I might actually call in sick to work to watch this one.
Printable View
I might actually call in sick to work to watch this one.
^^^ yeah if Lehman winds up leaving half of wall street holding worthless toilet paper derivatives with Lehman as the defaulting counterparty, you may want to be in a position of getting to your nearest bank branch REAL QUICK !
you mean ANY bank?
i am at a loss. what are you talking about?
Thanks for the cryptic message deogol.
Of course I know what an investment banker is.
I just haven't gotten a chance to watch the news today and I was hoping for a quick overview ::)
It ain't cryptic. They won't exist in a few months. Bear Sterns took the dirt nap. Lehman Brothers is about to take one. Morgan Stanley and Goldmann Sacks are acknowledged as the walking dead - likely bankrupt in a few months. Merril Lynch is being bought by Bank of America who will probably begin liquidating assets the next day.
AIG needs to find $40,000,000,000.00 in the next ten hours or they are gonna be hurting.
(Does anyone know where the fuck BofA is getting these billions of dollars to fucking buy this shit?)
^^^ I can easily believe this. I know people who've been successful on Wall street for over 20 years and upwards and they're now out of work. It's CRAZY times.
Spoken like a true clueless idiot
Investment banking ain't going away.
The IB division of Bear Stearns is still with JPM
The IB division of Lehman (along with asset management) will continue to exist
BAC bought Merrill for their IB division (+Brokerage).
The only assets that are getting liquidated is Alt-A/Subprime Mortgages with its write-downs
Its a great lesson in Risk Management and leverage. But, to say IB is dead is saying internet is dead due to the NASDAQ melt-down
Half-knowledge is more dangerous than Zero knowledge
Right now 100 shares of LEH won't even pay for a lap dance. I'm not kidding.
Huh wha? Something is crashing? Anyone wanna explain in very simple terms.
Here is a snippet from an article from NPR's Website that will give you the general idea:
"Merrill, Lehman and now AIG are just the latest casualties in a credit crisis that looks poised to reshape America's financial system as we know it. Wall Street firms have had to take hundreds of billions of dollars in losses after they placed bets on mortgage-backed securities that went south."
http://www.npr.org/templates/story/s...oryId=94624580
I can't believe NY state bailed out AIG like that. Crazy.
OMG I'm terrified. I saw the closing figures and gasped outloud. Suddenly I'm patching together a safety net should everything crumble.
Say goodbye to Dow 11000 ! The derivative house of cards is really starting to lean sideways.
they're borrowing it from Japan at 1% interest ... and the Japanese Central Bank is intervening in the currency markets to hold the Yen vs Dollar exchange rate pretty constant around 108 to avoid 'carry trade' losses on currency.Quote:
Does anyone know where the fuck BofA is getting these billions of dollars to fucking buy this shit?)
B of A is also getting 1/3rd of the money by corporate tax avoidance ... in other words when they buy a 'belly-up' financial house they get to deduct the newly acquired company's losses against their own profits. Of course at some point some other source of tax revenue must replace this lost cash flow ... i.e. US taxpayers !
I saw this on tv earlier and thhought to myself I need to get on here and read what melonie says. Everyone says it's going to affect us in a few months. What does that mean to us clueless idiot laymen(women)? Please explain in small words....slowly.....and send a box of kleenex?
This should hit just in time for the depressing winter. Yay.
Here's the theory.
Investment Banks deal with Trillions of Dollars in Assets. They are literally channeling the money from rich people to corporations.
If IBM needs a Billion Dollar in debt, they'll create IBM Bonds and sell them to the Rich clients.
But, there is a time lag between when they create the Bonds and sell them to their clients and the problem is they don't have cash. Also, the need for Cash is very short term. So, they borrow from other banks literally Billions of Dollars every day. But, they also return them fairly quickly.
So, If Banks are borrowing Billions of Dollars between them, it is a matter of trust and confidence in lending that kind of money to another Bank and it is a vicious cycle.
Even if a Bank is very solid, just the perception that it is not on solid grounds will make the other bank hesitant to lend money which in turn causes liquidity crisis for that bank and hence will blow up (With really no fault of theirs)
Unlike regular banks, Investment Banks don't have deposits from Common man to fall back. No Rich guy is going to open a Checking account for 50 Million Dollars. So, they need Equity.
But, you can only have Billions of Dollars in Equity supporting almost a Trillion Dollar asset. So, they have to leverage.
Investment Banks almost always hedge their position. The minute they give $1 Billion Dollars to IBM, they immediately buy Insurance against IBM default from another Investment bank usually through Credit Default Swaps. But as you can see for an Investment Bank to be perfectly hedged it needs the other bank to not go bankrupt.
Also for certain instruments pefect hedging is physically impossible. So, Investment Banks have the potential to blow up without a safety net of liquidity. Thats were the Fed comes in to give them short term money lending.
People are theorizing that without the backing of Solid Deposits, Investment Banks are riskier and hence it is best to merge with a commercial bank. This may or may not be true. But as seen above, in the IB world, perception becomes reality very quickly.
Suggestion #1
Don't read what Melonie says. She is incredibly one-sided and shows you in great detail the workings of 1% of the world while totally ignoring the other 99%
Suggestion #2
The World is fine
In Summary,
There is
=>confidence crisis in Wall Street. When this happens,
=>the cost of borrowing goes up to the business, which makes them
=>not invest/hire, which in turn
=>drops the confidence of consumers, who in turn
=>not buy stuff, which in turn makes business
=>not invest/hire which in turn
.
.
Fortunately, we are not on Gold Standard. When Such a crisis happens, Fed will print money (by reducing interest rates) which makes
==> Cost of borrowing for business a little less, which makes them
==> invest/hire, which in turn
==> increases consumer confidence, who in turn
==> Buy stuff, which in turn makes business
==> invest/hire
.
.
.
Unfortunately, at this stage economy is in the over-confident mode and does risky things and may drive prices up. Fortunately, we are not on Gold Standard. So, the fed takes away the money it printed (by raising interest rates)
Of course, the fed will get its timing wrong and nothing goes up in a straight line. But Americans are incredibly smart and incredibly hard working and incredibly collaborative that in the long run, the system produce the Microsofts, the Intels, the Googles and the Apples
Then there is media and clueless-idiots-who-run-shady-web-sites peddling stuff by scaring you to do irrational things like hoarding commodities, grow your own tomatos, and hoard useless items like Tulip Bulbs (because Tulip Bulb is Money). There is no harm in buying the occasional Tulip Bulb, but don't think it is an investment
Golden Sacks - $84 billion in writedowns
http://bankimplode.com/blog/2008/08/25/goldman-sachs/
Morgan Stanly - $24 billion
http://bankimplode.com/blog/2008/08/15/morgan-stanley/
as in previous posts, Xan tends to 'forget' that we now live in a global economy. Since Americans have not 'saved' money for decades, a large portion of the capital behind US banks in fact now comes from foreign investors. and a large portion of US corporate financing now comes from foreign banks (or investment houses that are gradually becoming wholly owned subsidiaries of foreign banks / Sovereign wealth).
Thus while Xan's comments about the FED interest rate cycle have been true in the past, today the FED is only one of many central banks and the dollar is only one of many currencies. This fact has given birth to a gargantuan 'carry trade' ... which involves the use of foreign currencies loaned at interest rates much lower than those charged for US dollars. This fact has also given birth to 'American' banks that are actually operating under the terms of foreign management directives and foreign currency financing (i.e. CIBC and to some degree CitiBank).
And the sad fact now is that when it comes to US FED actions, if foreign central banks don't agree they can easily overwhelm any US FED action taken. This is the real question. Same is true of individual foreign investors, sovereign wealth funds etc. who have any number of options in regard to where to deploy their capital / invest their money if they don't agree with the results of US FED actions.