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Thread: weekend commentary - a window on Wall St. deals ...

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    Banned Melonie's Avatar
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    Default weekend commentary - a window on Wall St. deals ...

    and you wonder why so many girls are anxious to work in the upscale Manhattan clubs !!!

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    "Thursday, February 09, 2006
    A window on Wall St. deals
    Less than a week into my new job as FX trader at Chase Manhattan Bank I found myself accepting a beer from one of my brokers in a South St. Seaport Bar on a Thursday afternoon. "Thanks," I told this man I had just met face to face. He told the bartender to get me whatever I wanted on his tab and then told me, "no problem." I proceeded to have a very fun night.

    The next morning I crept quietly into the dealing room on the 35th floor, nursing a hangover. I hadn't even taken my suit jacket off when I heard the voice of my new friend through one of the little speakers or "broker boxes" on my desk, "can I get some help with a switch?"

    I didn't then know what a switch was so he informed me that his desk had done a deal with two clients who didn't have credit lines with each other. As Chase had large credit lines with everyone, I could help him complete the deal by acting as intermediary and as a side benefit to him, double his brokerage as 1 ticket became 2.

    So began my career on the Wall St. favor circuit. Beers at a bar became dinners at expensive restaurants with cocktails at a club after and limo rides in between. Good seats to virtually any sporting event or concert were mine for the asking, especially as I started to trade in larger volumes. The amounts they spent to keep me happy were small in comparison to the brokerage fees they earned from Chase through me. It was good to be a parasite.

    When I moved to the buy side of the market at a major Hedge Fund I didn't have any more brokers as I now dealt through the banks (the sell side). But the deal was the same and the amounts were larger.

    At times when we traded aggressively, driving the market sufficiently such that our bank counter parties made losses, meetings would be set up to discuss this "unfair" arrangement. Almost invariably we would do a few "open fill" orders, instructing the banks to buy or sell $100M of whatever currency at their discretion, which meant that we would allow them to make a few "pips" on the order. A pip on $100M $/DEM is roughly $10,000.

    The point I'm trying to make here is that the amounts being traded were so big, (this was more than a decade ago) and the profits to be earned so large that the money spent generating the "good will" was almost always very well spent. Of course, from the perspective of the end user, those who provided the funds to be intermediated, or needed the funds to put to use, this was a tax, or vig, if you will.

    So when you read that Lehman paid Mr. Greenspan $250K to speak at a dinner of hedge fund guys don't worry about them. I'm sure as the NYPost relates, It is very safe to say that [Lehman] will have its strongest week of the year based on this meeting. Equally, don't worry about the Hedge Funds giving up a few pips, I imagine the managers thereof made their trades and waited for "news" of the dinner to leak.

    Looking back, I'm embarrassed to realize that I refused to grasp what I was doing, taking solace in numbers - "everyone's doing it." As I've reported on in the past, one of the major trends during the Greenspan Fed has been the shift of profits from manufacturing firms to financial firms. I guess easy Al has been champing at the bit to get a slice of the pie he helped bake.

    In 1987, less than 19% of total domestic corporate profits were earned by financial firms, while just under 27% were earned by manufacturing firms. In 2004, 33% of total domestic corporate profits were earned by financial firms while just over 12% were earned by manufacturing firms. In 1987, the US had a slightly positive net international investment position. In 2004, the net international investment position was -$2.5T, which is to say that under Greenspan's Chairmanship, the US sold the family jewels to keep up appearances and the guys who served as middlemen in the process, the owners of the financial sector, got rich doing it. (all data: BEA)"

    from

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    Default Re: weekend commentary - a window on Wall St. deals ...

    Sounds like being in the leadership in Congress.

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    Default Re: weekend commentary - a window on Wall St. deals ...

    Sounds like being in the leadership in Congress
    That qualifies as an almost purely political comment, unless of course you're referring to lobbyist Jack Abramoff and a few hundred million dollars worth of Indian Casino 'contributions' !

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    Veteran Member Eques's Avatar
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    Default Re: weekend commentary - a window on Wall St. deals ...

    How much of the increase in the share of profits from the financial firms is coming from the financial arm of the manufacturing firms?
    Never stand begging for that which you have the power to earn.

    The truth lies in a man's dreams... perhaps in this unhappy world of ours whose madness is better than a foolish sanity.

    Miguel de Cervantes (1547 - 1616)

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    Default Re: weekend commentary - a window on Wall St. deals ...

    Yep. The analogy was bribery of Congressmen.

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    Default Re: weekend commentary - a window on Wall St. deals ...

    How much of the increase in the share of profits from the financial firms is coming from the financial arm of the manufacturing firms?
    Lacking the time to research hard facts to back up this opinion, I would still say that very little of the profits of the big financial firms actually comes from GMAC-like financing arms of manufacturing companies. The 'big boys' probably earn far more from IPO's, structured corporate bond sales, mergers, LBO's, 401k management and other manufacturer related financial transactions that don't involve 'retail' financing.

    However, I would say that a significant amount of the remaining 12% of manufacturing company earnings do in fact come from GMAC-like interest bearing activities financing the sale of their manufactured goods, and not from profits on the sale of the manufactured goods themselves.

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    Default Re: weekend commentary - a window on Wall St. deals ...

    I know that when I left the investment business in 2001 half of General Electrics profits came from General Electric Finance. GE Finance included traditional appliance credit for consumers (where it started nearly 65 years ago), the insurance business, (which may have been sold by now), some mortgage business, and other investment banking type
    business.

    Not sure about GMAC, as the auto manufacturing part of GM has been showing bad market share and some down indicators for awhile now. I know that people think GMAC will be sold to raise cash for GM. No secret there it is in the Wall Street Journal.

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    Default Re: weekend commentary - a window on Wall St. deals ...

    Quote Originally Posted by Eques
    How much of the increase in the share of profits from the financial firms is coming from the financial arm of the manufacturing firms?
    Zero, hence the convoluted nature of the numbers quoted. If Boeing leases an airplane the profits are reported as Boeing's ( a manufcturing company). If CIT leases an airplane, it is reported as a financial company. GE is not a manufacturing firm anymore, it is financial and all ITs profits end up in finance, even those from making dishwashers. GMAC may do the paperwork on the auto loan, but GMAC does not make the profit. It syndicates the loans and the buyers make the real profits. GMAC does little other than make a small return on their computer system and administers the loans to facilitate the car plants operating. This is like the grocery stores not making the major profits-Proctor and Gamble/Kraft/Nabisco/Johnson and Johnson do.

    The breakdown of profits by industry is along a principle line of business breakdown since corporations do not report profits/sales/costs by line of business in enough detail to split the data.

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    Default Re: weekend commentary - a window on Wall St. deals ...

    I guess I have to agree with Monty. Eques, you want the answer to the change in the increase of profits that comes from financial operations of major manufacturers. Fundamentally at Ford and GM there were no profits in 2005, none in 2004 I think, and the big question is will they break even in 2006 or lose more money. So zero times the change
    in profits equals zero.

    I thought you wanted the contribution to profit that the financial activities of major manufacturers made to the income statement gross revenue, which hopefully flows down to net income though not this year in all cases due to huge losses.

    I agree that GE is mostly a finance company that happens to make value added tech products and uses technology and strong engineering to do so. (Always bet on Thomas Edison who founded GE. They seem to be doing good with NBC/Universal which is a software entertainment distribution and processing company, not manufacturing.)

    Boeing finance is a great example, because GE Finance does direct business with consumers in many financial lines. Most individuals do not purchase Boeing airplanes.

    Finally, its true that GMAC is a servicing processing entity and doesn't acutally hold the mortgages, credit card debt, and paper themselves.

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