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spikegifted - Random thoughts


Lehman, AIG, Merrill Lynch - others.

September 17, 2008

[Originally posted by dvlhntr]

First - Bear Sterns, (ok; Northern Rock may have been first)
Then Fanny Mae, Freddy Mack, get bailed.
Followed by Lehman, (fire sale to follow)
A "shotgun marriage" of Merrill Lync and BofA.
AIG is to be getting the gov bail out. (I may have missed a few other non-US orgs)
things are grim for a few others, (WaMu, Wachovia, UBS ...etc)

a single 500 point drop day for the market....

odd, I figured someone would have brought it up (again sort of) by now.

I guess we are going to see how far the derivatives web untangles.

so as tax payers, how much do you want to be on the hook for?

odd I figured the gov would kept it all appearing normal till at least the end of November.

my thinking is that a lot of people are about to notice some things, a continued drop in their retirement accounts and how much of their tax dollars are going to be needed for these bail outs. of course they will just credit the monies. **** yeah, trillions in ****'d debt, bail outs by the billions. how much longer can they prop the dollar up?

the only good thing about this is, the gents at the PPT, are probably not sleeping well.


September 22, 2008

If anyone is to blame, it should be the shareholders.

They consistently demand higher and higher return on their investments. All they want are paper profits based on higher and higher share prices. They punish those who don't appear to deliver 'shareholder value', without considering what their demand actually place on the businesses - short-termism in management.

Additionally, instead of 'getting out at the right time', they hold on to their investments and let greed feed their investment decision (and outlook), hoping the share prices would go higher still. Yet, they blame those people who dare to differ from their own hubris (ie. shorting the stocks) for causing instability.

Wake up people!


September 23, 2008

...the CEO and board should return the money they plundered from the stockholders and goto jail.

That should only be part of the deal. There should be an arrangement where these crooks spend 200 hours per month doing 'community punishment' - getting them to do some good for society for a change and being these 'high-flyers' back down to earth.


September 23, 2008

I can't really agree with you here Spikegifted, this argument may have some truth for intelligent middle class people who know the risks involved in investing in equities. But I only have to look at my own company and see that many of our 'poorer/less fiscally understanding' employees entrust the big financial advisers to take care of their limited resources for their future financial security. ie over here we have a thing called 'KiwiSaver' (National Retirement Fund) where our Government has nominated various large Financial Houses to invest in equities, property etc for the fund. Our poorer employess wouldn't have a bloody clue how it all works, but each week they pay into the fund in good faith.

I still strongly believe its the leaders who govern these public companies that must be accountable, they are paid the big bucks and they chose this career.

Would we show the same sympathys/blame it on bad luck or the economy if your surgeon removed the wrong leg by mistake?

I think I know what you're talking about. There are some folks who just want to have the future taken care of by people who claims to be more knowledgeable about financially related matters. That's fair enough. I won't try to fix my central heating because I know nothing about plumbing and boilers and I hire a professional to take care of that.

However, and you'd probably disagree about this point, these folks have a choice. They can do the saving themselves and stick a monthly pile into a high interest rate account at ANZ or whatever bank they bank with. Or they can buy National Saving Certificates (in the UK that is, or equivalent elsewhere). If they do these things, unless they stick a considerable pile of money every month of their working lives, they're not going to have much of a retirement. It's low risk and equally low return.

On the other hand, they have been shown this beautiful graph of how their monthly investment into this fund or that fund would, in theory, provide a reasonable living standard when they retire. Every pension salesperson has a graph that show a similar thing and they all show how investment in a balance portfolio of stocks, bonds and other investment assets will ultimately lead to a small pile that will provide for them.

The moment they're hook onto this concept, they make a choice that is driven by greed to one extend or another. They want a smaller investment commitment (which leave them more money now) but still provide for them when they retire. Smaller capital but the same return means taking risk.

In case of a government-ran fund, it will probably be have a fairly tight set of rules governing what it can or cannot invest in and at what level of concentration. The fund's mandate is probably to provide a minimum return at a certain time in the future. If the investments turn sour, the manager probably get a serious rapping but won't be able to take on more risk in the hope of making up the difference. So all pensioners take a bath!

This brings to another point - the power of fund managers. Fund managers are very powerful people as they, on behalf of their investors, are huge shareholders by proxy. Many 'vanilla' funds are relatively low charges, just an annual management fee. But there are 'enhanced' funds that suppose to provide 'superior' returns (read: take more risk) which also charges a performance fee, hedge funds being the most talked-about example. The moment they start charging performance fee, their greed take over - better performance means higher fees. Yet these shareholders by proxy are just acting like every other investor - more shareholders' value!!

And don't you think 'vanilla' fund managers are not responsible - they are just as responsible - the better the performance, the more investors the fund attracts, the bigger the management fee. A billion-dollar fund having a 0.01% management fee means 100k every year!

Doesn't greed make the investment world going round and round?


September 24, 2008

Spikegifted, your argument is very fair mate, the only thing I would have against the above point, is that knowing our own low income workers (primarily Pacific Island people who do a lot of this countries manual labour), to ask them to 'personally' put aside a set amount each week into their own savings account with a major bank just wouldn't work. A family drama, a car that needs fixing etc would always ensure that they would never retain this money throughout their working career. I know most of them only manage to make it to the next payday before their money runs out each week. Therefore it is probably necessary that the government mandates the employer take money out of their paypackets each week for retirement savings.

I agree with your points about fund managers, they have a lot to answer for, but, once again reverting back to my own staff, in many cases they see these graphs and for a 'poor/simple' person they think they are doing the right thing by investing in something that appears to offer them and their family a good return.

September 26, 2008

Here are my two cents...

I'm a credit risk analyst in an investment bank and from where I'm sitting, it's not pretty. The problem with financial systems right now is probably more severe than during the Great Depression - and throwing $700bn at this problem may not be enough!

Now, you may think that's the bank's problem, not yours. Please think again! Right now, the securitization market is just not functioning. Without the ability to off-load their loans (both good and bad) to be securitized, they can only sit on banks' balance sheets. If bad assets are sitting inside banks' balance sheets, they won't want to lend to anyone in a hurry. So you want a new car and you need financing? Good luck! You want to borrow to renovate your house? No chance, not with house prices going the way they're going.

So, you don't can't buy new cars, new house, or get a loan to do you stuff that you want/need to do. Slowly the rest of the economy seizes up - housing is one of the main driver in household purchases. If people are not buying, manufacturers will suffer. Guess what? Not everything that people buy/use is made in Asia. Before you know it, manufacturing jobs being to suffer.

If the credit market doesn't fixed quickly and thoroughly, the problems will spread out to the wider economy. Once it stops being a banking problem, but an economic problem, it will take a lot more money and a lot longer to fix. The last time the credit market seizes up in a similar way in a modern economy was in Japan during the 1990s and early 2000s - after the Japanese asset bubble burst. The government intervened but on the fiscals and monetary side rather than forcing the banks to clean up their acts. The government allowed the banks to work things out themselves - leaving some to fail and making others to merge. It took over 10 years for the banks to get back on their feet. The economic growth slowed to a halt, with recession after recession. Corporate failure shot up; unemployment shot up.

If this is what you want for America, it would be a good idea to refuse the rescue package.


September 26, 2008

personally I would rather go through a locked credit and liquidity market (becuase I feel I am reasonably prepared for it.)


Hmmm... I would be really careful about this because no-one knows what can happen. If the credit and liquidity dry up, it would the end of finance as you know it, whether it is personal, commercial or corporate.

Just as a thought-exercise, let's imagine there is a complete credit and liquidity lock-up and see what happens. I'm assuming that your house and your car are completely paid and you've no outstanding credit cards or other forms of borrowing. I also assume that you have some savings in cash and you've no other forms of investments. Let's move down this track and see how you'd be affected...

So you work for a firm: your firm's customers for some reasons were late in their payment and as a result, it cannot pay its own creditors. Your firm's manager goes to the bank to ask for a bigger overdraft, but the bank wants to hold on to as much cash as possible, so the overdraft gets more and more expensive - which eats into the bottom line of your firm until it is repaid. Do that long enough, your firm is not going to be making much of a profit. What that would bring is entirely dependent on how well run your employer is. But I can guarantee it will have a tougher time. If you own your business, you don't need me to tell you that everything is driven by cashflow. Sometimes, cashflow is not strictly down to you. Delays in payment will have an impact on it. Sometimes you need to borrow to tie you company over, but the cost would be high. Same thing again, your firm will have a tougher time than before.

Banks won't lend because the books are full and until their borrowers pay them back, they won't have money to lend to new customers. You can't buy a new car unless you can pay for the car in cash because no bank has the money to lend you. You can't buy a new house unless you have the full capital to pay of it. You can't renovate your house unless you can pay of it in cash. Fine if you have a large pile of cash hidden somewhere, but not many people do.

If your money is in a bank and the bank goes under, your first $100k is protected, but how long does $100k last for you? Don't forget when a bank goes down, your cash is gone, but other people's debt is there, the liquidators will go after the borrowers until they pay back. If no-one else lend to them, these borrowers become bankrupt and you don't get anything over $100k that Federal Deposit Insurance would protect you against.

Things will become more expensive, because to secure credit, borrowers will have to pay handsomely. Companies will pass on this financing cost to the customers before you know it, your savings will go down dramatically. Inflation goes up, your real-world salary reduces relative to the cost of living. Unless you have your own little farm, your own source of energy and basically living completely isolated and insulated from the rest of the world, you will be hurt and be hurt for a long time.

Please be careful of your choice...



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