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Brokergeddon.
September 14, 2008 5:39 PM   Subscribe

Lehman Brothers files for liquidation. After an all weekend emergency meeting at the New York Fed, no rescue, and LEH is gone. AIG announcing restructuring tomorrow. Bank of America in merger talks with Merrill Lynch, offering to buy the firm outright at $29/share, which values the 94 year old firm at a paltry $40 billion. The futures market say that stocks are not happy.
posted by eriko (428 comments total) 60 users marked this as a favorite

 
Oh goody gumdrops. Poor John McCain, just when everything was going his way.

This should be a fun week in the markets. And politics.
posted by fourcheesemac at 5:43 PM on September 14, 2008 [1 favorite]


AIG may be next. It may just be time to shift my investments into canned food and shotguns.
posted by Zonker at 5:46 PM on September 14, 2008 [9 favorites]


It would be an understatement to say this is going to take a lot of unwinding tomorrow, right?
posted by bonaldi at 5:47 PM on September 14, 2008


Is there anyone who understands how this is going to play out in the derivatives markets? I know this market has a value higher than the world GDP. What happens when one of the big players disappears?
posted by aburd at 5:49 PM on September 14, 2008


Update: BAC/MER agree to deal, at $29.35 a share, or 44 billion.

Two of the biggest names in Wall Street are gone.
posted by eriko at 5:49 PM on September 14, 2008


Jeb Bush Lehmans secret weapon
http://blogs.wsj.com/deals/2007/08/27/jeb-bush-lehmans-secret-weapon/
posted by robbyrobs at 5:51 PM on September 14, 2008


745 Seventh Avenue
posted by mlis at 5:51 PM on September 14, 2008


Merrill too. Whooboy. And less than $30 a share is peanuts, or would have been even a few months ago.

This has the aura of a Cat 5.
posted by fourcheesemac at 5:52 PM on September 14, 2008


Anyone have a link on the MER deal closing?
posted by aburd at 5:53 PM on September 14, 2008


Fire sale on Wall Street! So, when will they be putting the brokers' Herman Miller chairs up on eBay?
posted by salsamander at 5:53 PM on September 14, 2008 [9 favorites]


WSJ has it on the headline, but the story hasn't been updated. I'm watching for it.
posted by eriko at 5:54 PM on September 14, 2008


Story has been updated in place -- so the link in the FPP has the confirmation.
posted by eriko at 5:55 PM on September 14, 2008


$29/share is overvaluing MER.

I can see exactly what's going on here: Bank of America is going to be made "too big to fail", so when they (inevitably) come begging for their handout, the Federal Reserve and Treasury will have no option but to say 'yes'.

There's no way there was any form of good due diligence performed on this deal in the time allotted, and just like with Countrywide, BoA is assuming a TON of toxic waste in this deal.

This is nothing short than a complete meltdown of the old financial system. Regardless what happens in the markets tomorrow, this is big.
posted by tgrundke at 5:56 PM on September 14, 2008 [18 favorites]


tgrundke: I think you're dead on, and the reason for $29/per in the face of a $21 close (and I'd bet MEL would have opened around $17 tomorrow) was to get Merrill's board to approve right now.
posted by eriko at 5:58 PM on September 14, 2008


Ok, in plain English...time to stock up on bottled water? Bullets? Gold bullion?
posted by zardoz at 5:58 PM on September 14, 2008 [2 favorites]


Interesting comment in this Reuters article:

The last time a major U.S. investment bank failed was in 1990, when Drexel Burnham Lambert filed for bankruptcy protection amid a collapse in the junk bond market.

"This isn't a manufacturer or retailer... so we don't have a very rich track record about how the issues will be addressed, and the classic signposts just aren't there," Williams said.

"Once the company goes into bankruptcy this is going to be an opportunity to look under the hood, and we might not like what we see."
(emphasis mine)

I guess that's why they've been having a hard time getting interest. I imagine it'll be ugly, I wonder when all this starts looking better again...
posted by Eekacat at 5:58 PM on September 14, 2008


It makes me laugh (not in a vindictive way, mind you) -- you've had all these well-heeled types behave as though they knew what they were doing and the rest of the folks were too clueless to get it.

And then slowly, when the shell games, creative accounting, and borderline pyramid schemes caught up with them, we see that the right shoes, suits, jobs, and degrees aren't enough.

And that (a) this is a sector that needs some humility and transparency, and (b) the rest of us can't "leave it up to" the guys and gals who look like they know what they're doing..
posted by Alexandra Kitty at 6:05 PM on September 14, 2008 [27 favorites]


Wheeeeee!
posted by malaprohibita at 6:07 PM on September 14, 2008 [1 favorite]


From the lefty European Tribune, Jérôme Guillet, predicting where this is heading in Lehmann, More Socializing the Costs of the Rich:
Saving Lehman would avoid massive problems for Wall St's other banks, and thus it would be appropriate to get them to contribute the (much smaller) amounts that would allow for an orderly closing down of Lehman.

The problem is, of course, that each has an incentive to put up as little money as possible, as long as others put something. And none want to help the buyer of the good bits to get a good deal at their expense. But of course, no buyer has any reason to do any deal and put any money on the table unless it makes sense for it to do so.

A classic "freerider" problem, which can only be solved if there is an outside force to coordinate contributions and, if necessary, impose them. This is the function that the Treasury and the Fed can play.

But - they are themselves against the wall: if no solution is found before the markets open on Monday (and that's only a few hours away in Asia now), then there is a good chance of a total financial meltdown, something that the Treasury is desperate to avoid.

Thus it is likely that the Wall St banks are holding their own commitments to the last minute to push for public money to help make the deal. Given the precedents that have been set first with Bear Stearns in March, and only last week with Freddie Mac and Fannie Mae, it is not surprising that they expect the same to happen again.

So my bet is that we'll see another bailout of Wall Street and the financial investors it serves, with large amounts of public cash committed in a way that looks painless today (ie, no money upfront, but large liabilities into the future, likely to cost hapless taxpayers billions later - after the election).

Has this administration ever behaved otherwise? The mores and havemores have fucked up on a massive scale, but their are "the base", and they cannot be let down.

They gorged in the good times, and they are letting taxpayers deal with the hangover. A sweet deal if you can get it (all you need is a few billions).
posted by talos at 6:09 PM on September 14, 2008 [6 favorites]


Good quote there, eekacat. And yes, I think that everyone is going to be shocked when they get a good look under the hood, no doubt one of the reasons why the other majors are looking to partner up before the shitstorm hits Category 5 tomorrow morning.

I think Eriko is right - the bid was in an effort to stave off any investor squawking at a time when there's no time to squawk.

Nouriel Roubini said about a year ago that the major broker dealers were as good as done. Check another box next to his prognostications that have come true.
posted by tgrundke at 6:09 PM on September 14, 2008


From the blog Self-evident.

All data is from most recent 10-Q

Lehman Brothers: $640 billion in assets, $613B in liabilities, counter party to $729B in derivative trades.

Merrill Lynch: $996B assets, $972B liabilities, $4.2 trillion in derivative trades.

AIG: $1T in assets, $972B liabilities, $447B in CDO swaps. Also an insurer, there's lots of stuff tied there.

For historical comparison:

Bear Stearns: $339B assets, $387B liabilities, $2.7T derivative trades.

LTCM: $129B assets, $124B liabilities, $1.25 derivative trades.
posted by eriko at 6:13 PM on September 14, 2008 [3 favorites]


Good find, eriko. Highlights the extreme danger of the situation and why it was necessary for MER to buddy up TONIGHT in light of how hedged it probably is vis a vis Lehman.

Fundamentally, the buddy system doesn't fix anything - the crap is still on everyones' books. Until these jackasses reveal exactly how much and what kind of toxic crap they are holding we're going to continue having Sunday Night Neuroses like this.
posted by tgrundke at 6:15 PM on September 14, 2008


Imagine if you worked for Lehmann in some part that has nothing to do with mortgages. This has got to suck hardcore.
posted by smackfu at 6:15 PM on September 14, 2008 [1 favorite]


FOUR MORE YEARS OF REPUBLICANS OUGHTA FIX THIS MESS
posted by Damn That Television at 6:17 PM on September 14, 2008 [66 favorites]


fanny-freddie/lehman/merrill/wamu/aig and the music hasn't even stopped playing.

man, this is one hell of a very mild recession.
posted by krautland at 6:19 PM on September 14, 2008 [8 favorites]


Thanks for that insight, Damn That Television. Care to proffer any additional insights?
posted by tgrundke at 6:19 PM on September 14, 2008


Nouriel Roubini said about a year ago that the major broker dealers were as good as done
And again last week:
It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system.
RGE
posted by bonaldi at 6:29 PM on September 14, 2008



FOUR MORE YEARS OF REPUBLICANS OUGHTA FIX THIS MESS


Yeah, this isn't really happening. We're all just 'whining' about things that don't exist - anymore.
posted by peppito at 6:29 PM on September 14, 2008 [3 favorites]


doesn't lehmann declaring bankruptcy means that their "crap" actually has to be put on the market to sell at whatever price it will bring? - and that other banks will have to evaluate their "crap's" worth accordingly? - which is something they've been trying to avoid?

if so, that's pretty much the poker equivalent of having to show your cards and stop bluffing

that sounds like really bad news to me
posted by pyramid termite at 6:29 PM on September 14, 2008


I got your addtional proffered insights right here, pencil-neck.

::gestures to crotch with both hands, flicks off Undertaker, hits Undertaker with a chair, wins back Championship Belt::
posted by Damn That Television at 6:30 PM on September 14, 2008 [3 favorites]


Ok, so, is it time to withdraw all cash and stick it under the floorboards or not?
posted by odinsdream at 6:31 PM on September 14, 2008 [1 favorite]


It gets better, gents: AIG has turned down a private equity buyout and instead has turned to the Feds looking for a handout.

Stunning turn of events tonight, that's really all I can say. I'm beginning to understand how people felt in October 1929...
posted by tgrundke at 6:32 PM on September 14, 2008


doesn't lehmann declaring bankruptcy means that their "crap" actually has to be put on the market to sell at whatever price it will bring?

And at fire sale prices!

Mark to Market is going to hurt.
posted by eriko at 6:32 PM on September 14, 2008


No but really I have no idea about the extent of why this is happening, and it isn't due to lack of reading countless articles about it

I don't really even know what to call this when Googling for it for additional information. '"Massive Bank Hell Ass of 2008" +fuck +republicans' doesn't work as well as it should. Can anyone direct me to something that gives a complete background (or as complete as is understood) on this whole Jenga Bank thing?
posted by Damn That Television at 6:33 PM on September 14, 2008 [9 favorites]


This should be a fun week in the markets.

Wanna trade jobs for a week? I'm sure I'd rather be doing....well, anything else.
posted by malocchio at 6:33 PM on September 14, 2008


I really wish I knew what caused that multiple post issue. I've flagged the repeats
posted by eriko at 6:35 PM on September 14, 2008


Every article hints that all of civilization might just come apart at any second, but doesn't actually spell out what any of this means in practical terms. Is this actually bigger than one company going out of business? If so, how much bigger? This sort of news story makes me feel dumber than a box of tacks.
posted by the jam at 6:35 PM on September 14, 2008 [4 favorites]


Imagine if you worked for Lehmann in some part that has nothing to do with mortgages. This has got to suck hardcore.
A former boss of mine is (according to his LinkedIn profile at least) an SVP at Lehman now. I doubt he's directly involved with anything to do with the mortgage business.
posted by lowlife at 6:36 PM on September 14, 2008


::gestures to crotch with both hands, flicks off Undertaker, hits Undertaker with a chair, wins back Championship Belt::

inventing situations isn't going to help you when the country's broke
posted by pyramid termite at 6:36 PM on September 14, 2008


Don't forget, for a lot of the people with cash this will be the buying opportunity of a lifetime.

Still, there are tens of billions of dollars of Wall Street capital happy to bid for the assets. Goldman, private-equity firms like J.C. Flowers, Kohlberg Kravis Roberts, Carlyle Group, TPG or Blackstone Group, hedge funds, distressed-debt funds and sovereign-wealth funds all have capital. They are just waiting for the clearing prices on Lehman’s assets to get attractive.

Which is why a Lehman bankruptcy makes sense. Instead of a complex game of chicken between the U.S. Treasury and Wall Street, you have a straightforward auction. Lehman is broken up and its assets sold to the highest bidder. Only in this way will each buyer and the seller be able to fulfill its obligation to act in its self-interest.

Yes, but what about the collective well-being of the markets? What about a feared-for financial apocalypse brought about by the unwinding of Lehman’s $600 billion balance sheet?

It may not be pretty, but apparently Wall Street has decided that the price won’t be too steep. Or else, it would have put up the money.

posted by aburd at 6:36 PM on September 14, 2008 [1 favorite]


This is one of those moments where I should be really worried that I went to art school, right?
posted by XQUZYPHYR at 6:38 PM on September 14, 2008 [15 favorites]


Buying a brick of gold and leaving the developed world.
posted by gman at 6:40 PM on September 14, 2008 [2 favorites]


the_jam - read that link to RGE above - Nouriel Roubini has been on top of this meltdown for a good two years now and has some excellent reading on what the follow-up effects may be.
posted by tgrundke at 6:41 PM on September 14, 2008


All eyes will certainly be on the Asian markets tonight, this much is certain.

If we're lucky, maybe there will be some legislation on the order of the '34 Act that will prevent this "Let's let the Government put the money up first to bail out the biggest among us" mentality.

Also, I shed no tears for the loss of Merrill. They despise any sort of oversight or regulation. Letting some sunshine in on that business will be a welcome thing.
posted by salsamander at 6:42 PM on September 14, 2008


aburd - good link, but the problem is that analysts and pundits have been saying the same thing about financial companies, real estate, etc. for the last 18 months. The risk is called "catching a falling knife" - which essentially means that sure, you might be able to get a deal on that (house/financial company/financial stock), but it's no guarantee that the value won't go LOWER than what you bought it for.

Ask all those investors who have 'propped up' Lehman, Merrill, WaMu, etc. over the past year only to see their investments get wiped out as the share prices continued to plummet.

What's going on now is a very healthy, very good thing: if everyone drops their pants and shows how small their collective dicks really are, we can get down to the business of cleaning up this mess. Until that happens, we're still goign to have a bunch of pants' stuffers walking around, fooling everyone into thinking they're big shit, until they get into bed with them and discover the humiliating truth.

Not trying to be condescending to you, aburd, just want to make sure others understand how dangerous it is to think of this as a "buying opportunity." Speaking of which, another net positive from this whole thing should be that asshats like Cramer on CNBC should lose their influence.
posted by tgrundke at 6:46 PM on September 14, 2008 [6 favorites]


Fed announces new liquidity initiatives
"In close collaboration with the Treasury and the Securities and Exchange Commission, we have been in ongoing discussions with market participants, including through the weekend, to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses," said Federal Reserve Board Chairman Ben S. Bernanke. "The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets."
posted by eriko at 6:49 PM on September 14, 2008


Speaking of which, another net positive from this whole thing should be that asshats like Cramer on CNBC should lose their influence.

Nuke the channel from orbit, that's the only way to be sure.
posted by malocchio at 6:53 PM on September 14, 2008 [4 favorites]


When my parents sold everything they had and bought a farm I thought they were crazy, now I'm starting to think they were smart.
posted by nola at 6:54 PM on September 14, 2008 [1 favorite]


Thanks, eriko. I was just reading up on that. What's next, the Fed going to accept twinkies and ho-hos as collateral?

I think the news of AIG is going to be a biggie tomorrow. I'm sure the Fed is pissed that AIG turned down an offer, and when contrasted with Merrill falling on its sword, won't endear AIG to any federal assistance - especially seeing as the Fed has no authority over them!
posted by tgrundke at 6:55 PM on September 14, 2008


malocchio: HA! And so damned true. CNBC really should be banned for its incessant stock pumping monkey shows.
posted by tgrundke at 6:56 PM on September 14, 2008


What's next, the Fed going to accept twinkies and ho-hos as collateral?

Actually they will accept non-branded pastries too.

Not trying to be condescending to you, aburd, just want to make sure others understand how dangerous it is to think of this as a "buying opportunity."

Good point. I was just pointing out that the greed that fuels the system is still there.
posted by aburd at 6:57 PM on September 14, 2008


The greed is the system.
posted by bonaldi at 7:00 PM on September 14, 2008 [14 favorites]


In light of the Fed announcement - Karl Denninger had this to say:
"BAC just bought Merrill with a Fed Discount Window loan, using the stock as collateral."

Say what you will about some of the nutters that hang out in his forums, but Denninger has been another 'spot on source' for what's been happening in financial land.

He also thinks that the unwind that is going to result will be catastrophic.
posted by tgrundke at 7:00 PM on September 14, 2008


I was just pointing out that the greed that fuels the system is still there.

The term for a true bottom is "capitulation" -- buying basically stops, as everyone gives up.

When people are calling the bottom, it tells you that they're buying, which means you aren't there yet.
posted by eriko at 7:00 PM on September 14, 2008


Jenga Bank

Can we re-tag the post and get this term out through The CabalTM
posted by odinsdream at 7:01 PM on September 14, 2008 [1 favorite]


Perhaps one day I will be able to afford to live in Manhattan.
posted by b1tr0t at 7:03 PM on September 14, 2008 [11 favorites]


My non-profit had a great funding and volunteer relationship with Lehman. Just last week some Lehman folks came into stuff envelopes for me. I feel bad for them. And I guess we can can trash that grant for renewed funding we were working on.
posted by kimdog at 7:08 PM on September 14, 2008 [1 favorite]


Can we re-tag the post and get this term out through The Cabal™

TINC. HTH. HAND.
posted by eriko at 7:08 PM on September 14, 2008


My local pharmacist was right. The sky fell.

Anyone with a practical sense care to speculate on what the impact of this might be? Can anyone offer an idea in plain English? (I'm financial market jargon challenged) I'd really appreciate it.
posted by nickyskye at 7:09 PM on September 14, 2008


kimdog - I'm sure there are a LOT of organizations in the same boat as you, it's sad. Not only non-profits, but the city and state of New York are crapping their pants over the reduced tax revenues.
posted by tgrundke at 7:09 PM on September 14, 2008


Lehman stock, image (thud).
posted by nickyskye at 7:12 PM on September 14, 2008


nickyskye:

The long and short of this is hard to summarize because we don't yet know how much federal intervention there might be. But essentially it all boils down to this:

Banks, especially Wall Street firms, have been playing a big shell game with everyone over the years in which they have been able to hide non-performing / bad assets so long as the overall markets were doing well. Unfortunately, since growth is not eternal and our markets are cyclical, the downturn is catching everyone who made bets. Essentially - these firms all wrote checks that their asses can't cash, and now that people are calling in their cards, these firms are finding that they're short on cash.

As I said earlier, this will *hopefully* get banks to expose just how over-leveraged they are so we can get to the business of cleaning up this mess. The longer it takes for everyone to expose their bad bets, the longer this funny business goes on.

What's this mean for everyone else? Chances are that it will mean credit becomes far more restricted than it already has started to become. It means the real estate market won't clear any faster because lending requirements will get *significantly* tighter. It means that commercial real estate, already on a downward move, will get much worse because funding will be restricted and demand eliminated. Credit in terms of mortgages, home equity loans, student loans, car loans, credit cards. What else it means is hard to say, eriko care to venture a bet?
posted by tgrundke at 7:19 PM on September 14, 2008 [8 favorites]


Where's Mutant? Somebody send up the batsignal, I need to know whether to start killing my neighbors, tanning their hides and salting the meat. Winter's right around the corner!
posted by The Straightener at 7:21 PM on September 14, 2008 [11 favorites]


All eyes will certainly be on the Asian markets tonight, this much is certain.

they be closed for national holidays
posted by troy at 7:23 PM on September 14, 2008


The front-page NYT article on the bank failures says, way down at the bottom of the second page:
... Merrill Lynch is hardly the only troubled financial institution on the horizon. Administration officials acknowledged this week that more bank failures are inevitable, and the main protection for depositors — the Federal Deposit Insurance Corporation — is likely to exhaust the reserves it has built over the years from bank insurance premiums.
I know next to nothing about investment banks, but that last part worries me. It sounds like the Federal Reserve expects that (1) a bunch of banks are going to fail, and (2) the FDIC will be unable to insure depositors' money. Is that right? That can't be right. I hope that's not right.
posted by ourobouros at 7:23 PM on September 14, 2008 [4 favorites]


tgrundke- No doubt other orgs will be in the same position. Thankfully, we have very diversified funding streams, and support from corporations is just a small part of that. But the ripple effect across the city will be interesting to watch. Bloomberg canceled a trip to CA tonight. The real estate market should be atwitter tomorrow as well.
posted by kimdog at 7:25 PM on September 14, 2008


I know next to nothing about investment banks, but that last part worries me. It sounds like the Federal Reserve expects that (1) a bunch of banks are going to fail, and (2) the FDIC will be unable to insure depositors' money. Is that right? That can't be right. I hope that's not right.

Wait. What? What? Is it really time to stash cash?
posted by odinsdream at 7:27 PM on September 14, 2008


Oh goody gumdrops.

I just want to be clear that by "oh goody gumdrops" I mean "oh fuck we're fucking fucked now." Or words to that effect. Any impression of schadenfreude or celebration was unintended. I've got a few bucks in the market too . Or I did.

That said, if this is what it takes to drive a stake through the heart of the Republican party, I'll consider everything I lose this year one big contribution to the Obama campaign.

Now back to closing that WaMu account. If there's gonna be a run on the banking system, I want to be part of it too!
posted by fourcheesemac at 7:28 PM on September 14, 2008 [1 favorite]


The Lehman Brothers building is just down the street from where I live, wonder who'll get the real estate. It's such an amazing building, incredible wraparound lightshow, beautiful but somewhat disturbing and overwhelming. On the neighborhood level, this will impact a lot of local restaurants/businesses in Hell's Kitchen, which depended on the Lehman staff for business.

tgrundke
, Thanks so much for the explanation. It sounds like financial root canal therapy is needed.
posted by nickyskye at 7:29 PM on September 14, 2008


ourobouros: yes, the FDIC has been ramping up for increased bank failures for several months now. I don't have the link on hand, but the FDIC purchased additional office space and has increased hiring to handle the expected load.

Remember - you're insured up to $100,000 per insurer, per bank, and sometimes up to $250,000 for retirement funds. There is concern that the FDIC will need a major cash infusion itself as the bank failures start to ramp up in coming weeks+months.

Speaking of failures, there are several banks that are teetering, Washington Mutual being one of, if not the biggest. IMHO it's only a matter of time before WaMu bites the big one themselves.

Awesome stuff, ain't it all?
posted by tgrundke at 7:29 PM on September 14, 2008


Wamu and Wachovia are going to be other shoes to fall, sooner rather than later IMO.

I can't say "next" because I wasn't expecting MER at all.

The sins of 2003-2006 basically have the potential of wiping out everyone right up to Goldman Sachs.

Bank of America and Wells Fargo should weather the storm, even though they have some tens of billions of sloppy seconds [did I just say that?] and HELOCs on their books.

When I arrived in Japan in 1992 it was the 2nd year of their crisis and things weren't that bad, but when I left in 2000 most of the banks had been merged together, with a few more major merges that went down in 2001-2002.

I don't have the numbers, but our debt mania 2003-2006 was probably as bad as theirs of 1986-1989.
posted by troy at 7:30 PM on September 14, 2008


PS what's the holiday in Asia?
posted by nickyskye at 7:31 PM on September 14, 2008


Ha! I'm not worried at all because I don't own any money! Seems convenience right about now. So... who wants some rice and beans?
posted by fuq at 7:31 PM on September 14, 2008 [7 favorites]


Perhaps one day I will be able to live in the US.
posted by TwelveTwo at 7:32 PM on September 14, 2008 [6 favorites]


Wait what, that isn't phrased right at all. Alcohol, you tricked me! I thought we were friends.
posted by TwelveTwo at 7:32 PM on September 14, 2008 [21 favorites]


I thought bad news was supposed to come out on Fridays.
posted by minkll at 7:34 PM on September 14, 2008


It sounds like the Federal Reserve expects that (1) a bunch of banks are going to fail, and (2) the FDIC will be unable to insure depositors' money. Is that right? That can't be right. I hope that's not right.

FDIC had $50B in treasuries before Indymac took out $15B of their reserves. Wamu is 10x the size of Indymac.

There's a good chance that the money that materializes in people's insured accounts will be printed by the Fed from here on out.

The alternative is the Fed going to the market asking for more people to buy Treasuries. Like we do to pay for our $10B/mo WoT, and $15B/mo tax Bush cuts for high-income earners.
posted by troy at 7:35 PM on September 14, 2008 [1 favorite]


Ha! I'm not worried at all because I don't own any money!

Yeah, holdings in Money aren't looking too hot right now. I'd suggest diversifying into water and proteins.
posted by odinsdream at 7:35 PM on September 14, 2008 [18 favorites]


Root canal is a great way to put it...a big ass enema is another way to put it. The financial system got too complex for its own good and what we're seeing now is it collapsing upon itself. There are certain sound rules that finance should play by. Some of these rules include:

1. Housing should not be more than 3x income. Period. Sure there will be areas that are higher and lower, but on aggregate 3x income is where home values need to fall back to in order for the real estate overhang to clear.

2. 20% downpayments must return. If you cannot afford a 20% downpayment, you cannot afford the house. Sure, you might be able to afford the payments, but it doesn't mean you can afford the cost of maintenance and upkeep. Roofs are expensive, trust me - I'm having one put on now.

3. Loan documentation must be authentic. Fraud is part of what got us into this mess.

4. Banks cannot be allowed to continue with this mark-to-market crap of valuing assets based on what *THEY* think the assets are worth and then sheltering them off the books (hello, Enron?)

5. Bond rating agencies need to die and be reborn. When they do, they need to actually RATE the bonds and assets instead of slapping some nonsensical value on them that isn't legit.

I could go on all night, but hey, it's late.
posted by tgrundke at 7:36 PM on September 14, 2008 [17 favorites]


Japan: Respect for the Aged Day
Korea: Mid Autumn Harvest Moon Festival

dunno about China but probably same as Korea.

btw, the various markets -- Taiwan, Jakarta, etc are down 2% right now.
posted by troy at 7:38 PM on September 14, 2008


If WaMu is allowed to go, expect the entire system to go down with it. I can't imagine the Fed letting that happen, then again - I'm pleasantly surprised to see them staying out of Lehman's business, so I suppose anything is possible.
posted by tgrundke at 7:39 PM on September 14, 2008


Nah, what is Wamu doing that Wells and BofA can't supply?
posted by troy at 7:42 PM on September 14, 2008


tgrundke, Thanks again. That really helps to clarify. It's so appreciated.

troy, Thanks for the info about the Asian holiday.

Looks like tomorrow will be Black Monday. whoa nelly.

If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system

Fed Plans Expanded Lending Facilities (ie Bernanke vacuums your bank account)

US Dollar Falls In Asia On Lehman; US Stock Futures Drop
posted by nickyskye at 7:44 PM on September 14, 2008


tgrundke, I think number 2 is fine if number one is in place.
posted by drezdn at 7:46 PM on September 14, 2008


Where's Mutant?

*checks clock*

I'd say he's probably in bed right now, but I'll wager he'll chip in here in the morning.
posted by adamdschneider at 7:48 PM on September 14, 2008


Some people really should go to jail over this.

But that never happens.
posted by fourcheesemac at 7:49 PM on September 14, 2008 [3 favorites]


This is one of those moments where I should be really worried that I went to art school, right?

No. FDR put the artsy crowd to work with some nice murals and stuff. Photographs of poor people, I think. Don't worry, Vaudeville might be making a comeback.

Personally, can the Crash wait seventeen days? Just for me?
posted by jsavimbi at 7:49 PM on September 14, 2008 [3 favorites]


We all gotta duck . . . when the shit hits the fan.
posted by jason's_planet at 7:51 PM on September 14, 2008


Is Wachovia to the point where I can haggle with them on the settlement of my student loans?

I'd like to start the bidding at 10 cents on the dollar.
posted by clearly at 7:54 PM on September 14, 2008 [4 favorites]


What else it means is hard to say, eriko care to venture a bet?

US dollar drops, this makes imports harder, exports easier. Shame we rely on imports so much.

LEH sells assets, marking tons of the shitpile to market, and Goldman Sachs, Morgan Stanely, Citibank, BoA, and others suddenly find themselves in a world of hurt. They run to the lending window.

Which closes, as the Treasury runs out of it's own capital and hits the legal debt limit. By the time Congress and the President can change that, Wall Street is a smoking ruin.
posted by eriko at 7:55 PM on September 14, 2008 [1 favorite]


Debt limit's $10.6T now, $900B of headroom here.
posted by troy at 7:59 PM on September 14, 2008


Whoa, Merrill Lynch too? yikes.

What will happen to that cool Merrill Lynch bull statue downtown? Guess it'll undergo a Prince deal and become Formerly Known As.
posted by nickyskye at 8:07 PM on September 14, 2008


Wall Street is a smoking ruin

And then what?
posted by nickyskye at 8:09 PM on September 14, 2008


Wall Street is a smoking ruin
And then what?


And then we've hit the bottom of the cycle and we start all over again.
posted by tkolar at 8:16 PM on September 14, 2008


I believe in China it is Mid-Autumn Festival.

Enjoy the mooncakes. In fact, have several.
posted by absalom at 8:17 PM on September 14, 2008


To think that the national debt went from $2.9T (1993) to $3.4T (1996) to $2.9T (2001) on Clinton's watch.
posted by troy at 8:20 PM on September 14, 2008 [6 favorites]


Damn That Television: FOUR MORE YEARS OF REPUBLICANS OUGHTA FIX THIS MESS

Yes, I wish George Bush would just pull his happy little economy-lever and make things right. So sad that his Republican policies that have ruined the economy. Since, as everyone knows, the president has complete and total control over the economy, this is certainly his fault.

It has nothing to do, for example, with Alan Greenspan, who served eight years and was appointed twice by a memorable and (if I may say so) intelligent Democrat. It has nothing to do with all the people on Wall Street who have been making these decisions every minute of the last twenty years; no, the entire weight of the economy rests on the president, who of necessity can really only afford to think about the economy and work hard on fixing it about once a week.

Granted, I'm no economic expert. But I'm just smart enough to realize that the knee-jerk 'REPUBLICANS DID IT' to every and any bad thing that happens is about as rational or as helpful as 'COMMUNISTS HATE LOVE AND WANT TO MAKE EVIL MOVIES.' I mean, yes, the president has an effect on economic policy, and it's an important one, and yes, I don't doubt that the Republican party has been extremely confused about what it even wants to do economically for the last decade. But we're talking here about problems that seem to have originated many years ago, problems that are very complex, problems which, yes, I can't claim to understand at all.

It is extremely easy to polarize oneself so that every evil obviously emanates from whomever one designates as 'the bad guy.' Easy and stupid. The answer here is unfortunately going to have to be more complex than the idiotic polarized political climate in the United States can comprehend, because it can't be boiled down to talking points and there are more sides than two.
posted by koeselitz at 8:20 PM on September 14, 2008 [22 favorites]


Well at least some pieces of Lehman have value. The mutual fund division will likely be sold to State Street, MFS or Putnam. Supposedly 50Bn $ in assets under management are on the block I'm sure at quite a bargain...
posted by Gungho at 8:22 PM on September 14, 2008


I'd like to know the CEO "performance-based" compensation for these companies across the last few years. Surely these wouldn't be the same CEOs who have apologists telling us their astronomical salaries and benefits are because no-one else could possibly manage these companies as effectively.

Also, does this project to higher or lower or no impact on interest rates on mortgages over the next year or two, or too soon to tell?
posted by Rumple at 8:25 PM on September 14, 2008 [1 favorite]


Is the insurance industry also in danger of getting dragged into this, or did AIG just have a lot of "toxic waste" investments?
posted by Arch_Stanton at 8:26 PM on September 14, 2008 [1 favorite]


Is this going to be limited to the financial sector or are 'real' businesses going to start failing? How will this effect something like, say GM or Ebay?
posted by empath at 8:26 PM on September 14, 2008


There has never been a better time to be a corporate bankruptcy attorney.
posted by norm at 8:27 PM on September 14, 2008 [1 favorite]


Wait wait what the fuck? At this rate I am NEVER going to be able to sell my house. I haven't checked my 401k in a while because crying at work is somewhat frowned upon.
posted by Unicorn on the cob at 8:28 PM on September 14, 2008 [3 favorites]


See y'all at Thunderdome!
posted by bardic at 8:30 PM on September 14, 2008 [10 favorites]


So sad that his Republican policies that have ruined the economy.

Well, yes, actually.

Republicans have positioned themselves as champions of the unregulated market, and they absolutely have to answer for that. They've left the nation's economy entirely at the mercy of people who want to make a quick buck for themselves, and claimed that was a good thing: free markets at work.

If these companies weren't in a position to utterly destroy the American economy -- well, that's one thing. But when it turns out they're so vital that my tax money has to go to bailing them out, then I want the heads of the people who let them wander around unsupervised.
posted by tkolar at 8:30 PM on September 14, 2008 [36 favorites]


Also -- I work for a company that's running on VC money -- should I be polishing my resume?
posted by empath at 8:33 PM on September 14, 2008


You know, on further reflection, fuck those guys. Every day I hear people telling me about their financial problems, and no one bails them out. Many of them took risks on the housing market too; they lost, and then are financially ruined. It's all about risk and reward and the free market, right? What is so free about a market that habitually rewards the biggest losers? If this is a free market, why can't they fail?

Of course I know the answer. They can't fail because then the market would fail. Because millions of people are dependent on this market. But my observation is this: we don't have a free market if the people bear the risk and the big investors make money on heads or tails. It's rigged, it's corrupt, and we're better off in the long run letting it burn.
posted by norm at 8:38 PM on September 14, 2008 [22 favorites]


empath wrote...
Also -- I work for a company that's running on VC money -- should I be polishing my resume?

Same deal here. If anyone has any idea what the VC fallout is likely to be, I'd be much obliged if you could speak on it.
posted by tkolar at 8:42 PM on September 14, 2008


See y'all at Thunderdome!
TWO BANKS ENTER
ONE BANK LEAVES
posted by Flunkie at 8:43 PM on September 14, 2008 [18 favorites]


ONE ECONOMY ENTER
NO ECONOMY LEAVES
posted by mrnutty at 8:45 PM on September 14, 2008 [7 favorites]


Surely these wouldn't be the same CEOs who have apologists telling us their astronomical salaries and benefits are because no-one else could possibly manage these companies as effectively.

I don't have a problem with the outrageous compensation for making general shareholders and employees rich, and adding wealth to society at large, if, on the downside, we can fine first, sieze assets, and then shoot if there is nothing left and still a debt to society to pay.
posted by maxwelton at 8:46 PM on September 14, 2008 [1 favorite]


It has nothing to do, for example, with Alan Greenspan, who served eight years and was appointed twice by a memorable and (if I may say so) intelligent Democrat. It has nothing to do with all the people on Wall Street who have been making these decisions every minute of the last twenty years; no, the entire weight of the economy rests on the president, who of necessity can really only afford to think about the economy and work hard on fixing it about once a week.

Reappointing Greenspan in the late 90s was an economic and political necessity. To boot him out would spook the markets and become a Big Fat Negative for Clinton.

It's not Bush's fault -- we all know he is a jibbering moron -- but the fault of the entire cadre of Republican Small Government Deficits-Don't Matter Drill-Drill-Drill True Believers.

The Republicans, ca 2001, throughout the national framework thought they found a ZeroPoint Money machine -- debt, debt for everyone, spend spend spend. Ransack the balanced budget. Run the GSE's up to five trillion, and the total mortgage market up a trillion per year -- homeowners vote Republican, donchaknow.

It's not the President, it's the fucking Party. As even David Brooks recently opined:

The Republicans are intellectually unfit to govern right now
posted by troy at 8:48 PM on September 14, 2008 [15 favorites]


We've got to stop all this whining! Remember, this is all in our heads!
posted by amyms at 8:49 PM on September 14, 2008 [6 favorites]


Sooooooooooooo... the solution is "tax cut for the wealthy", right?
posted by Flunkie at 8:55 PM on September 14, 2008


Can we re-tag the post and get this term out through The CabalTM?

Sorry. We're too busy loading Our private submarine with caviar, whores & shotguns.
posted by the Cabal at 9:00 PM on September 14, 2008 [5 favorites]


A staple of the Republican agenda is to get rid of government. This is just one example of them succeeding. This is all part of the larger master plan.
posted by afx114 at 9:01 PM on September 14, 2008


Perhaps one day I will be able to afford to live in Manhattan.

Your property and income taxes may well be bigger than your mortgage.
posted by Kwantsar at 9:04 PM on September 14, 2008


Folks, it's important to understand that this has been building for at least fifteen years, since Greenspan figured out that liquidity injection was the "solution" to all ills. It will take just as long, or longer, to unwind again.

You should thank Greenspan, but also thank Clinton for re-engineering our economic measurements into phony numbers, and then Bush for continuing the missteps of his predecessor, but on an even larger scale.

This is bigger than any one party, and pointing fingers at the Republicans, while satisfying, is foolish. This is a bipartisan problem. Having been watching this develop for the last decade, and jumping up and down about the problems building since at least 2001, I can tell you with great assurance that this is not a Republican problem, at least not alone.

Remember that huge boom in the 1990s? That was a lie. It was fiction, caused by asset inflation, which is just as nasty as every other kind of inflation. It's actually worse, in many ways, because people love it and want more.

We should have crashed in 2001, from that enormous bubble, but to stop the fallout from that first atomic weapon, the Fed set off two fusion bombs underneath, the debt and real estate bubbles. Now we get to eat the radiation from all three. Both Clinton and Bush were complicit in this mismanagement; both of them bent you over the post, and they're still doing it.

Free markets my ass. Markets have to be free to fail, too. Central planning of an economy is always a disaster. The bailouts will guarantee that things will be even worse. There are too many dollars and dollar-like things in the world, too many derivatives, and the Fed stepping up and turning the supersize-fake money into ordinary fake money will set off even more inflation than we're already seeing.

Central planning didn't work for the Politburo, and it's not working for the Fed, either.
posted by Malor at 9:04 PM on September 14, 2008 [39 favorites]


But we're talking here about problems that seem to have originated many years ago, problems that are very complex, problems which, yes, I can't claim to understand at all.

It is true that the structural trade deficit with China got rolling under Clinton's watch, ca. 1998 But here's a chart of how it grew over the past 10 years.

Here's a chart of Federal debt (not including the SS surplus).

The Republicans we elected in 2000, 2002, and 2004 didn't believe in good government, they believe in no government, as in drown it in the bathtub.

The main problem with the Republicans is that they believe their own bullshit, from anti-darwinism, anti-secularism, War-is-Peace, "Deficits Don't Matter", "the American Standard of Living is Non-Negotiable", etc etc.
posted by troy at 9:06 PM on September 14, 2008


should I be polishing my resume?

or your gun?
posted by phrontist at 9:06 PM on September 14, 2008


but also thank Clinton for re-engineering our economic measurements into phony numbers

Clinton left with the public debt the same as he got it. That's not phony, even if GDP statistics were beginning to be increasingly spun on his watch.
posted by troy at 9:07 PM on September 14, 2008


Remember that huge boom in the 1990s? That was a lie. It was fiction, caused by asset inflation, which is just as nasty as every other kind of inflation.

As a quasi-georgist I can also quibble with this . . . As Churchill said nearly 100 years ago:

"But see how misleading and false all those analogies are. The windfalls from the sale of a picture -- a Van Dyke or a Holbein -- may be very considerable. But pictures do not get in anybody's way. They do not lay a toll on anybody's labor; they do not touch enterprise and production; they do not affect the creative processes on which the material well-being of millions depends. "

Asset inflation in equities and collectibles is immaterial, asset inflation in land, "the mother of all monopolies", is was the poison in the apple.
posted by troy at 9:12 PM on September 14, 2008 [2 favorites]


Might want to ask your grandparents what they think about that Norm.

On the other hand, in the long run you're probably right. Consider the black death. Terrified people died in agony, vomiting blood by the millions. But, in the long run, it destroyed the power balance of medieval society, creating unprecedented social mobility, and laying the foundations for capitalism, the Renaissance, the Protestant Reformation and, essentially, the modern world we've all come to enjoy.

So, good or bad thing? Depends who you ask, I guess. My view is probably different from that of a French peasant who's just watched everyone he loves die horribly and is starting to feel a little swelling around the armpits himself.
posted by Naberius at 9:12 PM on September 14, 2008 [11 favorites]


Is this something I'd have to have six-figure income to give a damn about?

/eight years later, still mad at the now-defunct Quick & Reilly for stealing five months of my precious youth in that Wall Street hellhole
posted by CommonSense at 9:13 PM on September 14, 2008


Oh, and also, to the laissez-faire fanatics (I know, there's like 0.3 of them reading this right now):

The market will sort it outself out in the end, AMIRITE?

Fuckers.
posted by CommonSense at 9:14 PM on September 14, 2008 [4 favorites]


please, nobody take my attacks on the Republicans as endorsements of the Democratics. They suck too, with the possible exception of Obama, who is clearly smarter than me so I have to give him some benefit of the doubt here.
posted by troy at 9:16 PM on September 14, 2008


, I can tell you with great assurance that this is not a Republican problem, at least not alone.


Of course not. Both parties are complicit and both have catered to the moneyed elite that has set up this house of cards. However, it is Republicans who tell us that the free market solves all ills, while crossing their fingers when it's their banks on the line. It is Republicans that gut antitrust enforcement and regulatory oversight, and the elephant (HA!) in the room is that a Republican is even as we speak running for president on a bullshit platform of smaller government, less oversight, and market driven policies.

I can blame both sides, but only one is proposing to solve the crisis by promulgating more policies that caused the crisis. THAT WAY LIES MADNESS.
posted by norm at 9:18 PM on September 14, 2008 [3 favorites]


troy: Republicans have positioned themselves as champions of the unregulated market, and they absolutely have to answer for that. They've left the nation's economy entirely at the mercy of people who want to make a quick buck for themselves, and claimed that was a good thing: free markets at work.

There are a couple of things that make this statement a bit more complex than it really is, I'm starting to think:

First, you say that as though this is simply a case of an unregulated market doing exactly what it does best, which seems in your opinion to be fleece a bunch of people for as much money as they can. But nobody made money off of this - everybody lost. Yes, it probably had to do with a bunch of people wanting to make money, but the whole reason we let markets be markets is because we seem to think that will have some benefit. What regulations, exactly, should have been put in place to avert this disaster? When have the Democrats championed those regulations?

Second, the market is regulated, and it seems like Republicans and Democrats haven't really fucked with much this over the last twenty years. I understand perfectly well that, say, the energy industry, or the public transit industry, or any number of industries systematically 'deregulated' by Republicans over the last two decades have been destroyed, in part because competition isn't always possible in every industry, and in part because therefore 'deregulation' is often really just re-regulation that changes the balance so that somebody's friend or relative suddenly stands to profit a great deal because they just happen to be in the right place at the right time. I'm not convinced that this is the same problem as in the SEC and on Wall Street.

Again, I don't know much about this stuff, but the people that sound to me like they're knowledgeable keep talking about Alan Greenspan's notion that the risks of securities can be limited and reduced through diversification and leverage so that more people can be loaned more money to buy things like homes. That doesn't strike me as a particularly "Republican" or "Democratic" view; I have a hard time categorizing it. The notion of loaning more money to more people and particular to those who are of least means even seems rather positive in my eyes. Maybe those with a more polarized view of the world, those who could probably tell me if a particular dog or a particular tree was a Republican or a Democrat, can help me with that.

This brings up a good point, though:

There seem to be a few people here who know a fair share about economics and the causes and implications of what's going on right now on Wall Street. Would any of them like to take a stab at connecting political policy with this, either as far as political policy contributed to this or as far as political policy will be needed to help it? And, if you think you can swing it: what implications does this have for the upcoming election as far as what a new president will need to do?
posted by koeselitz at 9:21 PM on September 14, 2008 [1 favorite]




norm: However, it is Republicans who tell us that the free market solves all ills, while crossing their fingers when it's their banks on the line. It is Republicans that gut antitrust enforcement and regulatory oversight, and the elephant (HA!) in the room is that a Republican is even as we speak running for president on a bullshit platform of smaller government, less oversight, and market driven policies.

As Malor pointed out, those statements by Republicans were disingenuous, as they don't act on them, at least in this realm. In this realm, they've done precisely what the Democrats have done: they've always stepped in to try to prop the market as much as possible. This is their way of "stimulating the economy," which they rationalize as not being really manipulation of a free market.

Again, this has little to do with partisan ideology, which doesn't even seem capable of encompassing the issue at hand.
posted by koeselitz at 9:27 PM on September 14, 2008


Maybe a useful AskMe post for some:

Om nom nom for cheap!?!?
Help a clueless student eat on a $100/month budget.
posted by nickyskye at 9:27 PM on September 14, 2008 [1 favorite]


koeselitz: nobody made money off of this - everybody lost.

Really? You mean those bankers bought multimillion dollar houses in the hamptons with monopoly money? Bullshit. People got rich as hell off of this madness.
posted by Freen at 9:28 PM on September 14, 2008 [18 favorites]


Um, don't expect the Republicans to cop to this. I have seen them blaming Democrats outright for the last few weeks for all manner of things. Never mind that that makes no sense at all; it's what fits on a bumper sticker that matters.

To be a little more precise, Republicans will be saying that this shows how big government fails to protect people. They were doing their best to cut taxes and put your money back in in your hands - but the overregulation by government made it impossible to prevent this.

Yes, of course we all know that is a blatant lie. But that's what they will say. And people will gobble it up. Black is white, war is peace.

The fact of the matter is that government was not well equipped to manage this to begin with, and even if it had the resources (in the form of staff, mostly) it is unlikely that anything could have or would have been done. When business is making money, no government agency, well funded, poorly funded, well staffed, poorly staffed, Republican or Democrat, is going to step in and stop it.

It's legal for people to make really fucking stupid loans. It's legal for them to pass these on in the form of shitty secondary securities. The really pathetic thing is that they were totally up front about this, but people weren't reading the fine print. It's like those Columbia students calling out Enron as a fraud more than a year before the Enron shit hit the fan. It's all there, in the legal disclosures. It's just that too many people were making fast money, and everyone knew it, but they were all hoping to get their piece and get out, or at least get theirs then ride the gravy train till it crashed.

On the flip side, there's really nothing much to worry about, especially since there's not jack-all you can do about it. The world won't end. A lot of funds will lose a lot of imaginary money. Some folks will lose a lot of real money. You might have to put off retirement, or if you are like me, and nurturing a fledgling business, you'll have to find other ways to keep cash flow going since the credit has dried up. But it's not like 1929. It actually may be worse, in terms of relative value, but you won't be seeing people throwing themselves out of skyscrapers anytime soon.
posted by Xoebe at 9:30 PM on September 14, 2008 [3 favorites]


Boy Howdy! There goes my new employer.

I hope were not locked out of the campus tomorrow morning.

Time to update my resume.
posted by PROD_TPSL at 9:31 PM on September 14, 2008 [1 favorite]


I don't claim to be an expert on this issue, nor am I any kind of fan of completely unregulated markets, but one interesting thing I learned today (at the WSJ site, of all places) is the history of the Glass-Steagall Act, and how it came to be repealed. I mean, to the degree we're still discussing how to apportion blame for this clusterfuck.
posted by lassie at 9:31 PM on September 14, 2008


The White House is holding meetings about this right now. There's screens up blocking a view of who is coming or going.
posted by drezdn at 9:32 PM on September 14, 2008 [4 favorites]


CommonSense: Oh, and also, to the laissez-faire fanatics...

Are there any left? Geez, I guess I knew one once at an engineering firm I used to work at, but he's probably dead by now, and he was probably the only guy who self-identified as a Libertarian I've met in the last five years.

Anyhow, you can be sure: there's nobody in New York or in Washington right now who believes in laissez-faire, and there hasn't been for some time. This afternoon, I was listening to This American Life, and during one bit we were treated to the odd and unnerving experience of listening to a hardline old Republican tell the chairman of the SEC that if he doesn't man up and do some old-school regulating, he'd have to find somebody who would.

Who's laissez-faire?
posted by koeselitz at 9:32 PM on September 14, 2008 [1 favorite]


Xoebe: Um, don't expect the Republicans to cop to this. I have seen them blaming Democrats outright for the last few weeks for all manner of things. Never mind that that makes no sense at all; it's what fits on a bumper sticker that matters.

To be a little more precise, Republicans will be saying that this shows how big government fails to protect people. They were doing their best to cut taxes and put your money back in in your hands - but the overregulation by government made it impossible to prevent this.

Yes, of course we all know that is a blatant lie. But that's what they will say. And people will gobble it up. Black is white, war is peace.


... and if Clinton were still in office, he'd be saying that he's been held back by Republicans in Congress from regulating like he'd like to, and that this is their fault. Don't get me wrong - he was the greatest president I've seen during my lifetime - but that's what politicians have to do.

See, we out here, who want things to be blunt and simple, think that there are two options: "regulation" and "deregulation." Being decent, red-blooded Americans, we each decide that only one of those options can be pursued, put on the appropriate jerseys, and go back to our rah-rah red-vs-blue football game. The politicians use these words to stir us up and remind us what side we're on.

Meanwhile, something utterly different is going on; but even the best of the politicians know it's beyond us to think in more complex terms. So it goes, and we continue with our happy little game.
posted by koeselitz at 9:41 PM on September 14, 2008 [1 favorite]


"The White House is holding meetings about this right now. There's screens up blocking a view of who is coming or going."

Seriously? That's kind of frightening. Must be the Chinese ambassador...
posted by Naberius at 9:43 PM on September 14, 2008


In case I'm being unclear, what I mean is this: if the Republicans respond that this is the fault of the Democrats for over-regulating (I somehow wonder if even they will be so silly as to say that; that's something Reagan would've said, but that was a long time ago), it wouldn't be a lie any more than 'this is the fault of the Democrats for riding on purple unicorns and eating cotton-candy clouds.' It's not a lie - it's simply an absurdity, since I have a hard time seeing just how much this has to do with regulation.
posted by koeselitz at 9:45 PM on September 14, 2008


Since the post is titled "Brokergeddon" does anyone want to make a fake movie poster for it? I picture Bruce Willis as the tough but lovable accountant who's "been there" before, and Ben Affleck as the rookie bank teller with a gleam in his eye and a cocky attitude. Together, they assemble a crack team of financial advisors to stop an impending financial disaster against a backdrop of an international national market meltdown. And the soundtrack is by Aerosmith.
posted by hellojed at 9:45 PM on September 14, 2008 [2 favorites]


Soooo . . . any way to make some quick coin from this news?
posted by Toecutter at 9:45 PM on September 14, 2008


Who's laissez-faire?

Don't give us that BS.

It's post-Nixon/Ford Republican canon that 20th century government intervention upsets the traditional & proper church-business-government balance.

We had Palin recently regurgitate this party line about the GSEs costing too much taxpayer money.

It's what Reagan ran on: "We're from the government and we're here to help", and of course the foundation of the Gingrich Contract with America "revolution" of 1994, and the basic rat's nest of undercurrent Republican thought that is the Texas State GOP Party Platform.

It's what prevented the FDIC and Greenspan's Fed from keeping the lenders from going wild in 2003-2006.

Granted, Bush-era excess is largely the looter dynamic of Republicans getting theirs while the getting is good, but that was only because they thought they had a Permanent Republican Majority to protect them from the voters.
posted by troy at 9:48 PM on September 14, 2008


The Lehman Brothers building is just down the street from where I live

nickyskye, I strongly advise crossing the street & using the footpath furthest from that building over the coming days & weeks.
posted by UbuRoivas at 9:49 PM on September 14, 2008 [5 favorites]


As Malor pointed out, those statements by Republicans were disingenuous, as they don't act on them, at least in this realm.

I respectfully disagree. Republican judges/justices and the Bush administration's DOJ efforts have gutted the antitrust laws and pulled regulators off the markets. To quote:
“The court is on a path to reshape the law to conform to the Chicago school of law and economics,” said Albert Foer, president of the American Antitrust Institute, referring to the free-market theories associated with the University of Chicago. “The theory now is that markets rarely fail, and regulation of business is nearly always bad.”
So yes, their monetary policies are nearly indistinguishable from the Democrats. But their fiscal policy is different, their regulatory policies are vastly different, and the ideology of the court appointments are night and day.
posted by norm at 9:49 PM on September 14, 2008 [4 favorites]


Must be the Chinese ambassador...

Chinese Diplomat: You pay now! Now! [pounds fist on table]
Bart: What happened to you, China? You used to be cool.
Chinese Diplomat: Hey, China is still cool. You pay later. Later! [pounds fist on table]
Bart: Solid. The rest of you go on home, and look in your mailboxes, cause I totally remember sending checks out.

posted by Alvy Ampersand at 9:49 PM on September 14, 2008 [9 favorites]


Jesus christ. There is a HUGE difference between the credit expansion in the Clinton 1990s and the one with the Bush 2000s.

Clinton's credit expansion was definitely bigger than what it should have been, but credit really should have been extended at that time. All that money went towards technology and developing infrastructure. Where the hell do you think your broadband backbones came from? Sure there was Pets.com, but we got email out of that. A good investment is one in which your returns pay you dividends, we did mostly that. Communication is a LOT more efficient now.

Bush got us a bunch of homes in Sacramento, Modesto, and Miami. That's not infrastructure, that's not investment, that's consumption. That's buying a nice car or a nice purse (which you used HELOCs to buy). There's no functional difference between a house in Sacramento and paying someone $500,000 to dig a really really big hole. It's about the same return on investment.

Huge difference. 1990s had it excesses, but they were merely guilty of optomistic futurism. The 2000s was just fucking stupid. Don't let the Republicans spin that it was the same as the 1990s. The US Federal budget was also balanced...
posted by amuseDetachment at 9:56 PM on September 14, 2008 [11 favorites]


Perhaps one day I will be able to afford to live in Manhattan.

Perhaps one day I will be able to afford to live in Manhattan.

ftfy
posted by dhartung at 9:57 PM on September 14, 2008 [3 favorites]


Sure there was Pets.com, but we got email out of that.

Err I mean: Sure there was Pets.com, but we also got email out of that.
posted by amuseDetachment at 9:58 PM on September 14, 2008


Free markets my ass. Markets have to be free to fail, too. Central planning of an economy is always a disaster. The bailouts will guarantee that things will be even worse. There are too many dollars and dollar-like things in the world, too many derivatives, and the Fed stepping up and turning the supersize-fake money into ordinary fake money will set off even more inflation than we're already seeing.

Uh huh, and are you claiming that unmanaged economies won't fail? That seems like a pretty absurd thing to think.

The question is, how do we motivate people to work? Specifically, how to we motivate people to work as hard as they can without burning themselves out? Or we might try to get them to work a reasonable amount and still enjoy life, like some kind of French Socialist. But either way, are they working?

The capitalism do good job of doing that, and communism doesn't seem to do a good job, but there's no reason to believe, with religious fervor as some people are wont to do, that totally unmanaged capitalism is really more effective then "managed" capitalism. In fact, you have an even stronger hypothesis, that managed capitalism is bound to fail and (apparently) unmanaged capitalism is failure proof.
posted by delmoi at 9:59 PM on September 14, 2008


Plus the credit expansion of the late 90s was coming off the shitty economy of the early 90s.

Nominal (or real? I forget) home prices had just about returned to their 89 peaks in 99.
posted by troy at 10:01 PM on September 14, 2008


Obama is really in for a rough time of it if he wins the presidency. I think among most Americans this entire situation is still very far under the radar, and it might be another few months before they begin to see the impact on their daily lives. Conveniently enough, that is exactly when he will be taking office and having to deal with all of it, to the extent that a president can deal with and do anything about a situation like this or the economy in general. Nouriel Roubini says this is the third inning of a nine inning game, so it is entirely likely that no matter what he does, it is still going to get a lot worse.
posted by sophist at 10:02 PM on September 14, 2008


But nobody made money off of this - everybody lost.

I beg to differ. Until a few months ago, everybody made money off this. That's the nature of bubbles, everyone makes money until it collapses. Even if you know better, if you stay on the sidelines you don't make money and someone else gets your job.

Second, the market is regulated, and it seems like Republicans and Democrats haven't really fucked with much this over the last twenty years.

Sorry to contradict you again, but this is totally wrong. Starting about 30 years ago and continuing until this day, the entire system has been dramaticaly changed.

President Carter was forced to repeal "Regulation Q" and allow banks to set their own deposit rates, because "non-bank banks" (organizations that acted like banks but weren't FDIC insured and therefore not bound by FDIC standards) were able to offer vastly greater rates than the fixed rates that had been in effect for almost half a century.

Repealing Q was entirely reasonable though it did lead to weirdnesses such as a 17% overnight repo for one night only. But (to cut a long story short) Reagan somewhat deregulated the banks, but more important, stopped funding bank examiners, and then in 1999 Clinton foolishly presided over the repeat of the Glass-Steagall act, the firewall put into place after the Crash of 1929-32 that had separated commercial banking from investment banking. There's probably a half dozen other lesser steps but generally, except for Sarbannes-Oxley (Soxley), they've all been in the direction of less oversight and allowing institutions to assume greater risks.

Even Soxley son of Enron is a bit of a fraud, the No Child Left Behind of business ethics, because it requires huge quantities of paperwork at the risk of severe penalties for the heads of companies if underlings make technical mistakes, while simultaneously not addressing the underlying issue which is, to beat the point one more time, assuming greater and more systematic risk while doing less risk management.

Compartmentalization and firewalls prevent catastrophic chain reactions in financial systems in exactly the same way prevent boats from sinking and buildings from burning down in the physical world.

As another example, recently I was surprised but not very surprised to hear that the FDIC supposedly doesn't keep any of the "insurance" money it takes in: the money apparently goes right into the Treasury like a tax and is spent as we go and then the Treasury pays out when it needs to.

It's like the crew of a ship tearing out and selling the inner bulkheads and the fire extinguishers too - and the inspectors never look inside.

By the way, I worked at the above-mentioned Drexel Burham Lambert (it's pronounced a la française Lom-bairr) until a few months before it went down - I was sitting on a mortgage-backed securities trading desk there for the crash of 1987. I felt that the slumping bond market wasn't the prime reason for their collapse - they paid a $600 million fine for insider trading and the losses on bonds were simply the last straw. But I never saw the numbers...

The day the Feds took over DBL, the traders showed up early as usual and there were men in black suits sitting at their desks.... the Fed. The traders had to do nothing at all until after lunch - when they were instructed to liquidate their positions in an orderly fashion, which they did in three hours. Apparently the markets didn't move much during the process... I assume other firms were nervous...

I'd already left so I didn't get more details than that. I always wondered how they got rid of some of the long-term, less-liquid assets like interest-rate swaps.
posted by lupus_yonderboy at 10:04 PM on September 14, 2008 [23 favorites]


First, you say that as though this is simply a case of an unregulated market doing exactly what it does best, which seems in your opinion to be fleece a bunch of people for as much money as they can.

No, fleecing a bunch of people for as much money as possible is what greedy people do. If you leave that bunch of greedy people unattended and in charge of a market, they'll use the market to achieve their ends.

In this case they achieved their ends by repeatedly lowering the quality of loans they were making while doing their best to obscure that fact from the people who were investing in those loans.

As others have mentioned, the people running these brokerages have cleaned up big time based on the record numbers they've been producing over the last few years.

What regulations, exactly, should have been put in place to avert this disaster?

Quality requirements, enforced by regulation, on the kinds of loans that the large brokerages are allowed to traffic in. And all other their other securities as well. If you want to be a major player in the U.S. markets, you can't be propping yourself up on the expected payback of the million dollars someone loaned to their kid's lemonade stand.

When have the Democrats championed those regulations?

Dunno. I'm not attempting to exonerate the Democrats.

Still, the Republicans have made blocking and tearing down any regulations a plank in their platform for at least 30 years now, which is something they should be made to answer for.
posted by tkolar at 10:05 PM on September 14, 2008 [2 favorites]


norm: I respectfully disagree. Republican judges/justices and the Bush administration's DOJ efforts have gutted the antitrust laws and pulled regulators off the markets.

I registered my dislike for Republican 'deregulation' in the industries above. I feel the same here.

But I'm a bit slow. Maybe you can explain to me how 'deregulation' of antitrust laws and anti-monopoly restrictions has anything to do whatever with regulation or deregulation of the trade in securities and in structured debt, and particularly with direct regulation of the highest levels of trading. I guess I just don't understand how they're the same thing.
posted by koeselitz at 10:06 PM on September 14, 2008


lupus_yonderboy: Thanks. Gimme a sec to read all that - it's helpful.
posted by koeselitz at 10:08 PM on September 14, 2008


Less about blame, more about what this really means..

So today -

Lehman - Kaput
AIG - Dying
Merril - Sold themselves off
BOA - Buying as much poison as it can using loans from the fed
WAMU - very sick

Where does this go?

EURO go up? Dollar go up? Gold go up? Everything levels out and we're a-okay?

DOOOOOOM?
posted by Lord_Pall at 10:09 PM on September 14, 2008 [1 favorite]


Anybody hear anything about PNC? Because, you know, if PNC's fucked, let me know so I can go make a run on them tomorrow. kthxbai.
posted by CommonSense at 10:14 PM on September 14, 2008


troy: Don't give us that BS... It's post-Nixon/Ford Republican canon that 20th century government intervention upsets the traditional & proper church-business-government balance... We had Palin recently regurgitate this party line about the GSEs costing too much taxpayer money... It's what Reagan ran on...

Yes, Palin, but nobody really believes that Palin knows what she's talking about.

I was only pointing out the interesting fact that I haven't heard a prominent Republican recommend the deregulation course of action in terms of securities and exchanges since Newt. It seems like they know very well that they don't know what that would mean and that that might mean destroying themselves.

lupus_yonderboy gave a pretty interesting and useful description of this above. It seems more complex to me than "Republicans want to deregulate everything." I'm no Republican, but even they certainly aren't stupid enough to try to deregulate the fed. Or where exactly are all the Republicans in Congress moaning about how Bush is stepping in far too much on Wall Street?

I just think that's interesting. That's all.
posted by koeselitz at 10:15 PM on September 14, 2008


I would imagine the dollar will be down, euro will be down, financials will be down, gold will be up, and everything is not going to level out tomorrow. This is far from the end.
posted by sophist at 10:17 PM on September 14, 2008


As another example, recently I was surprised but not very surprised to hear that the FDIC supposedly doesn't keep any of the "insurance" money it takes in: the money apparently goes right into the Treasury like a tax and is spent as we go and then the Treasury pays out when it needs to.

Well, they're getting cash from the banks and the idea is to put the money in the safest investment possible -- treasuries.

Same place the SSTF goes.

Theory being that what the Congress spends it can tax back.
posted by troy at 10:20 PM on September 14, 2008


But I'm a bit slow. Maybe you can explain to me how 'deregulation' of antitrust laws and anti-monopoly restrictions has anything to do whatever with regulation or deregulation of the trade in securities and in structured debt, and particularly with direct regulation of the highest levels of trading. I guess I just don't understand how they're the same thing

My link was picked to illustrate the mindset of our GOP overlords, not to claim that antitrust is the only area that the regulators have been pulled off. Although one can make a compelling case that the oligopolization of the market has greatly multiplied the effects of the shock.
posted by norm at 10:23 PM on September 14, 2008


The yen has gone from 108 to 105.8. July lows of 104 still safe for now, but that's an awful big down-move.
posted by troy at 10:23 PM on September 14, 2008


You're setting up a false dichotomy, delmoi. It's perfectly possible to pull the worst fangs of capitalism without trying to manage specific outcomes in the economy.

"You can only work your workers 40 hours per week unless you pay them overtime" is an example of the first.

"Growth is down this year, so we're going to inject more cash into the system" is an example of the second.

Why is it bad? Because politicians will always, always, always avoid pain today, even if it means more pain tomorrow. We now have at least fifteen years' worth of accumulated adjustment that we need to go through, because the Fed has refused to allow anything bad to happen, ever. The only acceptable outcomes were boom and a little less boom, and they provided any amount of cash required to make that happen. We have done no adjustment to the reality of cheap global labor; instead, we've consumed our wealth in a purchasing frenzy of McMansions, Beemers, and large-screen TVs. Even worse, we took out loans to do it, so we didn't just spend OUR wealth to buy these things, we spent that of our children. (unless we renege on our debts, in which case it's the creditors that take it on the chin, but our children will pay for that too, since people won't want to lend to them, even for good reasons.)

We should have spent the last fifteen years struggling and sweating, really pissed off that things were so bad. Instead, we've been drifting along in a cash-induced euphoria, while our economy rotted out from underneath us. We're waking up now and discovering that we're too weak to work; we can't pay back our bills. The entire economy runs on debt, and there is no more debt available. We've tapped it out. The Fed is trying, desperately, more of what made us sick in the first place -- debt issuance. You can't fix a debt problem with more debt, but maybe you can hide it, and defraud creditors through inflation, so that's what they're trying to do. If they can get the game going again, we end up in Zimbabwe. If they fail and the systemic debt collapses, we'll end up in the Second Great Depression. That would, actually, be the best possible outcome.

The Fed will try to chart a middle course, which may, for some time, throw us into a 70s-type stagflation, but with the size of the maladjustments and imbalances, eventually we'll fall from the middle ground down one cliff or the other. It could be sooner or it could be later, but it will happen. And we will fall even further than we would if we just let ourselves fall right now, because the imbalances will keep getting worse.

This has nothing whatsoever to do with worker protections or regulation of companies. This is from attempts to manipulate economic outcomes. We've been deferring pain for a very long time, and the bills are coming due.
posted by Malor at 10:24 PM on September 14, 2008 [20 favorites]


drezdn, where are you seeing that?
posted by LobsterMitten at 10:32 PM on September 14, 2008


Ten years ago, Dick Fuld brought Lehman Brothers back from the brink of disaster when the giant hedge fund Long Term Management imploded, squeezing Lehman's balance sheet.

Now Fuld's friends in the executive suits are questioning his judgment: Why did he wait so long to raise money? And why did he buy much of the soured real estate at the height of the market as he did with one of the firm's biggest commercial real estate assets, the Archstone-Smith transaction?

And even bigger problem for Fuld's Wall Street buddies is whether he was being completely honest when he attacked critics of the company's balance sheet, namely short seller David Einhorn. Fuld's former CFO Erin Callen even began a media blitz earlier in the year saying that Lehman finances were strong and Einhorn's analysis was weak.

"Fuld was in the papers doing a victory dance when in reality the place was in desperate shape," said one executive at a major Wall Street firm.

The assessment among the Lehman executives is even worse. After 1998, when Fuld was credited with saving Lehman after the Long Term Capital debacle, Lehman executives bought into Fuld's corporate culture. Even administrative assistants agreed to stay with the firm that paid them as well as top executives, with much of their salary in company stock.

Enron anyone?
posted by netbros at 10:34 PM on September 14, 2008 [1 favorite]


Even though I'm horrified by news like this, I gotta say, I really enjoy these MetaFilter financial disaster threads. They're very informative and have plenty of apocalyptical humor. What more could you want? Other than non-plummeting "safe" investments?
posted by ignignokt at 10:35 PM on September 14, 2008 [5 favorites]


My prediction: gold up, dollar down, exchange down (of course).

For those that dont have money in the market this is an issue for you as well.

While living in Mexico I saw the devaluation of the peso to apx. 25% it's value 2 weeks (or so) before. Rough stuff. If the Fed can't sustain FDIC claims and starts printing money (on top of the trillion plus bailout) watch our dollar decline. Add to this if China and Japan blink and sell our dollar for Euros you can wave life as you know it in the US firmly bye bye for a few decades. Of course this is a worst case scenario and China and Japan are interested in keeping their customers currency stable(ish).

I just left Canada when they instituted the Goods and Services tax (8%ish). Canada did it because their bond rating (as a dropped. Everyone in Canada took it on the chin and their economy turned around (but not until several years). Which is, as Malor suggested, exactly what we should've done 15 years ago. I think this is the only option left to us at this point on top of serious cuts everywhere.

All of what is happening now is an indictment of both parties, especially as they add insult to injury by pandering to us about cutting taxes and instituting programs we can't afford.

This is very bad. We are so screwed. Only Ron Paul can save us now.
posted by gnash at 10:39 PM on September 14, 2008




The only acceptable outcomes were boom and a little less boom, and they provided any amount of cash required to make that happen

ISTR some pretty high fed rates coming into the 2000 election.

The 90s were fine IMV. The Nasdaq madness was just suckers getting fleeced; it was entirely voluntary. The country was in EXCELLENT fiscal health on Jan 20, 2001, even with the major capital misallocation into online petfood delivery etc.

We've been deferring pain for a very long time, and the bills are coming due.

If by "very long" you mean since 2002, I agree.

Plus Clinton does deserve bad marks for not tackling the health care insurance and oil dependency issues on his watch, but it's tough to get progress when half the country are fucking retards, you know who you are.
posted by troy at 10:42 PM on September 14, 2008 [2 favorites]


The Lehman Brothers building is just down the street from where I live

nickyskye, I strongly advise crossing the street & using the footpath furthest from that building over the coming days & weeks.


Jumpers?
posted by nickyskye at 10:43 PM on September 14, 2008


fucking Archstone-Smith. Their apartments were affordable down here in 2002 -- $800/mo. Now they're 3x that. Goddamn "capitalists".
posted by troy at 10:46 PM on September 14, 2008


From the WSJ article about AIG:
During a weekend scramble to shore up its finances, AIG turned down a capital infusion from a group of private-equity firms led by J.C. Flowers & Co. because an option tied to the offer would have effectively given them control of the company, an 89-year-old giant that does business in nearly every corner of the world.

Private equity, pirate equity. (See also: the terms of Wamu's TPG capital raise)
posted by milkrate at 10:49 PM on September 14, 2008


Please, please, this thread is interesting reading and can remain so as long as the facile political mudslinging is kept in check!
posted by waxbanks at 10:59 PM on September 14, 2008 [1 favorite]


For my fellow English majors and other artsy types who might want to do some reading on how this whole mess came about, let me recommend THE ECONOMIC MELTDOWN, AS SEEN IN REAL-TIME THROUGH METAFILTER POSTS:

(The following list is woefully incomplete; please feel free to add your faves from the past year or so.)

July, 2007:
"A world of Casey Serins" - MeFi takes a look at the world of sub-prime mortgages and "ARMageddon", the coming reset of ARM's (adjustible rate mortgages). MeFi further discusses how those bad mortgage debts being securitized and sold off is starting to bite Wall Street in the ass, i.e. the death of two Bear Stearns hedge funds.

August, 2007:
"Damnit Jim, I'm a doctor not a stock broker!" - CNBC's Jim Cramer blows a gasket while on the air; it becomes a famous YouTube video.
"21st century financial panic" - Rising foreclosure rate discussed.
"Minsky Meltdown ahead?" - The idea of a "Minsky Moment", which is financialese for "time to stop lying, because the shit is finally hitting the fan", is discussed.

September, 2007:
"Cui bono" - The Federal Reserve unexpectedly cuts interest rates to help prop up the market (round one).
"Leave the SIV, take the cannoli" - The Treasury Department attempts to create a giant off-balance sheet vehicle called M-LEC for banks and investment banks to put their bad assets in. It doesn't get off the ground. Start of unusual government intervention in the situation.

October, 2007:
"And yes, the band did play on" - 20th anniversary of 1987 stock market crash.

November, 2007:
"Ups and downs in the world of high art" - The high end art market starts to crash.
"Two hedge funds that predicted sub-prime crisis see corporate debt as next casualty" - Self-explanatory.

December, 2007:
"Graphical explanation of CDOs" - Just what it says it is. Published because people are starting to wake up to how these instruments can be unstable if the underlying collateral is marked down even a little bit.

January, 2008:
"Look out below...!" - Stock markets around the world have a big sell-off while the US is closed for Martin Luther King Day. To prop up the markets, the Federal Reserve cuts rates unexpectedly (round two).
"Oh, the humanity!" - A young "rogue trader" at French firm Societe Generale blamed for the firm's losses in the previous week. Yet he is never charged with a crime...
"Flat-Packed" - Discussion of how first-time buyers and buyers in the UK are being priced out by the housing bubble's high prices.

March, 2008:
"wooo realestate implosion buddy! ^5" - Discussion of China, which has bought debt backed by US mortgages (which are starting to fail), and China's inflation.
"bank shot" - Discussion of second mortgages and HELOC's, and how many banks will never recover any money on them, since the first mortgage holder is first in line.
"Rent Vs. Buy Myths That Ruined the Housing Market" - The myth that real estate always goes up is discussed.
ALSO: Bear Stearns bought by JP Morgan for $2/share (ends up being $10/share); US gov't ponies up about $29 Billion.

May, 2008:
"Dark pools of liquidity, or the secret stock market" - Discussion of "dark pools", which big Wall Street firms use to price their equities purchases.

July, 2008:
"While this is timely information bank failures are normal part of life" - Discussion of FDIC insurance and impending bank failures.
"Bringing Down Bear Stearns" - Bear Stearns' failure discussed.

August, 2008:
"It's the end of the world as we know it... lalala" - Discussion of the writings and predictions of economist Nouriel Roubini, who correctly called the sequence and size of most of this mess at least two years ago.
""A national debt will be to us a national blessing." Alexander Hamilton, Secretary of Treasury,1780" - Discussion of whether the US should or will default on some or all of its debt.

September, 2008:
"Fannie and Freddie under conservatorship" - Mortgage giants Freddie Mac and Fannie Mae get absorbed by the US government.
ALSO: Lehman Brothers goes bankrupt, AIG nearly bankrupt, Bank of America buys Merrill Lynch...and the month is just half over so far...
posted by Asparagirl at 11:03 PM on September 14, 2008 [183 favorites]


Um, don't expect the Republicans to cop to this. I have seen them blaming Democrats outright for the last few weeks for all manner of things. Never mind that that makes no sense at all; it's what fits on a bumper sticker that matters.

Yes to this. My mom has an almost eerie way of telegraphing the latest GOP talking points -- I am not kidding when I say that I think she might in fact receive a literal memo, which she reads off of every few weeks when torturing talking to my sister and me -- and the right-wing word on the street is that this is all a direct result of the Obama-Biden-Clinton bailout bill (yes! they coauthored it!), which has already raised taxes (I know! You didn't even notice, did you?) on hardworking Americans who play by the rules in order to reward convicted felons and illegal immigrants. John McCain's economic plan, however, will fix it all by privatizing social security.
posted by scody at 11:05 PM on September 14, 2008 [14 favorites]


great thread.

Greenspan vs. Buffet on derivatives:

http://www.forbes.com/2003/05/09/cx_aw_0509derivatives_print.html

is the smart guy long gold this week?
posted by specialk420 at 11:13 PM on September 14, 2008


Asparagirl:

April 4, 2006

Recent Condo Open House in San Diego Is the real estate cycle going downhill from here?
posted by troy at 11:23 PM on September 14, 2008 [3 favorites]


Is there any website that graphs the value of various currencies against each other over time, on the same chart? Ie not comparing one against the another, but five or six currencies on the same graph?
posted by -harlequin- at 11:23 PM on September 14, 2008


June 16, 2005:
Pop Goes the Global Housing BubbleThe Global Housing Price Bubble is bursting. Prices are already declining in Australia and Britain . . .

April 3, 2006:
The Sky is Falling I've become obsessed with the idea of the Real Estate Bubble. . .
posted by troy at 11:28 PM on September 14, 2008 [4 favorites]


April 2004:

The Family Economy
posted by empath at 11:39 PM on September 14, 2008 [4 favorites]


I think gold will decline in value for a while. After all, it was at a 20 year peak a couple months ago and is off 11% over the past 3 months, 25% over the past six months. Why would it go higher? The truth is (by 'truth' I mean my opinion), gold price is determined by pointless speculation and demand for jewelery. One of the reasons prices were going was increased demand India and China, but now that those economies are starting to go south, demand has slowed.

Remember, that's 11% compared to the dollar, which has also been tanking to some extent.

Check out the price of gold vs. Oil over the past six months Down 25.7 over the past six months. That doesn't seem like a very safe investment to me.

If you want to you can buy pure Oil, by buying an ETF called USO. However, oil prices have been dropping pretty quickly for a month or so, and they're still pretty high. The destruction of gasoline refineries by Ike means that demand for crude will go down, since refiners buy crude to make gasoline, so we could see another big drop in oil on Monday.
posted by delmoi at 11:43 PM on September 14, 2008 [1 favorite]


(er, the price of gold has droped 25.7% in dollar value, not value vs. gold. The chart just has Oil on it for a comparison. Oil is down 5% over the past six months, but down 30% from it's peak in July)
posted by delmoi at 11:46 PM on September 14, 2008


Thanks for that list, asparagirl. I wonder if its a good thing that metafilter is (seems to be?) a much better source for this kind of stuff than most news sites.
posted by twirlypen at 11:47 PM on September 14, 2008


I kind of think that now might be a good time to start thinking about getting back into the market? Maybe not jumping in right away, but in the next 4-6 months. The main thing holding back the markets is uncertainty, as I understand it. Once all this paper gets cleared and on the books, don't you think the market is going to bounce back rather quickly? Are there any other big hairy green monsters lurking? I remember reading all this bubble stuff as far back as 2004, but I don't see anything else lurking on the horizon right now.
posted by empath at 11:56 PM on September 14, 2008


So, what does all this mean to the guy on the street? Do I need to take all my money out of my savings and checking accounts and hide it in my mattress? Or should I use it to buy bullets? I've got a few (20-ish) grand in "Domestic Growth Equity Funds", whatever that means, it's a fund my parents gave me when I got out of school, should I be withdrawing all that and buying bonds? Or silver? Or beans?

Jesus this shit scares me. It's like hearing the all people around you on the airplane conversing animatedly in Swahili, and the only words you can understand are "This plane's fucked."
posted by rifflesby at 12:03 AM on September 15, 2008 [19 favorites]


Citigroup holds $138 billion in Lehman Bros bonds. They can kiss a significant chunk of that goodbye.
posted by PenDevil at 12:05 AM on September 15, 2008


I don't see anything else lurking on the horizon right now.

You mean besides the other financial institutions on the brink of collapse (WaMu, just to name one), the weak dollar, millions of homeowners underwater on their mortgages, rising food, gasoline and heating oil prices, trade deficit, and record levels of personal debt? No, other than that, it's all good.
posted by scody at 12:05 AM on September 15, 2008 [4 favorites]


The plummeting dollar is changing who owns what in NYC. Chrysler Building to Be Sold to Abu Dhabi.
posted by nickyskye at 12:09 AM on September 15, 2008


Citigroup holds $138 billion in Lehman Bros bonds.

And their total market cap is only $97 billion, so...

Shit.
posted by Asparagirl at 12:10 AM on September 15, 2008 [5 favorites]


You mean besides the other financial institutions on the brink of collapse (WaMu, just to name one), the weak dollar, millions of homeowners underwater on their mortgages, rising food

Sure, but that stuff may be priced into the market already.
posted by delmoi at 12:10 AM on September 15, 2008


Jumpers?

Yep. I've always picked Wall St types as the kinds of people to commit suicide by jumping off tall buildings.

They're constantly dealing in vertical metaphors - of things rising & falling - that falling & bottoming out with a huge crash becomes the natural metaphor for ending one's life.
posted by UbuRoivas at 12:10 AM on September 15, 2008 [4 favorites]


gnash: This is very bad. We are so screwed. Only Ron Paul can save us now.

Are you joking, gnash?

Anyone, is gnash joking?

I just can't tell anymore.
posted by Kattullus at 12:15 AM on September 15, 2008 [1 favorite]


Citigroup holds $138 billion in Lehman Bros bonds. They can kiss a significant chunk of that goodbye.

LEH was making $4B/yr profit during the good years. $140B of debt issue DOESN'T MAKE ANY SENSE. YOU CAN GET THAT YIELD ON $140B HOLDING TREASURIES.

Yet their total liabilities is, or was I guess, $613B.

C has $2.1T in "assets", and $1.96T in liabilities. $4000 of their assets, I assume, is a 1.9% fixed for life credit offer I still have from them from 2004.
posted by troy at 12:20 AM on September 15, 2008


Oh, and, I suppose this does make me that much happier that I crossed the threshold into debt-freedom on Friday. It's nice to have been able to do that while I still had some extra money. I have a feeling that "extra money" is going to be in short supply in the next few months/years.
posted by Kattullus at 12:20 AM on September 15, 2008 [1 favorite]


empath: no.
posted by amuseDetachment at 12:28 AM on September 15, 2008


(WaMu, just to name one)

Yeah, on that.... It's been interesting how in the last 2-3 weeks the talk around Seattle has shifted from whether WaMu can survive to how bad the job losses will be when it finally fails or gets bought out.

It's looking inevitable now. The board waited too long to fire Killinger and mainly just stuck their fingers in their ears while the bank fell apart. Now JPMorganChase and Wells Fargo are just circling overhead waiting to divide up WaMu's lone remaining asset -- a healthy retail banking business with national branches.
posted by dw at 12:32 AM on September 15, 2008


Even though I'm horrified by news like this, I gotta say, I really enjoy these MetaFilter financial disaster threads. They're very informative and have plenty of apocalyptical humor. What more could you want? Other than non-plummeting "safe" investments?

I enjoy these threads, too. My understanding of these threads hovers around the 10-20% mark a lot, but it's fun to hear inside baseball stuff about a subject I know almost nothing about.
posted by zardoz at 12:36 AM on September 15, 2008 [3 favorites]


And I should say this: We've all seen the Lehman collapse coming for months. This isn't like Bear, where all a sudden the cupboard was bare and that was that.

The Street has had months to prepare for it. The disappointment here is the big banks weren't willing to even pay the fire sale prices.

The big, scary thing, though? Lehman has CDOs. And they could put them up for auction. And that would set a value for them. And then we actually would know just how badly banks are in hock right now.
posted by dw at 12:38 AM on September 15, 2008 [3 favorites]


So, are Vanguard and Fidelity going to fail and take everyone's IRAs with them? Or are they a different type of financial institution than Wamu? (A "brokerage"?)

Yeah, holdings in Money aren't looking too hot right now. I'd suggest diversifying into water and proteins.

Funny you should mention that. link originally courtesy of tachikaze
posted by salvia at 12:38 AM on September 15, 2008 [2 favorites]


Lehman has CDOs. And they could put them up for auction. And that would set a value for them. And then we actually would know just how badly banks are in hock right now.

Schrödinger's banks: simultaneously alive and dead.

I never understood the real-world usefulness of that physics concept, but now I get it -- it really does depend on when the observer makes a measurement. And the metaphorical possibilities don't stop there; check out "quantum entanglement."
posted by salvia at 12:50 AM on September 15, 2008 [2 favorites]


Vanguard and Fidelity going to fail and take everyone's IRAs with them?

No. They manage the assets and do not "spend" them, and if they did your IRA is insured, either via private bonds or the SIPC. I believe the SIPC has ~$5B set aside to cover claims, eg. an intern at Fidelity liquidating your account and heading to Kokomo.
posted by troy at 12:52 AM on September 15, 2008 [1 favorite]


Japan: Respect for the Aged Day
Korea: Mid Autumn Harvest Moon Festival

dunno about China but probably same as Korea.

btw, the various markets -- Taiwan, Jakarta, etc are down 2% right now.

=================

Taiwan's stock market is down 4% at closing, in case anyone cares. Taiwan, Jakarta and Australia were the only Asian stock exchanges open today. Just like ATM's!
posted by fatehunter at 1:09 AM on September 15, 2008


New Zealand was was down a couple of percent.
posted by rodgerd at 1:29 AM on September 15, 2008


South Africa is down 2%
posted by PenDevil at 1:31 AM on September 15, 2008


So, it looks like every single bank in the US is going to take a hit this week. But what does that mean? Anyone willing to engage in some wild conjecture on the odds that, by Friday, Wachovia or WaMu will be out of business? What about Citi? Are there any exceptions (maybe B of A)?

Will the market rally, as banks pool their liquid resources in a good faith effort to keep it afloat? Or not so much?

I can only take comfort in the fact that, no matter how bad this gets, I can rest assured that my student loans won't be going anywhere. Heh.
posted by evidenceofabsence at 2:01 AM on September 15, 2008 [1 favorite]


Chase, BofA and Wells are generally have the most assets behind them as far as major banks in the us, ultimately it's the system that's busted and I doubt any financial institution is going to walk away unscathed.
posted by iamabot at 2:25 AM on September 15, 2008


It's really important to understand that Clinton is a very great deal of this problem; he took lying about the government's books to new heights, and rejiggered the inflation and productivity numbers to make himself look better. I think that the Fed may have taken his bogus numbers as being truthful; I think even Greenspan bought the snow job. His liquidity injections certainly suggested that he bought the new inflation figures.

We should have been cursing both his and Clinton's names already, because times should have gotten absolutely terrible in 2001. But the Fed took irresponsibility to new heights, and inflated new bubbles, so we don't realize how central Clinton was to this mess. It's far worse now than it was, and people will tend to blame Bush, but the original bubble and pop were very much Clinton/Greenspan. Bush/Bernanke are just doing supersize versions of what they started.

As your standard of living declines, all four of those guys are who you should be blaming. Don't limit it to just the 'greedy republicans', you should also curse the 'lying democrats'. I actually believe Clinton's damaging the economic figures to be worse than what Bush has done.

I rate the bad guys in this order: Greenspan, for never seeing a problem liquidity wouldn't cure, Clinton, for hiring brilliant people who consciously manipulated the economy and the figures used to measure that economy to make their own stars shine brighter, Bush, who failed to understand anything about what was going on, and Bailout Bernanke.
posted by Malor at 2:48 AM on September 15, 2008 [3 favorites]


New Zealand was was down a couple of percent.

How much is that in sheep?
posted by UbuRoivas at 2:50 AM on September 15, 2008


How much is that in sheep?

20 dollars, same as in town.
posted by iamabot at 2:58 AM on September 15, 2008 [5 favorites]


How much is that in sheep?

Not enough to buy a witty Australian, given their incredible scarcity.
posted by rodgerd at 3:13 AM on September 15, 2008 [16 favorites]


adamdschneider -- "I'd say he's probably in bed right now, but I'll wager he'll chip in here in the morning."


Guys as much as I'd love to I'm not gonna be able to comment in this thread until later today, if then. You probably read there was an extraordinary trading session yesterday afternoon (2PM to 6PM EST), with closuring / booking of positions contingent upon Lehman's filing. Which, of course, has happened.

Now we're doing a lot of cross counterparty matching on Credit Default Swaps, effectively taking Lehman out of the picture across the board by finding matching positions on the other side. Almost like removing a defective component of a faulty circuit.

Checking my Bloomberg, most of the European equity markets are down about 3% or so with US Futures currently indicating about the same drop at the open. We've also seeing a flight to quality in US Treasuries, with the yield curve shifting down across most of the term structure (40 bps at some tenors, sizeable moves), gold is making a nice pop up and interest rates futures are indicating a much higher probability of a US rate cut. This off the back of rumours all morning here in London about coordinated Fed / BOE / BOJ action later today; if it's gonna happen it will be at or close to the New York open.

Looking at Credit Default Swaps we can see spreads have widened across the board, but not alarmingly so. The iTraxx index widened from 95bps to about 130bps, not at roughly 115bps - indicating protection sellers are demanding higher premiums to insure against default) but pulled back markedly after the Bank of America / Merrill announcement. Compare to the Bear announcement when we saw CDS spreads push out past 165bps. This bankruptcy was telegraphed and we've had a lot of time to prepare for it so folks aren't as agitated as you might think from reading the newspapers or some of the comments in this thread.

I can't go into the level of detail this thread desperately needs here but looking at this from a high level over the past few days you've had Wall Street vs. The Feds, with the government trying to force a shotgun wedding.

But Wall Street wasn't stepping up to get hitched. Why not? Because these guys know that they're gonna make more money picking over Lehman's carcass then they would bringing the fat pig home for butchering.


So, volatility in the short term. Probably lots of it and cutting across asset classes. Like I said recently in another thread, these are historic times.

But you folks know I'm the eternal optimist, always looking for a sweet spot to every market event - and I've found it in here in London!!

They are bringing them onto the trading floor by the dozen dozen, box after box ... too bad I don't eat the damn things ... gag
posted by Mutant at 3:29 AM on September 15, 2008 [16 favorites]


Not enough to buy a witty Australian, given their incredible scarcity.

hehe - reminds me of (ex NZ Prime Minister) Robert Muldoon's quip, when asked what he thought of all the Kiwis making their way to Australia for work or something: "It raises the IQ of both countries at once".

Given the scarcity of witty aussies, I think we should claim him as one of our own, just like Russell Crowe & Split Enz / Crowded House.
posted by UbuRoivas at 3:37 AM on September 15, 2008 [3 favorites]




ISTR some pretty high fed rates coming into the 2000 election.

And this, ladies and gentlemen, is what's known as "selective ranging." Here's a chart of the effective Fed Funds rate that goes back more than 20 years.

Note the rate from 1994-1999. Note the short "peak" at 2000.

Now note the 1980s. And the 1980s. 6.25% isn't pretty high. 6.25% is pretty close to the goddamn average since 1954. Though, to be honest, we really should put a big vertical line at March 1973, when the Bretton Woods markets closed, currencies were floated instead of pegged to the USD (which was no longer pegged to gold in any way) and the Fed had to change how it affected the money supply.

Now, very carefully, note 2001-2004. You wonder where the bubble came from?
posted by eriko at 4:24 AM on September 15, 2008


You can have Russell.
posted by Kiwi at 4:24 AM on September 15, 2008 [2 favorites]


Wake-Up Call: Lehman's Mortgage Marks
The weekend's momentous developments -- Lehman Brothers Holdings' looming collapse, Merrill Lynch's merger talks with Bank of America and American International Group's plans to sell assets -- all have one thing in common: The firms couldn't deal with tens of billions of dollars in mortgage exposure left on their balance sheets from the credit boom.

Anyone else holding large amounts of tainted mortgages has to worry. Lehman's potential unwinding, along with any aggressive actions by Merrill and AIG to offload mortgage assets, could mean widespread losses as other banks mark down their own holdings.
posted by eriko at 4:26 AM on September 15, 2008


Yeh in response to a couple of queries; I am (was?) indeed taking a year off to write my MBA dissertation. But since my broad topic is in fact the Credit Crunch (specifically, Liquidity Risk and the Impact of Structured Products on The Subprime Collapse, changed due to market events) I couldn't pass up the opp for some short term consulting work in Credit Derivatives, to see this thing unfold from the inside of a Tier 1 bank rather than reading about it secondhand, via an academic journal, newspaper or 'blog.

I guess you really can't quit this business; not only does it get in your blood but once the bastards get your phone number they never leave you alone ... heh.
posted by Mutant at 4:30 AM on September 15, 2008 [2 favorites]


I really don't understand why the Bear Stearns/Fannie/Freddie/Lehman/AIG/Merrill/etc. mess hasn't triggered an outcry or at least an I-told-you-so from Democrats in Congress.

My suggested sample script:

"The Republican mantras of deregulation and non-interference of government in the market have failed. They caused this clusterf*ck of a disaster. The free market is the cornerstone of our economy, but without sufficient regulation and oversight, we all eventually get screwed by cataclysmic meltdowns of the whole system. There is no easy fix for the current mess, but we need tougher laws, more oversight, and a whole new damned system of regulation to prevent sh*t like this from happening again."

Or something like that.

Is there just no one left in Congress who is smart enough and articulate enough and ballsy enough to stand up and call the Republicans out on this?

Maybe Barney Frank?
posted by rbellon at 4:47 AM on September 15, 2008


CommonSense: "Anybody hear anything about PNC? Because, you know, if PNC's fucked, let me know so I can go make a run on them tomorrow. kthxbai."

Aggh, don't even think that. NYC can afford to loose a few banks but PNC's the only one that Pittsburgh has left.
posted by octothorpe at 4:47 AM on September 15, 2008


Questions for FinEcon people:
1) should I avoid the side of the street with the Citigroup building on it?
2) I'm a vegetarian for ethical reasons. a) If I come upon fresh killed banker, would it be inconsistent of me to take some home for my cat? b) Do I need to worry about barbiturates in the meat, or can I cook those off?
3) At how many stories fall is a Rolex 50% likely to survive?
posted by a robot made out of meat at 4:48 AM on September 15, 2008 [21 favorites]


I must say I'm not seeing the panic some are alluding to up thread. I was much more concerned a year ago, when there was more uncertainty, and retail runs on savings banks looked possible. The market has had twelve months to get its head around the situation, to the point today we are seeing the big banks letting Lehman fail with the associated untidyness rather than stumping up the cash for a bail out. That the heads of the big banks think the counter-party-failure risk is containable to the point they will let Lehman go so they can pick over the distressed assets is reassuring to me. It signals that there is much less mystery around, which is a good thing.
Remember, too, that the system is strengthened if the poor performers fail. As Malor often states, there must be the possibility of failure - moral hazard and all that.
The US Fed seems prepared to generously support those institutions it judges too big to fail, but it is reassuring they will not hold up the firms that should fall over.
There are cycles in the economy, and this is a period where there will be failures, and there should be, as long as the structure of the financial system is maintained so the failures can happen in an orderly way.
Yeah, it sucks if you were a Lehman stock holder but thems the breaks.
What will be interesting is to see the wash up of the counter party matching Mutant is doing - is Lehman heavily out on a limb? Can they be taken out of the equation? Is there a market - liquidity - in their holdings? The Fed and the heads of the big banks obviously think there is enough.
posted by bystander at 4:51 AM on September 15, 2008


Trading resumes in about 90 minutes over in NYC. We'll be leaving the radio on at the bookshop. Free popcorn, too.
posted by Kinbote at 4:57 AM on September 15, 2008 [1 favorite]


Bankruptcy filing is in.

Lehman claims 613 billion dollars in debt.

I guess if you're going to bankrupt, miswell go BANKRUPT!
posted by Lord_Pall at 5:08 AM on September 15, 2008


Barney Frank has been one of the biggest asshats in this whole mess. While he trumps himself up as someone trying to fix the mess, as government intervention in these things usually goes, he's just making things worse.

He's the one who called for moratoriums on foreclosures, pushed banks to buy back houses, etc. All things that may be great in Barneyland, but in the real world are disastrous.

Just about the only senator (No, not nutball Ron Paul) who has stood up to the Federal Reserve and Treasury and called a spade a spade is Jim Bunning, who told the finance boys that they were a bunch of communists.
posted by tgrundke at 5:18 AM on September 15, 2008


Wow $613 is big numbers. The next big question is: who holds their debt and how big of a whack will they take? That thar will be your first big ripple effect.
posted by tgrundke at 5:19 AM on September 15, 2008


Lehman claims 613 billion dollars in debt.

I don't feel so bad, mine's less than half that.
posted by maxwelton at 5:19 AM on September 15, 2008 [2 favorites]


You can have Russell.

We'd rather have a Crowded House drummer back. /derail
posted by UbuRoivas at 5:24 AM on September 15, 2008 [2 favorites]


It's far worse now than it was, and people will tend to blame Bush, but the original bubble and pop were very much Clinton/Greenspan. Bush/Bernanke are just doing supersize versions of what they started....

I don't think looking at prior mistakes and saying "hey, that was dumb, let's do exactly the same thing again but on an epic scale" gets you off the hook exactly.

I think the better thing to think about is which leaders are best suited to get you out of this mess. Between the intelligent idealist/old political hand and the war-happy old dude/pit-bull-with-lipstick, I think it's a pretty simple choice, especially when you factor in the policies of the parties that prop them up.
posted by Shepherd at 5:26 AM on September 15, 2008


I predict we'll be hearing a lot less about Sarah Palin this week.
posted by Slothrup at 5:29 AM on September 15, 2008 [3 favorites]


and the finger pointing starts
posted by HappyHippo at 5:46 AM on September 15, 2008


and the finger pointing starts

Haven't read the thread, have you?
posted by stavrosthewonderchicken at 5:55 AM on September 15, 2008


I predict we'll be hearing a lot less about Sarah Palin this week.

Only on CNBC. Fox and CNN are showing the Oprah boycott of Palin and the OJ trial. They have to underplay this so the sheeple don't empty their 401K accounts.
posted by RobotVoodooPower at 6:00 AM on September 15, 2008


Please, please US Congress - don't go into emergency session and pass another tax rebate. These are an inefficient, expensive and self-destructive way to stimulate the US economy - but a great way to stimulate the Chinese economy.
posted by dances_with_sneetches at 6:00 AM on September 15, 2008


and the finger pointing starts

McCain did have as his economics advisor "It's all in our heads" minarchist nutcase Gramm.
posted by troy at 6:14 AM on September 15, 2008


hasn't triggered an outcry or at least an I-told-you-so from Democrats in Congress.

cuz they were f'ng wet noodles when this was going down 2002-2006.
posted by troy at 6:18 AM on September 15, 2008


Lehman claims 613 billion dollars in debt.

I'm a little bit of a lightweight when it comes to these discussions (this one has been great though), but I love the phrasing of this.

"Um, hello! Yes, it's Joey Douchebag over at Lehman Brothers. How're the kids doing? Great, great to hear it! Oh, yes, the golfing was great on that course! Thanks for the tip!

By the way, just so you know, we're claiming, um, carry the zero, round down to the nearest billion, um, yeah, 613 dollars in debt! Not sure how it got there, but just so you know, we're claiming it. Didn't want to leave you out of the loop! Don't want any nasty surprises or anything! Kthanxbai!"
posted by bardic at 6:20 AM on September 15, 2008


THE ECONOMIC MELTDOWN, AS SEEN IN REAL-TIME THROUGH METAFILTER POSTS

I was thinking about doing something like this just last night. GET OUT OF MY MIND, ASPARAGIRL.

Also, you know, thanks.
posted by cortex at 6:21 AM on September 15, 2008


I see this as an opportunity. Once one of these banks goes out of business I will put that I was a big shot at that bank on my resume. Salary 350,000. I will apply for a job at a different bank and show up to the job interview in a tuxedo. They will ask about my references I will inform them that most of them have already committed suicide but I can give them Nikolai's number. Here's the dirty secret. Nickolai is just me with a bad Russian accent. Good bye office in my bedroom hello catbird seat. Thanks economic collapse!
posted by I Foody at 6:23 AM on September 15, 2008 [23 favorites]


I Foody - I think that's how the head of Fanny Mac and Fanny Mae got their jobs after the S + L crisis.
I've been pondering this universal construct for what has gone wrong and it comes back to Bush never willing to admit he makes a mistake - he even defended his "The Pet Goat" reading.
With 9/11, Bush decided it couldn't possibly have been anything he was doing wrong. It must have been constraining laws from the prior administration, it must have been not having enough intelligence, rather than having the intelligence and not processing it correctly. So we got the Patriot Act and now we drown in a near infinite amount of low grade intelligence.
In a similar manner Bush determined the 2001-2002 recession couldn't have been his fault. It was 9/11 (which in turn was Clinton's fault), the pop in the internet stocks bubble (run up by Clinton), and the collection of taxes toward balancing the budget rather than cutting taxes (for stimulus). So he cut taxes again and again. And tax-cuts even during an expensive war for more stimulus. The housing bubble wasn't a crisis to the Bush administration firstly, because they didn't understand it, and secondly because what they deemed to be the tax cuts working was the housing market churning. To think otherwise, would be to admit they were wrong.
posted by dances_with_sneetches at 6:43 AM on September 15, 2008


So LEH is worth 28¢? Cute.
posted by delmoi at 6:51 AM on September 15, 2008


I see this as an opportunity

Hmm. This strikes me as an inordinately good idea.

Inordinately good, or inordinately hilarious. Either way, it's worth doing.
posted by aramaic at 6:52 AM on September 15, 2008


"The fundamentals of our economy our strong."

-John McCain. This morning. Like, twenty minutes ago, for godssakes
posted by XQUZYPHYR at 7:08 AM on September 15, 2008 [9 favorites]


My uninformed opinion on this matter is that my dad works for Merrill Lynch, I have no electricity (nor does anyone in Ohio) due to winds for Ike (and nor will we for a few days), it's only 10 in the morning, and I think I'd just like to go back to bed, please.
posted by Quidam at 7:12 AM on September 15, 2008


troy said: I don't have the numbers, but our debt mania 2003-2006 was probably as bad as theirs of 1986-1989.

Ours makes that looks tiny. It's the biggest set of bubbles in the history of mankind. Likely result: obvious.
posted by Malor at 7:17 AM on September 15, 2008 [1 favorite]


I have no electricity (nor does anyone in Ohio) due to winds for Ike (and nor will we for a few days)

How are you posting? TCP/IP over carrier pigeon?
posted by Ryvar at 7:31 AM on September 15, 2008 [1 favorite]


^ one would think so, but the Japanese Gov't is now about twice as deep into debt as the USG is, diddled GDP statistics or no.
posted by troy at 7:31 AM on September 15, 2008


How are you posting? TCP/IP over carrier pigeon?

Or maybe a blackberry, iphone, etc?
posted by delmoi at 7:34 AM on September 15, 2008


How are you posting? TCP/IP over carrier pigeon?
Or maybe a blackberry, iphone, etc?


Neither. About 180,000 people are out of power in Dayton (and another 600,000 in Cincinnati), BUT, both my university and job have power, so, I'm currently posting from school because I still have class, and then work.

<>
posted by Quidam at 7:50 AM on September 15, 2008


Just about the only senator (No, not nutball Ron Paul) who has stood up to the Federal Reserve and Treasury and called a spade a spade is Jim Bunning, who told the finance boys that they were a bunch of communists.

You guys sure like to hate Paul, but as far as I know, he's the only one in the entire government that has been correctly saying that things are in an extraordinary, world-altering mess.

I don't know too much about him, actually. I can't speak to any of his other stances, because I don't know what they are. (I actually know very little about him, except that I read an essay of his recently in which he was derisive about 'faith-based currency', which I liked a lot.) But using comments like 'nutball' about the guy who got it more right than any other elected official shows, I think, a pretty serious lack of ability to see past your preconceptions. You've already decided he's wrong, so even when he was actually right, he's still a nutball.

He's also not a senator, BTW.
posted by Malor at 7:51 AM on September 15, 2008 [7 favorites]


oops. html borked the last part, but, i'm finished derailing this thread now.
posted by Quidam at 7:51 AM on September 15, 2008


In the days ahead, remember the following:

1. The objective of Wall Street is to privatize profit and nationalize risk.

2. Behind every great fortune is a great crime.
posted by Pastabagel at 7:58 AM on September 15, 2008 [23 favorites]


McCain economic advisor Donald Luskin, Quit Doling Out That Bad-Economy Line:
Things today just aren't that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression -- or exaggerated Depression comparisons.
...
There have been 11 recessions since the Great Depression. And we're nowhere close to being in the 12th one now.
posted by kirkaracha at 8:00 AM on September 15, 2008 [3 favorites]


Luskin is the anti-Krugman.
posted by troy at 8:02 AM on September 15, 2008


But using comments like 'nutball' about the guy who got it more right than any other elected official shows, I think, a pretty serious lack of ability to see past your preconceptions. You've already decided he's wrong, so even when he was actually right, he's still a nutball.

no, he's a nutball because he's a nutball. Hey may be right half the time, but that's only because so little of what's going on right is now is optimal.
posted by troy at 8:04 AM on September 15, 2008


BOO ALL MY DOLLARS ARE WORTH NOTHINGS NOW. FUCKING SWEDISH KRONA!!!!!!!!!
posted by beerbajay at 8:12 AM on September 15, 2008


Good thing I've been investing in Coach bags and Rock and Republic jeans instead of, like, these unreliable stock things, right? Right??
posted by Metroid Baby at 8:27 AM on September 15, 2008


You guys sure like to hate Paul, but as far as I know, he's the only one in the entire government that has been correctly saying that things are in an extraordinary, world-altering mess.

All while sticking earmarks in spending bills he knows will pass so he can vote against them and still get the money for his district.

THAT'S MAVERICK!
posted by dw at 8:39 AM on September 15, 2008 [1 favorite]


Kiwi: You can have Russell.

UbuRoivas: We'd rather have a Crowded House drummer back.


'The crisis in New York has seen international repercussions today, with the markets in Australia and New Zealand responding to increased economic instability with an uptick in trading on celebrity futures...'
posted by koeselitz at 8:59 AM on September 15, 2008 [4 favorites]


"The fundamentals of our economy our strong."

-John McCain.


"I'm going to be honest. I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated."

--John McCain
, Wall Street Journal, 2005
posted by Fuzzy Monster at 9:01 AM on September 15, 2008 [5 favorites]


@Kattulus - I wasn't joking about us being screwed, and only sort of joking re: Ron Paul.

Putting Ron Paul aside for a moment, the very good outcomes of these unfolding events is that the candidates will now have to address the elephant in the room (which they have avoided up to this point) and what their plans are to unf*** all of us.
posted by gnash at 9:02 AM on September 15, 2008


gnash, like the real thing: you don't get unf*cked. It'll take a long, long time to recover. We're knocked up with debt, and working it off will probably take at least as long as raising a child.
posted by Malor at 9:21 AM on September 15, 2008


Meh. Just this weekend, there was a piece on This American Life on how SEC Chairman Christopher Cox told congress to go get bent when they wanted to increase his funding to investigate shady business practices that brought about the credit crunch (and the subsequent gutting of Wall Street that happened yesterday.)

Meanwhile, Art Levitt, chairman of the SEC under Clinton, was hamstrung by Newt and the Boys back in the '90s. He's given a few interviews over the years on what should be going on, but wasn't.

Congress can only do so much. They rely very heavily on the executive branch in the form of the Fed, the SEC, etc, etc, to supply them with the information they need to make needed changes. This Administration is doctrinaire in the extreme about not burdening the markets with any sort of oversight at all, and even pro-business GOP stalwarts in congress were sneered at openly by Bush appointees.

So, yeah, blaming Clinton and the Dems is idiocy. Clinton's not in the White House, and hasn't been since Limp Bizcuit was edgy and underground. The current congress has been in power by the barest of margins for two years, and have been stonewalled on general principle by every facet of the Bush regime.

Face facts. The Regan Revolution is now in its "Stalin rises to power" phase.
posted by Slap*Happy at 9:28 AM on September 15, 2008 [2 favorites]


Pastabagel: "In the days ahead, remember the following:

1. The objective of Wall Street is to privatize profit and nationalize risk.

2. Behind every great fortune is a great crime.
"


1: Yes.

2: Yes. See: Thomas Kinkade.
posted by Science! at 9:38 AM on September 15, 2008 [6 favorites]


We invested in that - it's like we got Merrill Lynched
posted by porn in the woods at 9:43 AM on September 15, 2008


The Lehman building is down the street a couple of blocks. Mondays in this neck of the woods are noisy, intensely bustling, honking, brakes. Woke up this morning and it was silent outside as Easter Sunday. No sirens, no sound of traffic, just the sound of the ventilation system fan from the Scientology building nearby, faint helicopter chopping in the distance. Strange.
posted by nickyskye at 9:50 AM on September 15, 2008 [1 favorite]


nickyskye, that's Ben Bernake, warming up his "chinook o' cash dispersal". Things here are odd, everyone is quite nervous. For the while I have a job...

For the while.
posted by PROD_TPSL at 10:18 AM on September 15, 2008


AIG's going to be allowed to lend itself 20 billion dollars. In honor of DFW I think that should be called "annular capitalism".
posted by condour75 at 10:27 AM on September 15, 2008


AIG is now able to loan money to itself. May we live in interesting times.
posted by ryoshu at 10:30 AM on September 15, 2008


Larry Elliott
posted by chuckdarwin at 10:34 AM on September 15, 2008 [1 favorite]


I work in the Financial District (not saying where, or for who, but that it's not one of the four mentioned in the original post), and it's pretty quiet down here. Lots of worried faces and generally furtive behavior. The delis and take-out places are mostly quiet, the plazas are half-empty, and there's a feeling like people are waiting for the rest to hit.

It's uncomfortable.
posted by mephron at 10:38 AM on September 15, 2008 [1 favorite]


Candidates split on strength of economy
Mon Sep 15, 9:56 AM ET
The candidates split Monday on the strength of the U.S. financial system, with Sen. John McCain (R-Ariz.) declaring in Florida that "the fundamentals of our economy are strong" and the Obama campaign mocking the remark as out of touch with reality.

Sen Joseph Biden (D-Del.), the Demcorats' vice-presidential nominee, said in St. Clair Shore, Mich: "I could walk from here to Lansing, and I wouldn’t run into a single person who thought our economy was doing well, unless I ran into John McCain."


**

Here, in a nutshell, is the main problem with the Republican party in the Bush Two Era: they positively refuse to ever, ever, ever, admit that things may not be going well.

Whether it's Iraq, Afghanistan, global warming, Katrina, or the economy, their immediate, kneejerk reaction is always, always to deny that anything at all is wrong.

The GOP is the party of proverbial ostriches with heads stuck firmly in the sand. It's beyond exasperating, beyond insane, and anyone with half a brain can see how so much chronic denial about the reality of the world leads to certain disaster.

The Republicans are the party of fantasists, totally out of touch with reality. Whatever the faults of the Democrats, and there are many, they at least do not have this contagious and willful disregard for dealing with the facts. They at least make some small attempt to face the music.
posted by ornate insect at 10:55 AM on September 15, 2008 [14 favorites]


I have to 2nd some of the political analysis.
I’m no economist, but it seems to me Hoover got a lot of flak for the depression, but Coolidge and especially Harding - had loads of scandals and outright theft, which, in hindsight, seemed to make the great depression inevitable. I suspect whoever winds up in office next term will have this dumped in their laps.

“1. The objective of Wall Street is to privatize profit and nationalize risk.
2. Behind every great fortune is a great crime.”

3.The last act of any corrupt government is to loot the treasury.
posted by Smedleyman at 11:00 AM on September 15, 2008 [6 favorites]


Meanwhile in Canada:
“I don't think the atmosphere should turn to one of complete doom and gloom,” Mr. Harper told reporters this morning as he kicked off the second week of the Conservative Party's re-election campaign.

My own belief is if we were gong to have some kind of big crash or recession, we probably would have had it by now.
I guess I can't argue with that.
posted by mazola at 11:31 AM on September 15, 2008


PROD_TPSL , glad you still have your job.

It's an eerie day here in NYC. So quiet.
posted by nickyskye at 11:34 AM on September 15, 2008


Roubini: Congress Must Recapitalize FDIC Immediately (video worth watching)
posted by ornate insect at 11:35 AM on September 15, 2008 [3 favorites]


Big Risk: Surging Debt Makes U.S. More Dependent on China, Russia, Gulf States

The demise of Lehman Brothers, Merrill Lynch, and Bear Stearns this year has investors contemplating the long-term outlook for other once-venerable institutions, including Dow members Citigroup, AIG and Bank of America.

But there's an even bigger financial institution with greater debt and an increasing level of bad loans on its books: The U.S. government.


"Reagan proved deficits don't matter."
--Dick Cheney


WRONG!

Unsustainable Debt Is Weakening National Security
posted by Fuzzy Monster at 11:46 AM on September 15, 2008 [2 favorites]


Somehow my (worthless) intuition tells me that this is like a machine that these financial engineers have run at tighter and tighter tolerances and considered themselves geniuses for doing so and doing something that George Bailey would never have (could never have) thought of. And so you win some races and life is great but the tolerances are always getting tighter and eventually things seize up.

I guess it's more complicated than that. I mean no one would hire me to design a race car engine, nor would they hire someone who makes slower engines than the other team.

And hell we beat the Soviets to the moon by taking risks, so I guess it's the American way!
posted by Wood at 11:54 AM on September 15, 2008


Given the scarcity of witty aussies, I think we should claim him as one of our own,

Taking the genius that is John Clarke wasn't enough?
posted by rodgerd at 12:04 PM on September 15, 2008 [1 favorite]


i got 6 friends who all work for LEH in various capacities, 5 of them in IT. I've been calling them since Friday trying to hook them up with jobs. It's really windy today in NYC. Almost like the Lehman building has imploded and is vacuuming up the atmosphere.

here's an IM i just got from one of them:
"time is just ticking away before im told to leave and never come back"

sucks. does anyone have details on the packages all those C level guys are gonna get for digging the grave of a 150 year old investment bank?
posted by Mach5 at 12:14 PM on September 15, 2008


It's never good to be poor and usually better to be rich,
And I'd be rich if I could have chooseded it;
But right now, I guess it's better to be poor
Because at least I'm already used to it.
posted by Astro Zombie at 12:20 PM on September 15, 2008 [10 favorites]


Roubini: Congress Must Recapitalize FDIC Immediately (video worth watching)

I just skipped the video and went to the comments, where you can always get the best info. First comment on a video of a top financial expert discussing possible disaster in the economic system of the United States:
"Biggie was right..."Mo Money, Mo Problems""
posted by cashman at 1:45 PM on September 15, 2008


May I take a stab at the banking crisis:

Quant: You know if we could turn risk into a number or set of numbers then we can sell it off and take our commission. The great thing about making it into numbers is that computers use numbers.

Bank: Computers are smart!

Quant: Okay because we use computers we can do a whole lot of equations really fast, it means we can sell even more products! That's where we get our money!

Bank: Me like money!

Employee: Wait a minute, we never did anything like this before, and there's a reason we never did, we can't quantify risk like that! Plus what if they lie? Everyone knows that securities are the last thing in the world that will follow a rigid, mathematical structure. How do these models account for a lack of liquidity? You can't hedge against that.

Bank: Money!$$$

Quant: Money!$$$$$$$$

Bank: $$$$

Quant: $$$$

Employee: Wait a minute, how do you hedge against the theta in mortgages? The time decay doesn't work the same it does in fixed income securities, how do you match up liabilities to assets in these fancy products? Cash flows aren't as predictable when people repay their mortgages.

Bank: $$$$?

Quant: $$$ +$$$ = $$$$$$$
posted by geoff. at 1:51 PM on September 15, 2008 [8 favorites]


From a post today in an ask me thread, NPR on the credit crisis.
posted by iamabot at 2:02 PM on September 15, 2008 [1 favorite]


"the fundamentals of our economy are strong"
--John McCain, Sept. 15th, 2008

“Our economy in crisis,” the narrator says. “Only proven reformers John McCain and Sarah Palin can fix it."
--Recent McCain ad

Poor old muddled McCain.
posted by Fuzzy Monster at 2:03 PM on September 15, 2008 [12 favorites]


I'll put the over/under on AIG either folding or getting a government bailout at 1 month. Any takers?
posted by Law Talkin' Guy at 4:06 PM on September 15, 2008


Ok a questin related to this thread. I *dont* understand why ML shares didnt go up to $29 / share today given the announcement on Sunday. I know I am missing something - did the share purchase price not apply to common shares (or something like that)? Is the deal not solid?
posted by gnash at 4:40 PM on September 15, 2008


I'll take the under. I think AIG is done by next weekend. God help us all.
posted by fet at 4:42 PM on September 15, 2008


gnash -- there is speculation that the deal may not get done at all, or if it does, not at that price.
posted by fet at 4:42 PM on September 15, 2008


Taking the genius that is John Clarke wasn't enough?

John Clarke's a Kiwi?!?? Damn, he's one of our funniest, along with John Safran & the Chaser crew.

posted by UbuRoivas at 4:43 PM on September 15, 2008


. I know I am missing something - did the share purchase price not apply to common shares (or something like that)? Is the deal not solid?

It's a stock swap with a fixed ratio of BAC. BAC dropped 20% today, the remainder of the difference is indeed the uncertainty of the deal. Plus fear in general.
posted by troy at 5:19 PM on September 15, 2008


It's a stock swap with a fixed ratio of BAC. BAC dropped 20% today,

Wow.. So, one has to presume that the drop was factored into the offer amount, right?
posted by Chuckles at 5:25 PM on September 15, 2008


This is nuts. Only a few weeks ago, I was listening to a podcast (well, really a recording of a 20+ year old radio show, now MP3'd and put onto a blog with RSS feed) of a late-1980s Bob "Mad Dog" Lassiter show. He was doing his intro monologue, with the topic for that evening's show being the fast-tanking economy.

I was INSTANTLY reminded of something he said in this show about a week ago, when I heard a phrase he brought up bandied about in the media (and just upthread). He said that the number-one sign that we are irreversibly DOOMED and going to hell in a handbasket is that you will hear analysts, pundits, and paid-to-lie-to-you Wall Street talking heads use the phrase -- and I shit you not, I'm going word-for-word here -- "The fundamentals of our economy are strong."

Oh, and this is from a circa 1987-1988 broadcast, by the way.
posted by CommonSense at 5:39 PM on September 15, 2008 [9 favorites]


Interesting quote from the NY Times article on AIG:

[T]he moment it began trying to raise capital, A.I.G. had to open its books to potential investors who were likely to take a sharp pencil to the company’s portfolio values, analysts said. And with Lehman Brothers last week providing investors with a valuation for the same types of assets held by A.I.G., subprime and Alt-A mortgage securities, the investment bank’s marks can now be applied to the big insurer’s books.

As of the most recent quarter, for example, A.I.G. had $20 billion of subprime mortgages marked at 69 cents on the dollar and $24 billion in Alt-A securities valued at 67 cents on the dollar.

But Lehman officials on a conference call with investors last week said it was valuing similar subprime mortgage securities to those held by A.I.G. at 34 cents on the dollar; its mark on the Alt-A holdings was 39 cents. Those valuations suggest almost a $14 billion decline in A.I.G.’s holdings, after taxes, an amount representing 18 percent of the company’s book value.

posted by zippy at 5:46 PM on September 15, 2008


Enron anyone?

Yup, netbros. The Lehman fiasco is lot like Enron.

New Narc City: Sam Vaknin and the Narcissism of Wall Street. An excellent article about the types of CEOs who do these kinds of things. An ebook by the same author, Capitalistic Musings, relevant to what's going on this week

New York 1 News video about the situation. Quite informative.

Mayor Michael Bloomberg said,"Our financial system cannot continue to stand this game of speculators preying on the weak firms, and trying to destroy them for profit. There will always be a weakest firm, by definition, there must be. But we have to understand that our country's future is connected to our ability to work together, instead of trying to tear each other down."

This statement is very typical of the Enron fiasco, the malice and greed of the guys with the Big Money: Some employees said they were furious that after all their loyalty to Lehman, the company's bankruptcy leaves them with little or nothing. Lehman employees owned one-third of the company stock and say they were continually told everything would be okay.

One longtime employee told NY1, "The CEO got greedy and threw 25,000 employees in front of the bus."


The ongoing lies of the CEO: "I remember in April, at the annual meeting, the CEO Dick Fuld got up and said, 'I'm going to hurt the people who are criticizing us,'" said Elstein. "They talked tough until the very end and here's the result."

The Federal Reserve had refused to help the struggling company, saying Lehman knew it was in trouble for some time.
posted by nickyskye at 5:51 PM on September 15, 2008 [7 favorites]


Please note that the Market only goes down when more people are selling than buying. But somebody had to be the first to sell and get the starting price or close to it, and it wasn't the 'little investors' who make up 99% of the 95 million Americans who own stock but well less than 50% of the value of the market (sorry, I really don't feel like searching for the exact numbers). Many well-positioned Market Movers have already made their move, cashed in and locked in most of the profits they've picked up over the last few months/years. And it is way way too early to "get in on the bottom" although some fools and manipulators will try to do so tomorrow. Meanwhile 'short sellers' are making billions from the money that "evaporated" today, "evaporated" in recent turndowns from the 14000 Dow peak and will continue to "evaporate" in the months to come.
posted by wendell at 5:57 PM on September 15, 2008


AIG is the biggest insurance company in the United States. If they go down, that's bad. And I don't just mean bad for the stock market.
posted by Asparagirl at 6:01 PM on September 15, 2008


I can not yet imagine how AIG is going to avoid either going down or being acquired on terms that are very unfavorable.

I am surprised that I haven't heard much from Warren Buffett. I wonder whether he might be a suitor for AIG.
posted by zippy at 6:13 PM on September 15, 2008


The company I worked for that went belly-up in the Junk Bond Crash umpteen years ago (and where I earned the biggest paychecks of my life, taking a big cut in my next job in exchange for guilt-free sleep) had a lot of employee-owned stock, much of which they issued as "bonuses" and 401k contributions. I had to cash in all of mine to help pay for a medical bills of my then-wife (this company also had very generous health benefits; I've been living with the Health Care Crisis since the '80s), and in retrospect, it was one of the best financial decisions I ever made.

Then when I went to work for the 'guilt-free' company (which did end up somewhat guiltier than I hoped, but at least is still in business today), I put 100% of my 401k money into a guaranteed 5-6% interest fund [have I told this story before?], got flack from a co-worker who went with various high-flying stock funds and when the DotCom Crash happened I forced him to compare notes and saw that I'd beaten his total net gains for the PREVIOUS 8-9 YEARS.
posted by wendell at 6:13 PM on September 15, 2008


Aren't insurance companies insured? No joke: I thought they have to have their own insurance policy to operate, which is what allowed people to recoup losses from the 9/11 attacks.
posted by Blazecock Pileon at 6:17 PM on September 15, 2008


Aren't insurance companies insured?

Yes, they insure each other through a practice called reinsurance, and AIG is, among other things, one of the reinsurers. I don't know how big AIG is in this area, but it does show how one insurance company's downturn can effect many others.
posted by zippy at 6:28 PM on September 15, 2008


Reinsurance and retrocession significantly distribute insurance liabilities within the industry yes. But (on preview, like zippy just suggested) when you distribute liability, you distribute the effects of catastrophic failure too. Someone reinsured by AIG is going to be in a bad spot all of a sudden, and anyone reinsuring AIG (if they're in that position—I don't really know the industry beyond the very basics) isn't going to be happy about this either.
posted by cortex at 6:33 PM on September 15, 2008


Some good comments about this mess over on this NYT thread. People are angry, and they have every right to be. I also agree that we are nowhere near out of the woods yet; as one poster on the Times thread puts it:

The news did not sink in yet. 4th largest IB goes belly-up, another one goes on fire-sale, not to mention the AIG fiasco and the Dow is only down 4%??? My guess tomorrow (or later in the week) another 500 points down. — TheRace, DC
posted by ornate insect at 6:45 PM on September 15, 2008


If there is one politician who is at the heart of this crisis it is McCain's economic brain, Phil Gramm.

Gramm's long been a handmaiden to Big Finance. In the 1990s, as chairman of the Senate banking committee, he routinely turned down Securities and Exchange Commission chairman Arthur Levitt's requests for more money to police Wall Street; during this period, the sec's workload shot up 80 percent, but its staff grew only 20 percent. Gramm also opposed an sec rule that would have prohibited accounting firms from getting too close to the companies they audited—at one point, according to Levitt's memoir, he warned the sec chairman that if the commission adopted the rule, its funding would be cut. And in 1999, Gramm pushed through a historic banking deregulation bill that decimated Depression-era firewalls between commercial banks, investment banks, insurance companies, and securities firms—setting off a wave of merger mania.

But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.)

posted by afu at 7:04 PM on September 15, 2008 [2 favorites]


Someone reinsured by AIG is going to be in a bad spot all of a sudden, and anyone reinsuring AIG (if they're in that position—I don't really know the industry beyond the very basics) isn't going to be happy about this either.

How about the news that AIG can borrow $20B from other parts of the business? What other parts would have $20B in solid capital lying around? Why, the insurance side.

Now.

Think carefully.

Can you think of any reason that AIG -- The US's largest reinsurance firm -- might have to make some large payouts from the insurance side in the next few weeks?
posted by eriko at 7:05 PM on September 15, 2008 [1 favorite]


IIIIIIIIIIIIIIIIIKE!
posted by anthill at 7:32 PM on September 15, 2008


Are you thinking hurricanes, eriko, or are you thinking October Surprise?
posted by Asparagirl at 7:32 PM on September 15, 2008


It's all those global warming theorists - they're responsible for the collapse of the American financial system! Burn them!
posted by anthill at 7:32 PM on September 15, 2008


Can you think of any reason that AIG -- The US's largest reinsurance firm -- might have to make some large payouts from the insurance side in the next few weeks?

In the immortal words of Snoop Doggy Dogg, fizzucked. Oh, and WaMu is junk status now. Just sayin'.
posted by ryoshu at 8:10 PM on September 15, 2008


This is how the world ends
Not with a bang but with unfavorable claims experience.
posted by cortex at 8:23 PM on September 15, 2008 [10 favorites]


Cortex, I think this counts as a bang.
posted by OldReliable at 8:33 PM on September 15, 2008


I am surprised that I haven't heard much from Warren Buffett. I wonder whether he might be a suitor for AIG.

** cough **
posted by netbros at 8:37 PM on September 15, 2008


Merrill CEO John Thain: "While Fed Chief, Ben Bernanke and Treasury Secretary Paulson called for new regulatory powers to shield the economy from the collapse of Wall Street firms, John Thain was deep in discussion with the UFO alien about the future of his firm Merrill Lynch."
posted by milkrate at 9:15 PM on September 15, 2008


Man, it sucks having to wipe my ass with fives instead of 20's like I used to.
posted by bardic at 9:47 PM on September 15, 2008 [1 favorite]


I'm stuck trying to use a roll of nickles.
posted by Balisong at 10:14 PM on September 15, 2008


try pennies
posted by b1tr0t at 10:35 PM on September 15, 2008


Here, try this hank of Alan Greenspan's hair. Works great!
posted by stavrosthewonderchicken at 10:45 PM on September 15, 2008


"613 billion dollars: that's 61.3 trillion pennies! Fifty pounds of pennies for every man, woman, and child on Earth. Stacked, they would reach two-thirds of the way to the Sun. Those pennies were in my ass!"
posted by ryanrs at 12:00 AM on September 16, 2008 [1 favorite]


The BofA chief in this picture looks positively thrilled about the Lehmann acquisition.
posted by zippy at 12:04 AM on September 16, 2008


Lehmann Merrill-Lynch
posted by zippy at 12:05 AM on September 16, 2008


61.3e12 pennies * 1.55 mm = 95.0 million km. Earth perihelion is 147 million km.
61.3e12 pennies * 2.5 grams / 6.7 billion people * 2.2e-3 lbs/gram = 50.3 lbs

posted by ryanrs at 12:05 AM on September 16, 2008 [1 favorite]


zippy: The BofA chief in this picture looks positively thrilled

To be fair it's hard to keep your cool when your right-hand man is transforming into Odo from Deep Space Nine.
posted by Kattullus at 12:07 AM on September 16, 2008


The BofA chief in this picture looks positively thrilled

The pennies, they're uncomfortable.
posted by chillmost at 12:54 AM on September 16, 2008


Yes, but on the other hand, I can fart the intro to Pink Floyd's Money.
posted by ryanrs at 1:00 AM on September 16, 2008 [1 favorite]


I'm taking a breather from the front lines so if folks are still interested in the aftermath I've got some current (as of last night, perhaps 11PM EST) Credit Default Swap spreads to post. I don't have enough time to post Bloomberg screen dumps (like I did last week in a different thread), but I can present a summary view ordered from lowest to highest.

This table shows the cost, in basis points (these are a market convention, just how we do things), demanded by protection sellers, to insure $1M of debt. This doesn't reflect any upfront payments which, for some of the weaker banks out there (i.e., most likely to default) we can now see approaching and in some cases exceeding %50 of the principal.
Name	        15-Sep	Day	Mtd	Ytd
ABN AMRO	120	32.2	34	70.4
Barclays	170	37.4	41	122.4
JPMorgan	192.5	48.5	80	142.8
Bank of America	200.8	44.6	71.5	151.6
Citigroup	267.5	79.9	99.7	195
Merrill Lynch	334.6	-120.4	23.4	209.3
Goldman Sachs	344.6	146.7	196.3	277.1
Capital One	421.7	72.5	71.7	196.7
Countrywide	445	72.1	101.7	-680
Morgan Stanley	496.7	234.8	279	399
Lehman Brothers	706.7   0.00   	371.2	587
AIG	        1908.1	1005.7	1534.9	1839.3
WAMU	        3231.4	484.2	1830.2	2818.9
Just to give you an idea of how things have changed, I've got a bunch of Bloomberg screen dumps I posted Wednesday, September 10th in a different thread.

Disclaimer(s): these are Credit Default Swap spreads, and NOT Probabilities of Default (although we can convert a CDS spread to a PD but I purposely haven't posted enough information here to do so). Also, these quotes reflect live data and as such should be considered indicative only, as these are fast moving markets. Finally, these quotes are for educational purposes ONLY and should not be misconstrued as market advice or recommendations to buy or sell any assets, securities included.


These spreads are for a variety of one year debt by US issuers..

And these spreads are for a variety of ten year debt by UK banks issuing debt..


Market chatter: We're hearing rumours of coordinated interest rate cuts by the G7 intensify; certainly the US yield curve (just about the only yield curve I follow) is moving as though the market is anticipating such action.

The consortium of banks who set up the $70B fund last weekend are (rumours, just crap coming over IM, the phones and squawkboxes) considering doubling up the fund - moving from the price of admission from $7B each to $10B and inviting another ten or so firms to the party. Mood on the trading floor seems to be we've got to draw a line on this crap somewhere and this is as good a place as any.

In terms of firm specific rumours - the market is very quiet today. Seems as though everyone knows the usual unfounded speculation that goes on all the time (and brought down Bear, for example) doesn't help and we're all just not doing it. A junior admin type makes a weak joke about one of the European Investment Banks that's reportedly tottering and is admonished from all sides. These are our colleagues you're talking trash about and we're not having it today. Sorta like respect at a funeral, I guess.

European Central Banks are being very proactive; BOE, French, German and Dutch Central Banks reportedly held teleconferences late last night to insure firms had what they needed, no surprises on the open today (rumour, but the story about The Dutch Central bank is on Bloomberg so fairly credible overall). Another call midday as checkpoint and then this evening after New York close. We think this will continue indefinitely. Banks seem to be welcoming the TLC.


Market review: The Nikkei got spanked big time, down almost 5% declining shares outnumbering advancing shares by a whopping 17.5:1 ratio (almost nuthing was moving up!).

European markets are still declining; the FTSE 100 is off about %1.61 with decliners outnumbering advancing shares by a ratio of about 1.8:1, and The Dax is off about %1.72 decline/advance ratio of 2.75:1.

US stock futures are indicating about a %1.25 drop at the open, unless things turn around in the next four hours. So if there really is a Plunge Protection Team they'd better be ready to rock, 'cause this looks like an ugly open.


$LIBOR doesn't seem to be impacted that much, still trading at about half what it was one year ago during the start of this. USD OIS 3M Swaps (an alternative measure of short term interest rates, one that many feel is more accurate than LIBOR) is static / falling slightly as well. What ever is happening, it isn't because banks can't readily get short term money. On the contrary, from what The Fed / BOE / ECB (BOJ where are you?) are up to, the market seems awash in it. This is a fear dominated market, make no mistake about it.


Oil is tanking big time (we thought the bubble would collapse once speculative money was taken out), down almost %4. Curiously, gold is off about 10% and the Gold / Silver ratio (something I watch carefully as I do a lot of relative value trading with my own money) has widened out to almost 72 (i.e., the number of oz of Silver it takes to purchase an oz of Gold). This is typically trading in the range of 50 to 55 to one. Very interesting.

Wow this is one fascinating bubble to watch collapse. But the view from inside is rather different from that expressed in the blogs or even newspaper articles.

Nobody at the banks seem to be panicking - just sitting at desks, watching Bloombergs / monitors, firing off trades. Lots of background chatter in the air. Head trader is on the PA about market dynamics. Quants are adjusting models, recalibrating with updated data. We start rebalancing portfolios and setting new limits, both down and up. A little excitement when Fed announcements come across the wire. Talking to repo about funding. Staying in close contact with the back office staff, making sure trades are clearing. All desks in close contact, this is cutting across asset classes and you need to know what's happening in other markets. Chatting with counterparties at other banks - what we see here seems to be mirrored across London, into Frankfurt / Amsterdam / New York. No panic, and some guys are even making money: hearty cheers as news spreads on the floor about a big fund that reportedly made a billion dollars yesterday as global markets tanked. Everyone needed to cheer about something.

Interesting times. Hey look at it this way guys - historically over the past few hundred years we've seen speculative bubbles about every ten years or so, this is well documented and takes place regardless of the president, currency, regulatory environment, whatever. Now we've seen three or four (I'm current on the research into asset bubbles, and folks are still arguing about a couple) in the past decade alone ... so -- I say smoothing sailing for years to come!! (one could only hope as much, HA).

That's it from me, gotta hop back to Bloomberg.
posted by Mutant at 2:56 AM on September 16, 2008 [34 favorites]


I'm always jealous of my American cousins who can prepare for the apocalypse with semi-automatic weapons on a ranch in rural Montana. In the UK we have to make do with a bathtub covered with an old door. (really)
posted by rongorongo at 3:11 AM on September 16, 2008 [6 favorites]


Nobody at the banks seem to be panicking

Well, my brother is currently at AIG and according to him, it looks like the scene in Airplane after the pilot says they've run out of coffee. So I'm not sure what your idea of panic is.
posted by spicynuts at 3:49 AM on September 16, 2008 [1 favorite]


Ask yourself two simple questions -
1) Where has the more than $2 Trillion in public money put in to markets so far gone?
2) What exactly does it mean to YOU when 'public' money from central banks and treasuries is 'supplied to the markets'?
posted by adamvasco at 3:52 AM on September 16, 2008 [1 favorite]


B...but... Money is for rich people!
posted by bardic at 4:34 AM on September 16, 2008




4 Chan weighs in.
posted by From Bklyn at 8:19 AM on September 16, 2008 [4 favorites]


"Nightmare on Wall Street" - the Economist's take on the demise of Lehman Brothers.
posted by rongorongo at 8:55 AM on September 16, 2008


Nice update, Mutant.
posted by storybored at 9:35 AM on September 16, 2008


historically over the past few hundred years we've seen speculative bubbles about every ten years or so, this is well documented and takes place regardless of the president, currency, regulatory environment, whatever.

the upstroke
posted by troy at 9:46 AM on September 16, 2008


"Greed is good."
posted by kirkaracha at 9:52 AM on September 16, 2008


Troy...what happened in early 2001? That's an honest question. Was something deregulated? Or was the gov't throwing a ton of new money in to counteract fears that 9/11 would kill the economy? Why the gigantic uptick?
posted by spicynuts at 9:54 AM on September 16, 2008


spicy:

Federal Funds Target Rate
posted by troy at 10:28 AM on September 16, 2008


So, Troy we're looking at Fed policy change, or we're looking at Greenspan continuing what he started during Clinton, or we're looking at a new directive from a new administration to continue to cut interest rates or what? Maybe I don't know what I'm asking. Or maybe the answer is so blatantly obvious....housing boom fueled by an administration that wanted the good times to keep rolling?.
posted by spicynuts at 10:56 AM on September 16, 2008


Dow up today?
posted by bonaldi at 11:00 AM on September 16, 2008


4 Chan weighs in.

Humorous, informative (kinda) and NSFW if clicked.
posted by paisley henosis at 11:28 AM on September 16, 2008


To clairify: the link From Bklyn posted is work-safe, but the image itself is a link, and the target of that link is NSFW.

But I guess it says 4chan right on it, so I suppose people in the office are probably smart enough to steer clear.
posted by paisley henosis at 12:11 PM on September 16, 2008


spicy, I don't really know but my undereducated guess is just that lending was opened up midway in 2001 and through 2002-2004 the party in power wasn't going to make the mistake they made going into the 1992 election. The tax cuts had "to work", even if it meant borrowing our way out of the dotcom crash. 2005-2006 was just momentum taking us where we didn't want to go.
posted by troy at 12:25 PM on September 16, 2008


John Clarke's a Kiwi?!?? Damn, he's one of our funniest, along with John Safran & the Chaser crew.

Dunno about John Clarke, Ubu, but Sam Neill is definitely not Australian, as is sometimes claimed. But I'm not sure Neill is a genuine kiwi, anyway. Isn't it just his dad?

posted by Jody Tresidder at 12:42 PM on September 16, 2008


“It's never good to be poor and usually better to be rich,
And I'd be rich if I could have chooseded it;
But right now, I guess it's better to be poor
Because at least I'm already used to it.”

I’ve been rich, and I’ve been poor.
...rich is better.
(Although I’m poor again now, meh. I can’t let folks starve.)
...y’know tho’, maybe thats the thing. Money only really works if most people have some. I mean, if you’ve got ALL the money, it’s not really worth much, since no one can buy anything. They’re all starving. Nothing really gets done. Society stagnates. Hell, Henry Ford was an evil, misanthropic anti-semetic bastard and he knew that. (Gee should I amass so much wealth and screw people out of so much money that no one can actually buy any cars? Hmm...no, I shouldn’t.)

"The fundamentals of our economy are strong."
And yet - is our childrens learning?

...you guys wipe your ass? Snobs.

....SEMI-automatic weapons? Pussies.

Although that ‘barricade’ and ‘I’m for myself’ attitude never works. It’s the same thing here, y’know, except financially.

I was doing security for a firm a bit ago and there was some unrest and it was winter and they were talking about how to secure the place, keep people from stealing their stuff, etc. etc. And they’re looking at me like I’m Capt. Hardass and I’m going to lay down some amazing strategy to fend off the hoardes. And I said “You employ local people as security?” And they did. And I said “So...in a time of danger and chaos when your installation is one of the only safe havens - perhaps the only powered and heated building for miles around - you’re expecting your guards to turn away their mothers, sisters, and children?”

Apparently the thought of engagement by other means was novel to them. They did a 180 and talked about bringing people in while compartmentalizing their valuables from the regional goon squad. Worked like a charm. No one wants to steal from the place their family is keeping warm.
Same thing - during a crisis, an open helping hand is worth 100 rifles. Want to get ready for armageddon? Collect people with skills. No one is going to hurt the folks who fixed their car and their kids’ abscessed tooth.

This cutthroat financial attitude (and admitedly, that’s about the end of my depth there in explication of it) lead us to where we are.
posted by Smedleyman at 1:12 PM on September 16, 2008 [1 favorite]


Any game theorists out there? I'm curious about your take on this.
posted by woodway at 1:19 PM on September 16, 2008


^ Well, my brother is currently at AIG and according to him, it looks like the scene in Airplane after the pilot says they've run out of coffee.

Airplane 2: We've run out of coffee (youtube).
posted by zippy at 1:24 PM on September 16, 2008


Aspargirl:

The Giant Pool of Money This American Life teams up with NPR News to explain the Housing Crisis.

Provides a great introduction to how this came to be.
posted by lucidprose at 1:26 PM on September 16, 2008


This is a pretty good news article on AIG.
posted by exogenous at 2:35 PM on September 16, 2008


Wow another interesting day. A roller coaster, to say the least. What happened to the good old days where sitting on a trading desk was 100% profit, 99% boredom and 1% excitement?

Anyhow, lots of folks here in London are calling it an early day today. Nearly everyone's been running on adrenaline and two to three hours a night sleep since the phones started ringing to call people in late last Friday night.

A brief recap: New York seems to have held it's own and then some with the S&P 500 up about 1.20%, at least as of the time I made this comment.

Interesting news just came over the wire that JP Morgan loaned Lehman $138B, after the bankruptcy filing; further proof that many banks are working together instead of at odds in these historic times.

As noted upthread The Fed is stepping up to the plate and pumped some $70B of liquidity into the system today. The first $20B was planned, part of regular FOMC activities. The rest was intended to calm nerves somewhat and seems to have worked to some extent.

Nobody's really sure how much above the $20B starting point The Fed would have pumped in had The Ratings Agencies not downgraded AIG last evening. This is concerning everyone as nobody is totally clear yet if the downgrades will trigger cross covenants on debt, linked to agency ratings. If that happens watch out - it's called Technical Default and lots of crap will start flying around. As everyone knows, AIG was already looking for money and this just increases the pressure. The ratings agencies now seem to be on the defensive, perhaps even looking for redemption and were maybe a tad too eager to cut, but that's just my subjective opinion as they've got the data and I don't.

FWIW, The Fed's money is sterlized as its is being driven by Repo activities - therefore, and this can't be stressed enough - not inflationary. I know there is at least one Repo trader here on Meta and perhaps he'll join in if he has the time, but it is my understanding that at least $20B of money injected today was in the form of what's known as the Single-Tranche OMO Program - I might be wrong on the total. Also, I'm not sure how the rest of the cash was structured but needless to say, these were highly collateralised short term loans, to be paid back with interest, not gifts from the taxpayers.

I previously inventoried the various tools, in particular new tools we've been seeing The Fed under Bernanke employ. If anyone has a chance to check out the paper that I ctied - Small, D., H., Clouse, J. A., 2004, 'The Scope of Monetary Policy Action Authorized under the Federal Reserve', Board of Governors of the Federal Reserve System - you can get a good overview of Bernane's thinking.

This is an interesting paper as it was written long before the crap hit, lots of academics were curiously passing it about, speculating on the economic environment that would call for such tools. Well, now we know.

In any case, this is a far more accessible single page document published by The New York Fed [.pdf] which has a complete matrix of vehicles The Fed currently is employing, frequency and everything. A very nice piece of work, as I believe if you can't explain it simply then you don't understand it yourself.

We saw overnight rates soaring early today as Asia handed over to Europe, but due to all the liquidity Fed Funds rapidly traded down to about 3.75%, close to the target rate of 2%. At one point today CBOT Futures were predicting a 98% chance of a Fed cut, compared to 4% just last week so lots of money moved in the wrong direction today as The Fed held at 2%. Big news on the trading floor as almost the entire market was caught off guard. But, this is a clear message that The Fed is trying to draw a line and stop the crap - NOW. Vote of confidence, if you look at it a certain way.

ECB pushed in 70B Euro today (roughly $100B), we heard from BOJ who pumped in 2.5T Y (perhaps $25B) and BOE moved £20B ($36B) into the markets, with almost every G20 Central Bank pumping in cash. The money spigots are well and truly wide open at this point.

From my own (admittedly myopic perspective) it seemed many banks today were looking past Lehman and AIG, deep into direct exposure to Hedge Funds. There is a great deal concern amoung all for exposure to said funds, we were looking at Credit Default Swaps from both sides, focusing on Lehman, AIG and Merrill, the last being an exercise in prudence as some folks think there still a chance that deal might unwind. Market doesn't say so but very few are willing to take a big bet on that outcome, given what's been going on since Sunday.

In any case, primary focus is Credit Default Swaps, but also any other derivatives where Lehman was a counterparty. Secondary considerations are any direct exposure to Lehman (secondary as this is frozen due to Chapter 11, unlike CDS' that could still rear up and bite hard), AIG or Merrill and a third area of inquiry are any of the more exotic trading areas Lehman was involved in (e.g., weather derivatives, etc). Some folks are also looking carefully over the entire Prime Brokerage relationship with Lehman, which is very, very wide ranging and potentially a huge inquiry on it's own.

Bright points (the eternal optimist that I am) include a hiring frenzy stemming from the Merrill sale, oil pushed down below $91 a barrel intraday today, Morgan Stanley beat the street, CPI declined for the first time in two years, there's some cheap stocks for sale out there and eBay is positively swimming in Lehman memorabilia.

If I get time I'll try to do a final comment tomorrow when I can upload some Bloomberg Credit Default Swap spread screen dumps. We've seen contraction of spreads in some sectors (indicating insurers are sensing less risk of default), while other sectors (notably financials) are all over the place - some widening, some contracting, lots static.

Noisy, choppy markets. My own reading of the tape makes me believe the big play now is Volatility Arbitrage, and we've just gotta ride it out.

Keep an eye on that US Goverment Securities Yield Curve; it's the bedrock of all things financial.
posted by Mutant at 2:51 PM on September 16, 2008 [16 favorites]


oil pushed down below $91 a barrel intraday today

Gas is not much cheaper than when oil was $140 a barrel.
posted by Blazecock Pileon at 3:19 PM on September 16, 2008 [1 favorite]


"the fundamentals of our economy are strong"
--John McCain, Sept. 15th, 2008

"The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis." -- Herbert Hoover, October 1929
posted by kirkaracha at 3:45 PM on September 16, 2008 [2 favorites]


Gas is not much cheaper than when oil was $140 a barrel.

Really? It's fallen 50 cents/gallon here in Seattle from the peak.
posted by dw at 3:55 PM on September 16, 2008


Fallen 90 cents here from the peak of a month or so ago.
posted by LoopyG at 4:03 PM on September 16, 2008


Gas won't get cheaper real fast either since Ike has stopped 25 % of our production capacity, and 20% or so of our refining capacity. The latter of which will have more of an impact on pump prices for gas. Anecdotally, around here the price has dropped around 10%, so it is moving.

I heard this today on NPR during an interview of an oil analyst. He said the lower oil price is a sign of a weakening world economy in this case. The dollar has strengthened a bit as people get out of commodities, which contributes to the price too. But, what I thought was interesting is that growth of demand for oil is decreasing, which seems to signify a slowing down economy. I find it hard to be optimistic about the economy as a whole over the next couple of years, but I'm just an average schmoe. Glad I have a good schmoe job that looks like it'll stick around for awhile.
posted by Eekacat at 4:17 PM on September 16, 2008


Really? It's fallen 50 cents/gallon here in Seattle from the peak.

It's been hovering between $3.85 and $4.05 where I live. It's quick to go up but not so quick to go down.

Dropping $50 a barrel from a $140 peak should probably cause more than a commensurate 50 cent/gallon drop, unless inflation is really as bad as that.
posted by Blazecock Pileon at 4:21 PM on September 16, 2008 [1 favorite]


You can hear the program on NPR that I mentioned here.
posted by Eekacat at 4:26 PM on September 16, 2008


AIG got their loan.
posted by aburd at 4:46 PM on September 16, 2008




It's been hovering between $3.85 and $4.05 where I live.

I pass by the Shell station at NE 45th and 12th every day. In July gas was $4.37/gallon. It's currently $3.87/gallon.

It's quick to go up but not so quick to go down.

Well, welcome to Seattle. Anything bad happens with the pipeline or the Anacortes refinery and prices go straight up. After the Bellingham pipeline explosion prices went up 50 cents in about a week and didn't come back down for months, even after the supply chain issues were fixed and oil prices were lower than they were the day the pipeline exploded.

He said the lower oil price is a sign of a weakening world economy in this case. The dollar has strengthened a bit as people get out of commodities, which contributes to the price too. But, what I thought was interesting is that growth of demand for oil is decreasing, which seems to signify a slowing down economy.

Mutant might have more to say about this, but it's pretty clear now that a great deal of the money that was in oil during the bubble was commodities speculators and hedge funds. For a while, too, you saw pension funds, burned by the mortgage crisis, picking up oil futures.

Oil has had a few chances to rally the last couple of months, even this past week with Hurricane Ike heading into the heart of the US oil import/export industry. But even with the power outages in Houston and reports of some damage on the Gulf Platforms, oil still kept falling.

Cheap oil is a sign of a weak economy, but it also helps a weak economy, since it reduces transit costs. After all, it was cheap oil from Saudi Arabia that sent oil prices down over 70% in 1982-83 and jump-started the boom times of the Reagan years (while Oklahoma, Texas, and Louisiana crashed into the Oil Bust of 1983-86).
posted by dw at 5:06 PM on September 16, 2008


but it's pretty clear now that a great deal of the money that was in oil during the bubble was commodities speculators and hedge funds. For a while, too, you saw pension funds, burned by the mortgage crisis, picking up oil futures.

And, there's got to be a reason why all these speculators are getting out. Like I mentioned before, demand for oil isn't increasing as fast, and the dollar has strengthened some. The interviewee did say that lower oil price is normally a good thing for an economy, kind of like a stimulus, but in this case it didn't appear that that will be true considering other economic indications. The long term price bottom he felt was about 75 dollars, since that's about the point where some of the more expensive oil ceases to be profitable, and would go out of production.
posted by Eekacat at 5:23 PM on September 16, 2008


I've been trying to make sense of the story about Bloomberg getting a 'bridge loan' to save itself. According to The New York Times "the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations." Does that mean that the government will own 80% of AIG or that AIG has offered 80% of its shares as collateral?
posted by Kattullus at 5:39 PM on September 16, 2008


The article states that all of AIG's assets would be collateral, and the Fed would own 80% of the company. The idea being the Fed would put in it's own CEO and board of directors. Shareholders would lose, but not lose everything.
posted by Eekacat at 5:56 PM on September 16, 2008


It means that should an AIG go down, the unwinding of derivatives would cause such a cataclysmic deflationary shockwave across the world (as people sold assets to cover positions and reduce exposure) that the meltdown that we've seen thus far would seem like a freaking walk in the park.

So the Fed backstopped them, but not Lehman.

People argue that the US isn't like Japan, because the Fed has been quick to the draw and involved in the process.

But the same problems exist: 1) Banks buying each other, instead of being allowed to fail, allowing failed assets (like Level 3 and various off-balance sheet derivatives trades) to remain unexposed to the light of day; 2) The Fed/Treasury propping up institutions (Bear, Fannie, Freddie, AIG), which prevents proper asset deflation and focus on real value, instead of paper value.

Here's the problem as I see it: if you let the deflationary process work itself out, there may be no way to prevent a vicious deflationary cycle, which would for the foreseeable future create a US (and thus world) economy that perennially shrank. What's the problem with that? Well, we owe a lot of people a lot of money (including foreign investors), like SS, Medicare, and Medicaid. And if our economy shrinks for the foreseeable future, we might just end up defaulting on our debt (it's not like this country has a real economy anymore; service-based economy is code for burger flippers and financial paper shufflers). This country has had a decreasing savings rate for the past 15 years, more than half the people in this country will have last 20-50% of their net worth through the destruction of value in their homes, and commodities (like oil and food) and health care (prescription drugs and services) costs are going up (in dollar terms).

So the US govt. and the Fed's hands are tied. The US economy is too big to fail.
posted by SeizeTheDay at 6:16 PM on September 16, 2008 [1 favorite]


We're screwed. All of Big Shitpile is going to end up on the Taxpayer's backs. Small banks will be forced to fail or bought out. The big ones will be "saved" by US Taxpayer funds. In the end, there'll be one big bank, and we'll dump a few hundred to a trillion into it, because it's too big to fail.
posted by eriko at 6:22 PM on September 16, 2008


OK, CAN I PANIC NOWWW!?

how about now?

now?

posted by spiderwire at 6:28 PM on September 16, 2008 [1 favorite]


Actually, SeizeTheDay, I've heard it posited that the fact that China (and others) owns so much debt of ours is why the Fannie Mae/Freddie Mac thing happened. They wanted to put out there that the government wouldn't let that fail. If foreign investors quit buying our debt (not just our national debt, who do you think is putting cash into so many of our businesses?) then we'd have a hard time operating as a government, printing money, and causing inflation. Letting Lehman fail was the government drawing a line. The fact that the government has been pillaging Social Security and turning it into a big Ponzi scheme is starting to hurt some now.

Crazy times right now, and I think for the next year at least. There's a huge shitstorm ahead, hopefully the folks driving things can steer around most of it. I can't see not getting hit by a lot of shit though, as you say.
posted by Eekacat at 6:56 PM on September 16, 2008


OK, the above didn't make much sense grammatically, and I didn't proofread.

Basically, we're fucked.
posted by Eekacat at 6:57 PM on September 16, 2008 [1 favorite]


Can someone explain to a humble socialist why any of this matters to the little guy? Except for increased insurance rates, I doubt most Americans have much exposure to AIG or Lehman Bros, given that the average savings rate is -0.7%. Is it just a case of the people in power protecting their money, or is there a real public risk here?
posted by Popular Ethics at 7:17 PM on September 16, 2008




" Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility. "

That's not being publically-owned, that's being publically executed. My unsecured credit line's got better than a 12% interest carry.
posted by troy at 7:42 PM on September 16, 2008


P.E., I'm no industry guy but AIG is counterparty to everybody and everything financial. AIG ceasing as a going concern overnight would wipe out Wall Street worse than 10 9/11s.
posted by troy at 7:45 PM on September 16, 2008


that the meltdown that we've seen thus far would seem like a freaking walk in the park.


If I were to medicate you, you would think a brain aneurysm was a birfday party.
posted by spicynuts at 7:48 PM on September 16, 2008


AIG ceasing as a going concern overnight would wipe out Wall Street worse than 10 9/11s.

Then it needed to happen. They bought the shitpile. They should fail because of their poor business decisions.

Why is it that the person who bought the house they couldn't afford should be foreclosed on, but the bank that invested millions in those very same bad loans -- loans that were obviously unsound on the face -- should be saved from the result of their own actions?
posted by eriko at 7:49 PM on September 16, 2008 [5 favorites]


We're screwed. All of Big Shitpile is going to end up on the Taxpayer's backs. Small banks will be forced to fail or bought out. The big ones will be "saved" by US Taxpayer funds. In the end, there'll be one big bank, and we'll dump a few hundred to a trillion into it, because it's too big to fail.

I hope this is tongue in cheek. If not, get over yourself please.
posted by spicynuts at 7:50 PM on September 16, 2008


By way of the Nassim Taleb thread, I came across this classic quote:

"what matters is not your net worth, but the absolute value of your net worth"

Bear, Lehman, and AIG just proved it once again.
posted by anthill at 8:08 PM on September 16, 2008 [1 favorite]


Why is it that the person who bought the house they couldn't afford should be foreclosed on, but the bank that invested millions in those very same bad loans -- loans that were obviously unsound on the face -- should be saved from the result of their own actions?

AIG is not a mortgage company, it's an insurance company.

Re: the above comment that AIG is being executed because their loan is LIBOR plus 850 basis points, I would say that the rate is high for two reason: 1) it's high risk, and 2) the Fed wants to very strongly encourage AIG to repay as quickly as possible.

My understanding is that this is a loan to give AIG the breathing room to sell off assets in an attempt to become liquid, and that these assets may take several months to sell.
posted by zippy at 8:10 PM on September 16, 2008


AIG ceasing as a going concern overnight would wipe out Wall Street worse than 10 9/11s.

can someone explain why that is?
posted by pyramid termite at 8:25 PM on September 16, 2008


eriko, a lot of people bought AAA-rated assets that were AAA because of being guaranteed by companies like AIG.

This is a turtles-all-the-way-down moment. If we run out of turtles then the world we thought we lived in was a figment of imagination and a lot of financial realities would have to be readjusted.

Things like CALPERS pension funds, commercial paper.
posted by troy at 8:27 PM on September 16, 2008 [2 favorites]


Can the Fed Stop the Dominoes From Falling?

**

Back in March, in the wake of the Bear Stearns collapse, the Fed opened up its coffers for other cash-strapped investment banks; does anyone know how many billions of these taxpayer loans went to Lehman Brothers between March and their collapse this weekend? The press often says the government decided not to bail Lehman out, but it would appear to be far more accurate to say that the government bailed the entire investment banking industry out back in March through its "loan window" program--yet not even that unprecedented loan scheme (and the internal firing of key executives) could keep LB afloat. And Merrill Lynch was obviously only slightly better off than Lehman.

Thus, from this article, one reads: Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped another $70 billion into the nation's financial system to help ease credit stresses. The Federal Reserve Bank of New York's action came in two operations in which $50 billion and then another regularly scheduled $20 billion were injected in temporary reserves. {emphasis mine}

The phrase that keeps coming to mind here is "disaster deferral."
posted by ornate insect at 8:31 PM on September 16, 2008


troy:P.E., I'm no industry guy but AIG is counterparty to everybody and everything financial. AIG ceasing as a going concern overnight would wipe out Wall Street worse than 10 9/11s.

OK, this is going to look really naive, but how bad would wiping out Wall Street be? I just don't have the sense that capital markets are all that vital to most people. Maybe I don't borrow enough. What would a US without brisk trade in stock look like?
posted by Popular Ethics at 8:34 PM on September 16, 2008


pumped another $70billion
and by the looks of the Dow, the fuckers went out and splurged it on shares. Still, I did exactly the same when my aunt sent me liquidity injections for Xmas too.
posted by bonaldi at 8:38 PM on September 16, 2008 [1 favorite]


sorry if this has been posted already, but latest news is Barclays is bidding for Lehman now. I know nothing about this type of thing, so can someone explain in simple words if this is a good thing or not, and why.
posted by Megami at 8:38 PM on September 16, 2008


"hopefully the folks driving things can steer around most of it"

Excuse me while I finish peeing my pants from laughing so hard.

Why do we still cling to this fuckwitted notion that American "captains of industry" have any goddamn clue as to what they're doing? They're idiots masquerading as experts. They're vicious little avarists who stick it to the US taxpayer instead of taking responsibility for their own foolhardy actions.

Seriously, fuck 'em. I work for a living. I don't "speculate," I fucking teach. And yet these Stalinist central-marketeers pretending to be Milton Friedmans get another bail-out?

Let 'em fall. Let 'em fail. If I'd have lost my house over the past 12 months, nobody would be telling Ben Bernanke I need a hand-out from the Fed.

As mentioned, the sooner we let this house of cards topple and suffer the pain, the sooner we can re-build a sane economic infrastructure. Bailing out AIG just prolongs the whole shitstorm into a series of slightly more manageable shitstorms.

God, I need a drink after work.
posted by bardic at 8:46 PM on September 16, 2008 [10 favorites]


Seriously, fuck 'em. I work for a living. I don't "speculate," I fucking teach. And yet these Stalinist central-marketeers pretending to be Milton Friedmans get another bail-out?

I hope you don't have a pension plan.
posted by smackfu at 8:49 PM on September 16, 2008 [1 favorite]


OK, this is going to look really naive, but how bad would wiping out Wall Street be?

Where do you think the money to do all those fun things like start new companies, invent new shit, fund cool art exhibits, sponsor tennis/golf/baseball/what-have-you tournaments, build new shit like roads, bridges, airports, open a film production company, develop new cancer drugs, save for retirement, send your kids to college, buy a house yadda yadda comes from? It comes from people who have money being willing to lend it to others with the expectation of getting all of it plus a little (or a lot) back. That is capital markets. Wall Street (and people like you, me, your grandmother, aunt flo) buys bonds, debt, etc from cities, states, countries in order to fund public works and do business.
posted by spicynuts at 8:52 PM on September 16, 2008 [1 favorite]


"I hope you don't have a pension plan."

Honestly, I don't know many people my age that have one. Do you? They're a thing of the past, but for government workers.

I do have a 401(k) however. It's good for a few laughs.
posted by bardic at 8:53 PM on September 16, 2008 [1 favorite]


God, I need a drink after work.

No, you need a clue and then maybe a drink.
posted by spicynuts at 8:54 PM on September 16, 2008


OK, this is going to look really naive, but how bad would wiping out Wall Street be? I just don't have the sense that capital markets are all that vital to most people.

I think they are pretty crucial for creating the impetus behind big business of any kind. Losing that doesn't sound all bad to me though :)

Certainly there are some big businesses that would be missed more than others. Big steel mills and chip foundries are kind of a necessity, but nobody would really miss the Amazons, Walmarts and McDonalds' of the world..

Also, the further information technology goes, the less important big business is. Many, many manufacturing processes which have traditionally been the domain of big industry can be done as well or better by individual craftspeople now -- ever watched American Hot Rod -- and the fantastic convenience of Walmart is much less novel now that you can easily buy stuff from small business people all over the world.

Unwinding Wall Street seems unlikely though..
posted by Chuckles at 8:54 PM on September 16, 2008


I do have a 401(k) however. It's good for a few laughs.

Really? Cuz in about 30 years mine is gonna be good for a boat, a sweet car, a shore house, summers in Rangoon, etc etc. Long horizon, dude. All of this naysaying crap reminds of the sky is falling nonsense that was blared from every TV, newspaper, college cafeteria in 1989. SHIT HAPPENS and the world adjusts.
posted by spicynuts at 8:57 PM on September 16, 2008


spicynuts, if I need a clue, then what exactly do the "experts" who drove the American economy into the ground over the past three decades need?

Look, if we're going to bail-out Wall Street, let's be fair about it. What about people who lost their houses? Don't they matter? If they own a house they buy things for said house, and that's good for the economy.

Why is it "irresponsible" for a middle-class home-owner to get a hand-out from the government, but it's the height of "responsibility" for bloated, mis-managed IB houses, banks, insurance companies, etc., to get trillions in Federal wellfare checks?

So spare me, champ. It doesn't take a PhD from Wharton to see what's going to happen here, yet again. It's the oldest of stories, really, just on a bigger and much more disgusting scale this time around.
posted by bardic at 9:00 PM on September 16, 2008 [5 favorites]


How about if a laid-off fatcat broker at Lehmann brothers loses his house because the government didn't bail them out? That's a toughie, eh?
posted by smackfu at 9:04 PM on September 16, 2008 [1 favorite]


spicynuts - Ya, but.. It would be nice to see information technology leveraged to let the little guy take a hunk out of Big Finances market share. Online sales by small business people are remarkably successful, and there isn't too much reason why you couldn't extend that to financing.. And ya, it is happening on a small scale, but it could be a lot more.

One thing I've observed before about CEO salaries.. If you only have a handful of huge companies, you only have a handful of CEOs, and there are only a handful of people in the world with the skills to be a CEO -- it is all about experience after all. But, if you have a much more balanced economy, with many successful business ventures of all sizes, you defeat the CEO salary problem at source, because you have an abundance of trained people around to compete with each other.

We have more capability than ever to work with many small players, but at the same time the big guys look bigger and more entrenched than ever. If kicking Wall Street in the crotch can help undermine those trends, better for everybody, I think..

That isn't what is happening though, as bardic ably points out.
posted by Chuckles at 9:06 PM on September 16, 2008


"Cuz in about 30 years mine is gonna be good for a boat, a sweet car, a shore house, summers in Rangoon, etc etc. Long horizon, dude."

Well, I'll look forward to that day 30 years from now when one of us gets to say "I told you so." You're a lot more confident about it than I am.

As far as "shit happens," have you even bothered to read this thread? No doubt the American economy is resilient, but have you noted that we've had three or four separate bubbles bursting all at once, rather than in the usual 10-year cycles? That doesn't make you a little nervous? That doesn't make you a little angry at the fact that when Wall Street makes money they keep it, and when they lose fuck-tons of it they go around with their hats in their hands?

So sure, maybe I'm being too pessimistic. But my righteous anger at the hypocrisy of free-marketers who turn into whiny Socialist poopy-diapered babies when their companies go tits up and they need a bail-out? Yeah, that's totally justified. Fuck 'em. They're rats.
posted by bardic at 9:06 PM on September 16, 2008 [5 favorites]


Ass Pennies
posted by Balisong at 9:06 PM on September 16, 2008


"How about if a laid-off fatcat broker at Lehmann brothers loses his house because the government didn't bail them out? That's a toughie, eh?"

Umm, he'd just buy another one with the years and years of high wages and bonuses he's gotten? And if he blew it all on hookers and coke he'll just have to live in an apartment like the rest of us?

Naw, that one's not tough at all. But thanks for playing.
posted by bardic at 9:09 PM on September 16, 2008


Where do you think the money to do all those fun things like start new companies, invent new shit, fund cool art exhibits, sponsor tennis/golf/baseball/what-have-you tournaments, build new shit like roads, bridges, airports, open a film production company, develop new cancer drugs, save for retirement, send your kids to college, buy a house yadda yadda comes from? It comes from people who have money being willing to lend it to others with the expectation of getting all of it plus a little (or a lot) back. That is capital markets. Wall Street (and people like you, me, your grandmother, aunt flo) buys bonds, debt, etc from cities, states, countries in order to fund public works and do business.

Spicynuts: this kind of sunny picture would certainly get Ayn Rand very excited, but it's more than a little disconnected from the reality of Wall Street and global finance today. Even the WSJ would probably admit as much.

After all, roads, cities and schools were all built, and art was funded, long, long before the speculative excesses of global capital circa 2008. And long before there was Enron or Bear Stearns, long before junk bonds or the S&L crisis, long before derivatives or hedge funds, sub prime mortgage loans or investment banking bailouts, there was a thing called the Great Depression. From the financial crisis on Wall Street that ignited the Depression of the 1930s certain banking regulations were put into place. These regulations have been, since Reagan and Bush One, systematically eroded by "free market" ideologues. The result is the financial crisis making headlines today, and which is still far from over.
posted by ornate insect at 9:19 PM on September 16, 2008 [7 favorites]


I think I might buy a gun or two and some ammo and add it to my pile of survival gear. Just in case society collapses. Or zombies attack. The former definitely looks more likely than the latter after this week. And I was rooting for zombies. Sigh.

There must be a way to blame Canada for this.
posted by jamstigator at 9:38 PM on September 16, 2008


Bardic, I was being optimistic with my comment you quoted. Since, you and I aren't driving the bus, I sure hope the folks that are can not fuck up too bad. Unless you think you actually think you have any influence.... nahhh, you're just another asshole on MeFi like me.

Hell, I'm just a blue collar grunt, and I hope the factory I work at keeps running. The assholes who got us in this mess might make me work a few more years than I'd like, and I'll be pissed about that. I just hope they don't make me work myself to death.
posted by Eekacat at 10:00 PM on September 16, 2008


Agreed. But fyi, my asshole smells like Chrysanthemums.
posted by bardic at 10:12 PM on September 16, 2008


Wait, um, I have a question? These assholes, they smell like pennies, or Chrysanthemums, a traditional funeral flower in Korea, France, Croatia, Poland and Japan? Japan's yen is kicking our dollar's ass.

Either way... this shit stinks and there are a few too many apt metaphors flying around.

That's all I'm saying.
posted by Unicorn on the cob at 10:32 PM on September 16, 2008


I hope you don't have a pension plan.

Oh, please. It's 2008.
posted by dirigibleman at 10:33 PM on September 16, 2008


but nobody would really miss the Amazons, Walmarts and McDonalds' of the world..

WMT = 1.8m employees worldwide, MCD = 1.5m employees worldwide, Couldn't easily find figures for Amazon, but presumably it is tiny by comparison. While it would be nice to have millions of artisans rather than Walmart, sometimes I just want something cheap.
I think the real issue is that the world is set up the way it is, and any change must be gradual or very uncomfortable.
In a nutshell, that is why the Fed is propping up AIG and Fannie and Freddie. They can unwind and collapse, but we all need it to happen slowly.
It is the difference between selling your house in a forced sale and the price you could get if you *had* to sell it *today*.
And I'm not sure which fat cats the government is really helping? Certainly the stockholders have lost the vast majority of their investment, and the employees won't be having great years.
posted by bystander at 10:54 PM on September 16, 2008 [1 favorite]


"Cuz in about 30 years mine is gonna be good for a boat, a sweet car, a shore house, summers in Rangoon, etc etc. Long horizon, dude."

I'm sure my dad thought that 25 years ago. Unfortunately, he worked for MCI (which later got bought by Worldcom). Between Worldcom going bankrupt, the .com crash, and this most recent downturn, it doesn't look like he'll be retiring for the foreseeable future.
posted by heathkit at 11:33 PM on September 16, 2008


Oh, please. It's 2008.

The Ten Largest Holding of CalPERS, the Biggest U.S. Investor
posted by troy at 12:34 AM on September 17, 2008



After all, roads, cities and schools were all built, and art was funded, long, long before the speculative excesses of global capital circa 2008


The question was, what would happen if capital markets disappeared, not, what would happen if highly complex, unregulated global nonsense like we have right now disappeared. I think there is a distinction between wiping out ALL OF WALL STREET and getting some transparency and regulation into the complexities of the kind of things that are currently causing problems.


As far as "shit happens," have you even bothered to read this thread?
You're a lot more confident about it than I am.

Yes I am, because I am 38. Which means two things - I can afford to be patient for 30 years, which is the whole point of a 401(k) and I have seen the anger/doomsaying/fuck everyone who works on wall street attitude before and I fell for it then, like you are doing now, and I'm not falling for it with 15 more years of life under my belt. Yes, I'm upset that our government didn't have the balls to do the oversight they should have been doing, however, I am not furious at the entire banking/financial industry, human nature, basic workings of government, etc. There are a lot of people complicit in this fiasco and it is not as simple as saying FUCK THOSE CEOs. I don't believe in blanket, righteous indignation. There are smart, well intentioned people out there in the industry. There are also robber barons. Crap...I have to go to work so this is rushed.
posted by spicynuts at 4:53 AM on September 17, 2008


Unfortunately, he worked for MCI

What does this have to do with a 401k and retirement? My dad worked for IBM for 30 years. He got laid off when the shit hit in the early 90s. But he still managed to retire 10 years later and reap the benefits of a diversified set of investments.
posted by spicynuts at 4:55 AM on September 17, 2008


spicynuts, I hear ya. And I agree that wholesale condemnation of Wall Street doesn't really help (although it does make me feel better, I'll admit).

However, I think an intelligent argument could be made that the expectation of a Fed bail-out is part of the problem. Same as in the airline industry, same as in the auto industry (although I have a feeling that when the next American auto maker goes out with hat in hand, they might be surprised to discover that nobody really gives a damn about Detroit any longer).

Surely an object lesson once in a while would help the long-term understanding that these IB firms and insurance agencies and so on need to have their shit together. I mean, it's not like reasonable people didn't see these problems coming, but they were labeled as "Communist" or an "America hater" or what have you.

Whither Larry Kudlow and all those other lying cheerleaders? Can't we at least get a little bucket of tar and some feathers together for the analysts who refused to actually analyze?
posted by bardic at 5:45 AM on September 17, 2008


However, I think an intelligent argument could be made that the expectation of a Fed bail-out is part of the problem

They're trying to avoid moral hazard by wiping out the shareholders. FRE got a bailout, but the common stock investors in FRE are screwed. AIG is 80% owned by the federal reserve now, and if I understand correctly they will get paid before stock investors. Investors in Bear Stearns got a little less destroyed.

The investors in these IB companies that get bailed out are getting wiped out. Investors decide management, and they'll remember this. There's another level of moral hazard left, in that creditors who loaned money to shaky firms and trusted rock-smoking ratings agencies are getting rewarded.

I think that everyone knows that some sunshine is coming into the insanely complex financial arrangements soon. Also, the Fed is buying something good for the market. It does really just take some time to unwind the complex relationships and assets that AIG has, and this doesn't have to be a crisis. The bailout will slow things down enough to avoid a real panic.
posted by a robot made out of meat at 7:28 AM on September 17, 2008 [1 favorite]


I hope you don't have a pension plan.

Government bailouts will destroy the value of pension plans, anyway. It's just less obvious.

Would you rather your pension plan not cover your expenses because it only provides several hundred dollars a month, or because it only provides several thousand dollars per month? Same goes for your 401(k).
posted by oaf at 1:02 PM on September 17, 2008


"because it only provides several hundred dollars a month, or because it only provides several thousand dollars per month?"

Just ask Zimbabwe.
posted by bardic at 5:20 PM on September 17, 2008


I'm not convinced that a bit of monetary inflation is the road to Zimbabwe quite yet.

M3 went from $4T to $14T from 1995 to 2008. AFAICT another $100B isn't going to catch the world on fire.
posted by troy at 5:53 PM on September 17, 2008




I have a pension plan, and I'm fully vested. I'm a dying breed.

I also have a 401k plan.

I don't have a lot of faith in either right now.
posted by Eekacat at 6:03 PM on September 17, 2008


I do know that the financials are starting to have an effect on the American presidential race. I live in an insanely Republican area. We get people planting flags on our lawn every 9/11 because these idiots assume that anyone brown skinned who doesn't go to a megachurch must be a heathen infidel. (Which, ya know...in this case, is probably true...I *am* a heathen infidel.)

So, as a rule, I'm fairly quiet about my politics, because if I want to argue with people like konolia, I know where to find her. But today...today was beautiful. I was at the gymnastics studio where my son takes instruction, reading a book on macroeconomics, and one of the moms asked me what I thought about the current financial crisis.

Within about 15 minutes, there were 20 "soccer moms", who last week who were crowing about lipstick comments, who were suddenly hit with the "it's the economy, stupid!" clue onna stick. Suddenly, their 401ks had evaporated, their mutual funds were bleeding, their stock accounts were scaring them, and they realized that 4 more years of Republican madness wasn't going to do a damn thing to help their kids go to private school.

So, yeah...I've had thousands of dollars in "value" wiped off my accounts in the last couple of days. But I went through this in the 80's too, so I'm fairly sure that if I just hold steady and don't panic, the stocks will return, the dividends will continue to reinvest, and it'll all work out. (Of course, I could be wrong, and living on beans and rice for a while...the market has always been a craps shoot for the small investor.)

But if in the ensuing hand-wringing and come to jesus moments that the rest of the populace is having makes them realize that four more years of a country being run by incompetent boobs who are only out for themselves and their friends and they suddenly vote to put intelligent, well reasoned thinkers in charge...then a small (relatively) dip in the value of portfolios will be worth it in the end.
posted by dejah420 at 6:09 PM on September 17, 2008 [4 favorites]


In December, Fortune magazine admitted it had been remiss naming insurance giant AIG one of its "10 Stocks To Buy Now" before a yearlong 18 percent decline. "We... didn't expect [the] mortgage unit to be such an albatross," editors wrote. To correct the error, the magazine had a fresh list of "The Best Stocks For 2008" — including Merrill Lynch. "Smart investors should buy this stock before everyone else comes to their senses," Fortune wrote, calling a recent correction in Merrill stock "an overreaction." Investors who followed this advice are now down 93 percent.
- How Magazines Led Investors Toward Ruin from Gawker.
posted by Kattullus at 6:30 PM on September 17, 2008 [1 favorite]


Oh, and bardic? My asshole smells like lilacs.
posted by Eekacat at 6:49 PM on September 17, 2008


But if in the ensuing hand-wringing and come to jesus moments that the rest of the populace is having makes them realize that four more years of a country being run by incompetent boobs

IMO the republicans really began to believe their own BS -- the "reality-based community" issue that Suskind exposed in 2004.

Paulson is not an incompetent boob, though his predecessor (John Snow) apparently was.

Bernanke holding rates high last year may or may not be boobish.
posted by troy at 7:23 PM on September 17, 2008


FRE got a bailout, but the common stock investors in FRE are screwed.

It's more the preferred stock investors in the FRE deal that got screwed, as I understand it.

Under the conservatorship arrangement, preferred stock holders aren't as well-insulated against loss as they were in the past, because now the government-owned preferred stock gets priority over regular preferred stock. Also, under the deal, FRE stock no longer pays dividends. While on paper that decreases the value of the stock for all shareholders, realistically the change probably impacts preferred stock holders more (since preferred stockholders are usually institutional investors who hold much larger positions). The dividend yield from a few dozen or even a few hundred shares of stock are pretty paltry (nickels and dimes per share owned) , but when you're taking positions of tens of thousands of shares or more, the nickels and dimes start to add up, and pretty soon, you're talking serious cash...

And I know everyone calls it a bailout, but to me, that seems like a pretty basic misrepresentation/misunderstanding of what actually happened. Unlike so many of the other casualties in the recent financial blood-bath, Freddie Mac and Fannie Mae were always supposed to be government-backed entities--from the time they were created, it was understood the government would bail them out if worse ever came to worse. To me, it would have been unforgivable, given those implicit assurances, for the government not to have stepped in to back up its obligations. It would be like the government not stepping in to keep the FDIC running. Bear Stearns, AIG, Citigroup, maybe not so much.

But then, what a beautiful touch of cosmic irony that it was under the watch of a bunch of raving laissez-faire economic ideologues that history finally forced our hand and turned the US into a full-fledged socialist state. Now all we need is some, you know, better jobs and stuff.
posted by saulgoodman at 7:37 PM on September 17, 2008


Morgan Stanley and Wachovia making eyes at each other from across the room.
posted by kimdog at 7:45 PM on September 17, 2008






Walked into the Lehman building down the street after work last night, around 6:30pm with the intention of writing this comment. Usually there're several dozen take-out food delivery boy bicycles parked outside at that time. Last night there were two. I asked one of the delivery guys what it was like inside but I don't speak his language and he was in a rush. Walked inside the building lobby and asked the security guard with a Russian accent. He said parts of the building were closed but a few parts are still working, nobody came out crying, no suicides.

Excellent articles homunculus. Am reading Seven Deadly Sins of Deregulation -- and Three Necessary Reforms and thinking it makes great points.

Reading about the malignant arrogance and malice of Dick Fuld, Lehman CEO, it doesn't seem surprising he wouldn't accept the offer to be bought out at $6.40 a share by a Korean company, which would likely, according to the article, have prevented the subsequent bankruptcy. Maybe Fuld had finished with his pillaging and wanted to get out with his billions, leave everybody else in the dust?

From your third link:

"Many of the CEO types weren't willing...to take these losses, and say, 'I accept the fact that I'm selling these way below fundamental value,'" says Anil Kashyap, a University of Chicago Business School economics professor. "The ones that had the biggest exposure, they've all died."

This is also a good paragraph from your third link:

The U.S. financial system resembles a patient in intensive care. The body is trying to fight off a disease that is spreading, and as it does so, the body convulses, settles for a time and then convulses again. The illness seems to be overwhelming the self-healing tendencies of markets. The doctors in charge are resorting to ever-more invasive treatment, and are now experimenting with remedies that have never before been applied.

posted by nickyskye at 5:21 AM on September 18, 2008 [2 favorites]


unified theory: market cap is disappearing down LHC black hole...
posted by woodway at 7:34 AM on September 18, 2008




Until this week, I'd been banking with WaMu for 13 years. But yesterday I went down to one of our large local credit unions and started the process of leaving.

It's sad. I hated them, and I loved them. But it's time to say goodbye.
posted by dw at 8:50 AM on September 18, 2008


AIG photo, before and after l subprime cartoon.
posted by nickyskye at 10:25 AM on September 18, 2008 [1 favorite]


Lehman Spurned Korea Development Bank's Offer of $6.40 a Share

SHIT! I bought 20 puts on these clowns when the stock was at $17. That's $20,000 I would have made. SHIT!
posted by troy at 6:39 PM on September 21, 2008


George Ure suggestion below

Now how to fix it? There is a very simple way - and I would urge you to write something along the lines in an email to your federal elected representatives:
---
Dear (elected official):

I am writing to demand that any bailout of investment bank include a mandatory requirement for private co-investment.

As you know, the current plan proposed by the Treasury - and now being rushed through approval is designed as follows:

* Financial Institution with 'bad paper' will be able to sell their paper to the government.
* The government will then sell this paper to other investors at whatever discount they need to in order to 'keep the system alive'.
* The buyers of this paper from the government have no incentive to bid up prices because the farther the asset valuation falls, the more money the bankers will make.
* Ultimately, the public will fund the difference between the current valuation of the instruments and however low these same investment bankers can drop their bids.

Obviously, this is an absurdity because under Game Theory, the lower the bids are when the government sells, the higher the yields on these debt instruments.

What's worse, an instrument sold my one firm, such as hypothetically Goldman Sachs (or more likely the Goldman Sachs Asset Management group) could ultimately be purchased from the government bailout agency purchased by Morgan Stanley. At the same time, a hypothetical Morgan Stanley\asset sold to the government could ultimately be picked up - dirt cheap - by the same Goldman group selling their hypothetical paper.

To my way of thinking, this "bailout" is a flim-flam deal. The investment "banksters" could 'wash the paper and take the spread' as things are presently proposed. As a Taxpayer, I am appalled and demand a better solution.

Is there an alternative? Of course!

Write and enforce a new provision requiring that any sales of government purchased instruments to private firms retain a minimum 90% public participation. Thus, when the [toxic waste] bonds are resold by the government, the tax paying public which is footing the bill would be compensated for its risk. Give the paper vultures compensation with a small 1-3 basis point spiff for managing the public's side of the deal.

The new deal structure would look like this:

* Financial Institution with 'bad paper' will still be able to sell their paper to the government.
* But because the government will sell only a maximum 10% private share (the rest being the public's skin in the game) the markdowns would likely be less.
* The public would retain a 90% ownership position. Thus any profits made by the paper vultures would be diluted 10:1 and the public compensated for its risk.
* In this way, the public would make back much of its initial cost and the debt load on the American financial system would be lessened dramatically - reducing the ultimate cost of the bailout dramatically.

As you can readily see, this approach - let's call it Private Sector Coinvestment - will work very well, although now that the investment bankers have "seen the green" in the form of the rudimentary "bailout plan" which is nothing short of a banker's coup d'état, will scream bloody murder when a rational and money saving plan is proposed.

It all comes down to whether you represent the interest of the People, or the interests of the Bankers who began their theft of the American economy in 1913, but that's another story.

As a vote in your district, I beseech you to look out for the interests of the American Taxpayer and honor the intent of the Framers to defend and protect this Great Nation.

Sincerely,


(share this freely)

---
posted by rough ashlar at 8:19 AM on September 22, 2008


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