, Canada | joined: 14 Aug 2000

Machiavelli
Emissary

Mon Sep 15, 2008 4:07 pm

Mortgage-backed securities were never heavily regulated, as they only really came into existence in the 80's and only began to be heavily traded in the late 90's. Indeed, Regulation AB, the first significant piece of regulation aimed at the MBS market went into effect in January 2006, about a year before things started to unwind and just before the worst of the pools that triggered this mess were being securitized. Ironically, Reg AB almost certainly contributed to the problem in that it placed heavy disclosure and (retrospective) record-keeping requirements on issuers of MBS, but exempted pools where the proportion of loans originated by any single originator did not exceed 10% of the total pool. This created an enormous demand for loans originated by smaller (and often less scrupulous) originators. I witnessed this first-hand, as I was practicing at the world's number one law firm for MBS transactions. Beginning in 2006, I saw the "typical" pool go from 70-80% "name" originations to over 90% fly-by-night crap.

Now, I'm not saying that regulation was the underlying cause of the bubble and its bursting--the creation of the bubble certainly has more to do with market's irrational appetite for MBS without regard to the quality of the underying assets and its rapid deflation has more to do with...well...the laws of physics--but one thing regulation did not do was provide an incentive for transparency and rational behavior in the marketplace. In fact, it did exactly the opposite.

At the end of the day, free markets operate on the principal that if someone is stupid enough to buy product X (whether that be a brick, or a share of stock in a brickmaking company, or a derivative based on the future price of bricks) for a given price, he bloody well ought to be able to do so. Regulation essentially makes that purchase more of a pain in the ass--either for the seller or the buyer--in the hope that the pain-in-the-ass factor will dissuade at least some buyers from doing stupid things. In the real world, that generally works to discourage irrational bubbles, but it also works to discourage rational investment in growth areas that make all of our lives better.

Consequently, my view is an incrementalist one: there's a need for some regulation in the markets--especially in extraordinarily liquid markets like the financial markets and, perversely, also in extraordinarily illiquid markets like real estate. But we need to be damned careful when we regulate that we don't throw the baby out with the bathwater. My sense is tht when the dust settles from the MBS bust, we'll see a raft of new regulation on asset-backed securities. Fine. Hopefully, though, that regulation won't strangle a market that has provided American consumers with enormous liquidity (which translates directly into economic freedom), even though those consumers, as a whole, haven't always used that liquity so wisely.

posts: 7109 | location: God's Country - Texas, USA | joined: 16 Feb 2000 | medals: 1

rickyp
Statesman

Tue Sep 16, 2008 5:54 am

Quote:

At the end of the day, free markets operate on the principal that if someone is stupid enough to buy product X (whether that be a brick, or a share of stock in a brickmaking company, or a derivative based on the future price of bricks) for a given price, he bloody well ought to be able to do so. Regulation essentially makes that purchase more of a pain in the ass--either for the seller or the buyer--in the hope that the pain-in-the-ass factor will dissuade at least some buyers from doing stupid things. In the real world, that generally works to discourage irrational bubbles, but it also works to discourage rational investment in growth areas that make all of our lives better.

I find this buyer beware philosophy odd. Standards are developed to allow people and businesses to do business with certain levels of trust. When trust disappears you throttle business don't you ?

Quote:

In 1999, President Clinton signed the Financial Services Modernization Act, which tore down Glass-Steagall's reforms by removing the walls separating banks, securities firms and insurers.

Under President Clinton and his successor, the government became eager to promote home ownership. Interest rates were low, the market grew for loans to borrowers with weak credit and private-sector mortgage bonds boomed. About 38 percent of those bonds were backed by subprime loans. They are at the root of today's financial crisis.

http://www.mcclatchydc.com/hom.....52559.html

posts: 4768 | location: Oakville, Ontario, Canada | joined: 14 Aug 2000

Pigmalia
Dignitary

Tue Sep 16, 2008 2:38 pm

I agree with SDS and POV on the big problem being the collusion between the federal government and big business. These firms are advising the Federal Reserve, political appointees were moving between the government and Freddie Mac and Fannie Mae.

The reason there is/was no oversight is because the same clique has been running everything for some time. There's no real seperation/enmity between the two political parties.

BOA purchasing Merrill Lynch is part and parcel of the problem. Such a merger in the past had been impossible and yes its this type of monopolistic deregulation that has allowed such enormous financial problems to develop.

We have two bozos running for POTUS that don't have the slightest inclination to recognize the problem or do anything useful about it.

What happened this Monday was huge, but it's in no way the bottom or end of this financial crisis.

posts: 4729 | location: Autonomous Inland Empire - Occupied | joined: 02 Feb 2006

theodorelogan
Emissary

Tue Sep 16, 2008 7:49 pm

http://www.iht.com/articles/20.....php?page=2

What's $85 billion between friends?

What a shock...more money getting redistributed to billionaires by the Feds. Ain't socialism grand? Who would EVER have thought that the power that "progressives" thought would be wise to give the government would be used to transfer money from the poor to the rich (other than via inflation, war, no-bid contracts, bribery, etc etc etc)?

Surprised

It's really getting harder and harder to see this "unfettered free market" that people here keep talking about.

_________________
If government is the answer, it's a stupid question.

---

Voluntarists do it consensually

posts: 8158 | location: San Diego, Capital and Holy Site of Vincentia | joined: 21 Mar 2002

theodorelogan
Emissary

Tue Sep 16, 2008 7:55 pm

http://thehill.com/leading-the.....09-16.html

And Pelosi is kind enough to remind us that the Democratic wing of the ruling party, of course, bears no responsibility for the current banking crisis. For decades they have been standing steadfast against the power of the Federal Reserve and its boom-bust cycle.

Right?

Laughing

Quote:

Unsurprisingly, here is Ron Paul in 2003 making this prediction (way back when I was an Iraq War lovin' statist!)

http://www.lewrockwell.com/paul/paul128.html

Quote:

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

How prescient.

posts: 8158 | location: San Diego, Capital and Holy Site of Vincentia | joined: 21 Mar 2002

theodorelogan
Emissary

Wed Sep 17, 2008 7:59 am

Dow Jones down another 300 points today (about 700 on the week)

Rumors swirling that WaMu and/or Morgan Stanley could be next (Morgan Stanley!? Unbelievable!)

And gold up $60 today (8%).

[popcorn]

posts: 8158 | location: San Diego, Capital and Holy Site of Vincentia | joined: 21 Mar 2002

Bluesman
Adjutant

Thu Sep 18, 2008 3:59 pm

This is the best overview of the financial crisis I've read yet.

http://freakonomics.blogs.nyti.....upheavals/

_________________
Beauty will save the world
-- Dostoevsky

posts: 2616 | joined: 07 Mar 2003

Pigmalia
Dignitary

Sun Sep 28, 2008 7:17 pm

Ron Chernow - The Lost Tycoons

A very interesting and brief summary of Wall Street's history.

posts: 4729 | location: Autonomous Inland Empire - Occupied | joined: 02 Feb 2006

geojanes
Dignitary

Wed Jun 02, 2010 9:29 am

This thread has some interesting contemporary links that are still worthwhile. Since this time, however, another great piece came out. Michael Lewis' new book The Big Short gives credit to this college thesis, which is now becoming required reading in finance classes all over the world. Really a fantastic piece of work by a 21 year-old woman, which describes in a systematic, academic fashion the CDO meltdown.

http://www.hks.harvard.edu/m-r.....ltdown.pdf

posts: 1290 | location: New York, NY | joined: 01 Oct 2000 | medals: 2

Bluesman
Adjutant

Wed Jun 02, 2010 9:05 pm

geojanes wrote:

Haven't finished it completely but that's a very interesting paper. Thanks for posting it.

posts: 2616 | joined: 07 Mar 2003

Page 1 of 1

You cannot post new topics
You cannot reply to topics
You cannot edit your posts
You cannot delete your posts
You cannot vote in polls
You cannot attach files in this forum
You cannot download files in this forum

Jump to: