Lehman et al

[zaza]

A pretty turbulent week in finance in general, and for Lehman Bros. and Merrill Lynch in particular. Plus Fannie Mae and Freddie Mac a couple of weeks ago, HBOS in the UK, and a little earlier in the year we had Bear Stearns and Northern Rock. Any thoughts?

[capsulecorpjx]

A pretty turbulent week in finance in general, and for Lehman Bros. and Merrill Lynch in particular. Plus Fannie Mae and Freddie Mac a couple of weeks ago, HBOS in the UK, and a little earlier in the year we had Bear Stearns and Northern Rock. Any thoughts?

A possibility for another great depression + heavy inflation from the Government bail-outs. I believe most of these bailouts are paid for with printed money (it's conjured out of thin air).

[zaza]

Pretty difficult to leave thousands of people destitute though, capitalist or non-capitalist. Particularly when it actually isn't their fault, no?

[capsulecorpjx]

Pretty difficult to leave thousands of people destitute though, capitalist or non-capitalist. Particularly when it actually isn't their fault, no?

Well this whole thing is caused by people applying for home loans they can't afford, and bankers approving loans they know are high risk. The bankers just package the risky mortagages as "securities" which is sold to invester groups like Lehman brothers. All this on the premise that housing price will continue to go up.

Bankers also have twisted the arms of appraisers to inflate the prices of houses, not to mention all these "House Flippers" that don't buy houses to live in or rent out, but to fix up and turn a profit. All this contributed to a bubble that had to burst.

AIG was insuring all these bad loans (1 dollar for every 33 dollars loaned), that's why their collapse would be the biggest. Their debt is enormous,they have to pay up on all these bad loans. If they declared bankruptcy, that means all the investment groups holding insurance policies for these bad-loan securities will instantly go bankrupt, causing a world wide collapse.

The US Government saved AIG, but at what cost? This money is being printed out of thin air. Like Ron Paul said, it's Tax payer money + huge inflation tax on the people.


Now everything is falling down. And everyone I've mentioned is to blame. The borrower, the lender, the investment groups, the insurers of the bad loans.

The only people not to blame are the poor saps who's employers invested their retirement money in Lehman brothers, and the working class having to pay for the inflated prices.

[zaza]

The question is, what would have been the cost of NOT bailing out AIG? Pretty bad, I think. The next question is, will the Chinese end up owning Wall St as a result?

[capsulecorpjx]

The question is, what would have been the cost of NOT bailing out AIG? Pretty bad, I think. The next question is, will the Chinese end up owning Wall St as a result?

Not really. If anything the US government is starting to own Wall St. with these hundred billion dollar bail-outs. But it's not a good purchase for the US Gov. Not only do these bail outs cost a hundred billion dollars plus up front, but over half a trillion dollars of bad debt on top of it.

What the US Government is doing by buying all these failing financial companies is producing lots and lots of debt/money, the dollar will inflate sky high.

All because Bush and the Republicans deregulated the financial industry.

Republicans and Libertarians for some reason think people are naturally good and honest (especially rich people) when it comes to money.

[szlamany]

...All because Bush and the Republicans deregulated the financial industry. ...

You could not be more wrong.

An agreement between the Clinton administration and congressional Republicans, reached during all-night negotiations which concluded in the early hours of October 22, sets the stage for passage of the most sweeping banking deregulation bill in American history, lifting virtually all restraints on the operation of the giant monopolies which dominate the financial system.

The proposed Financial Services Modernization Act of 1999 would do away with restrictions on the integration of banking, insurance and stock trading imposed by the Glass-Steagall Act of 1933, one of the central pillars of Roosevelt's New Deal. Under the old law, banks, brokerages and insurance companies were effectively barred from entering each others' industries, and investment banking and commercial banking were separated.

The certain result of repeal of Glass-Steagall will be a wave of mergers surpassing even the colossal combinations of the past several years. The Wall Street Journal wrote, "With the stroke of the president's pen, investment firms like Merrill Lynch & Co. and banks like Bank of America Corp., are expected to be on the prowl for acquisitions." The financial press predicted that the most likely mergers would come from big banks acquiring insurance companies, with John Hancock, Prudential and The Hartford all expected to be targeted.

This was written 10 years ago!!!

And being from CT makes helping The Hartford all the more important

[Shaggy Hiker]

Placing the blame is fairly pointless. There's plenty to go around. Deregulation became a drumbeat long before W or Clinton, and all presidents since Carter have been roughly the same in that area. D and R are not far apart on financial issues. The positions differ in shades rather than colors, and plenty of people feel quite strongly that deregulation is a good thing. On the other hand, we have not yet seen the bottom of the current crisis, which is all that matters now. The conflict over regulation vs deregulation will continue for the rest of civilization, so it is almost peripheral.

[szlamany]

Remember that one of the first things they forced on us was the "ownership" of Freddie Mac and Fannie Mae.

We are already directly backing all this mortgage debt.

So it doesn't matter much anymore if Bank of America keeps buying up firms - taking their debt. We will make them whole at whatever the cost may be.

And the papers yesterday painted a pretty grim landscape ahead...

[Shaggy Hiker]

I am not optimistic. Whoever wins the next election will be dealing with financial issues that may have no good answer. Since we tend to kick out any who make painful decisions, whether wise or not, the next president is likely to poll right up there with W.

[SurfDemon]

It's a difficult decision to make, but to be honest, I think Bush has made the right decision (for once). While it goes against Capitalism (let the strong survive and the weak fail), there does come a point where you realise that simple rules cannot be applied to massively complex situations.

Whilst I admit that my grasp of the situation is rudimentry (at best) I would forsee that the cost of not bailing out the banks would be worse than large inflation rates.

Now, (and again I stress my knowledge is very basic - so please educate me as to where I am wrong), without the bailout money, these banks will either declare bankrupcy or be bought out by foreign banks.
If they declare bankrupcy, do the mortgages they hold count as equity? If so, in theory they might be forced to start selling off peoples houses - I doubt if this could be allowed to happen without puplic revolution. So, you would have a company in bankrupcy with very little opportunity for getting it's cash back.

Now, what happens when a person who's a credit risk comes to renew their mortgage. What if no-one will lend them money.... they will have to sell their house... but because it's harder to get a loan and the mortgage rates are up, they may have to sell for less money than they owe on the mortgage.... and then they are bankrupt. Magnify that out across a million families, and it is a problem that would echo infamy across the generations like the great depression has.

Of course the other option is to sell the banks (and loans) to foreign banks. Whilst this is the true Capitalist answer, I doubt if it would sit well with the voters.

[capsulecorpjx]

http://finance.yahoo.com/q?s=LEHMQ.PK

52wk Range: 0.05 - 67.73

[Xanith]

Placing the blame is fairly pointless. There's plenty to go around. Deregulation became a drumbeat long before W or Clinton, and all presidents since Carter have been roughly the same in that area. D and R are not far apart on financial issues. The positions differ in shades rather than colors, and plenty of people feel quite strongly that deregulation is a good thing. On the other hand, we have not yet seen the bottom of the current crisis, which is all that matters now. The conflict over regulation vs deregulation will continue for the rest of civilization, so it is almost peripheral.

No amount of regulation is going to protect the market from stupid laws. When congress decided to mandate that Fanny Mae and Freddy Mac take on loans from people who could not possibly pay them back, they are the ones that set up this crisis.

X

[zaza]

Surely you aren't postulating that political interference to try to get extra votes coming in usually backfires, and sometimes with consequences for all of us?

[Shaggy Hiker]

No amount of regulation is going to protect the market from stupid laws. When congress decided to mandate that Fanny Mae and Freddy Mac take on loans from people who could not possibly pay them back, they are the ones that set up this crisis.

X

They have dirt on their hands, to be sure, but there is plenty to go around.

[nemaroller]

Doesn't matter, they ignored the majority of Americans and went on with spending the federal budget of the next decade on cleaning up the mess.

These politicians can't possibly hope for re-election.

[Shaggy Hiker]

Actually, they both can, and they will. The incumbent is re-elected in the vast majority of elections, and that will happen again this fall.