Horrible News: Lehman Brothers Bankrupt and Merrill Lynch bought by BAC

Some gained much, some lost much. Usually the sum of all of it is positive. That is capitalism.

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Originally Posted by Oleander Ardens

Some gained much, some lost much. Usually the sum of all of it is positive. That is capitalism.

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Um, sure, yeah, that sounds great. I take it you haven't really been following this issue?

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Originally Posted by Crazed Rabbit

It seems to me that the firms failing right now aren't the traditional stock and mutual funds, but firms that have made up a bunch of new financial gimmicks, I suppose you could call them, new packages to invest in couple with very poor risk management, and its those firms that are suffering.

So I don't think we'll see a huge problem for the common man. I'm reading up at realclearmarkets right now, though.

Why do you care for Wall Street fools?

CR

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CR, what's the supposed downside for the common man by Obamas tax reform? :juggle:

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Originally Posted by Crazed Rabbit

So I don't think we'll see a huge problem for the common man.

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You're probably right when it's confined to Bear Sterns, Lehman, and Merrill. AIG is another issue. It's essentially the largest company no one has ever heard of. They mainly deal in mega-size insurance of other companies, firms, banks, and major projects. The collapse of AIG would have massive repercussions to the entire global financial market. Their loss would instantly make hundreds of other companies vulnerable and could very well result in numerous other bankruptcies for smaller banks and companies. For more info, this is a useful read.

When I see this commercial these days, I can't help but to laugh.
https://www.youtube.com/watch?v=9VvGW98D3XA

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Originally Posted by Ironside

CR, what's the supposed downside for the common man by Obamas tax reform? :juggle:

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The overall economy suffers.

CR

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Originally Posted by Crazed Rabbit

The overall economy suffers.

CR

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And that's because?....

It is interesting to note some of the right-leaners calling for more regulation and even jail time for those running these companies. I'm wondering how big a company has to be before it becomes criminal to mis-manage it?

This is the nature of capitalism guys. The little guys made fundamentally bad business decisions by lowering their lending standards and the big guys made equally bad business decisions by buying that debt. The market will correct itself, the poor decision makers will retire with millions or be pushed out, and the industry will learn from their mistakes.

Creating more regulation and bureaucracy that will far outlast this market correction may make us feel better, but it won't do much else. Look what Sarbanes-Oxley has done...

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Originally Posted by PanzerJaeger

Look what Sarbanes-Oxley has done...

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Hey Sarbanes-Oxley gave us a kickin' rap song.

My name is Paul last name Sarbanes
Keep chuggin' along I've heard all your pains
I know the days are long and the nights are short
But it's really sad that people try to extort
And we couldn't let things keep goin' on
Cuz there's a lot of companies like Enron
Yea the list is long but we think it's for the best
We had to make it safe for everyone to invest

Yea well my name is Mike last name Oxley
Some think it's overkill but please don't knock me
We had to protect investors from fraud
We wanna minimize the risk for anyone could rob
I think me and Paul finally got it figured out
But I'm sure some of you will continue to doubt
We knew there was something that we had to do
And now you got the Sarbanes-Oxley Act of 2002

Chorus:
Clockin' lots of hours on section 404
I go to work early and I get home late
Clockin' lots of hours on section 404
No time to waste, can't miss the due date
Clockin' lots of hours on section 404
I can pretty much kiss my vacation goodbye
Clockin' lots of hours on section 404
I wish my fiscal year ended in July

I'm the SEC so don't mess with me
I'm gonna tell you 'bout the PCAOB
They're gonna show up at your front door,
Checkin' out your section 404
So you gotta make sure that you get done
And I know for sure it's not gonna be fun
You need to buckle down, you need to get your mind straight
Cuz this is something that rella just can't wait

Yo my name's COSO and I know control
So jump on board and get ready to roll
I brought this up back in '92
But this is something that nobody wanted to do
Y'all probably know my acronym of crime
It just didn't fit and it was hard to rhyme
But these are the things that you need to know
If you think you're gonna make it in the big show

Chorus

Now we haven't even talked about the Big Fat 4
Everybody knows, they're the consultin' whores
It's bad enough when they only had audit
And now with SOX, now they know they really got it
PwC, E&Y, and Deloitte
KPMG, hell they all exploit
The partners at the top make all the cash
While the ones at the bottom have to bust their ass

Chorus and fade out

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Originally Posted by PanzerJaeger

It is interesting to note some of the right-leaners calling for more regulation and even jail time for those running these companies. I'm wondering how big a company has to be before it becomes criminal to mis-manage it?

This is the nature of capitalism guys. The little guys made fundamentally bad business decisions by lowering their lending standards and the big guys made equally bad business decisions by buying that debt. The market will correct itself, the poor decision makers will retire with millions or be pushed out, and the industry will learn from their mistakes.

Creating more regulation and bureaucracy that will far outlast this market correction may make us feel better, but it won't do much else. Look what Sarbanes-Oxley has done...

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Two things. It's usually an improvement for everyone if the CEO:s actually gain money by making the company healty, istead of earning more by feeding them with lethal anabolics (the CEO then has a nice record to show up for the next job while the old company goes down the drain a few years later).

Second, basic econimics or rather human nature, every new generation needs to get practical experience before that understand that those obsolete rules applies to them aswell. They usually learn enough to burn themself in another market though.

Or in other terms, market bubbles are cyclic, wich means that market crashes are cyclic aswell in a unregulated system (and by the survival of the fittest actually needed). That usually leads to things like depressions or stagflations, something economics and the average joe isn't that fond of. You can run a system on this of course, but I would prefer a more stable one.

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Originally Posted by Strike For The South

Companies fail. Sometimes Big companies fail. Sometimes big companies with allot of investments fail. Are we in a bad time? Yes. Should we be selling everything and moving to the woods? no.

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Out of the mouths of babes...

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Originally Posted by Ironside

Or in other terms, market bubbles are cyclic, wich means that market crashes are cyclic aswell in a unregulated system (and by the survival of the fittest actually needed). That usually leads to things like depressions or stagflations, something economics and the average joe isn't that fond of. You can run a system on this of course, but I would prefer a more stable one.

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I'm not completely against regulation, just the type of reactionary whinging that’s going on at the moment. Sarbanes was the result of the same type of thinking and it has had unforeseen and far reaching negative economic impacts. (...or positive if you live in London. :beam:)

For example, the anti-trust laws imposed at the end of the last century were needed. Monopolies are a natural, yet limiting force in the market and a systemic problem with capitalism. Therefore, a higher authority needs to be involved, as you know.

What we're seeing today is simply the result of poor business decisions, not a fundamental problem with the system itself. At all levels, people made poor financial choices. People bought houses when they should be in apartments by taking out loans they couldn’t repay, thus fueling a vastly overpriced housing market. Banks made those loans that they shouldn't have, and bigger banks bought those loans without doing the due-diligence.

All bad decisions, sure, but should the government be in the business of trying to anticipate and regulate the next big thing? Or making sure certain companies cannot fail?

Lets not forget that the sky, in fact, did not fall despite the vast fortunes lost after the tech bubble burst. Again, bad business practices.

We will hit a bottom, lessons will be learned, and we'll move on to the next over speculated, under researched, profit driver. The smart ones will make big money and the slow ones will get caught with their pants down. That’s capitalism. Hell, even today someone, somewhere, with a little luck and a lot of insight is making a killing off of all this. Unnecessary regulation will simply retard that natural progression...

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Originally Posted by Crazed Rabbit

Why do you care for Wall Street fools?

CR

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I don't - I care about the people who work for the businesses that will inevitably have to close because of this sort of thing. Don't get me wrong, I still hate mega-corporations and I think there should've been a great deal of intervention before this, but I can accept that the working class at this present time still have to work for someone.

but I can accept that the working class at this present time still have to work for someone.

Just for a little while longer ?

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Originally Posted by PanzerJaeger

For example, the anti-trust laws imposed at the end of the last century were needed. Monopolies are a natural, yet limiting force in the market and a systemic problem with capitalism. Therefore, a higher authority needs to be involved, as you know.

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How many of those monopolies came about as a result of government favoritism in the first place? I think many government regulations are only trying to fix problems the government itself created.

In the current mortgage crisis, the government encouraged lenders to make loans to people they would otherwise be hesitant to lend to. "Affordable housing" initiatives were really the opposite- getting people into mortgages and homes that they couldn't afford by encouraging lenders to make risky loans. Now, both parties are telling us that we need even more red tape and regulation from the government to protect us from what the government has already done. :dizzy2:

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Originally Posted by CountArach

I don't - I care about the people who work for the businesses that will inevitably have to close because of this sort of thing. Don't get me wrong, I still hate mega-corporations and I think there should've been a great deal of intervention before this, but I can accept that the working class at this present time still have to work for someone.

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"at this present time" -oh, you're priceless.

But I don't think we'll be seeing a lot of people outside of these firms loose their jobs. These firms were using a fundamentally risky and flawed business strategy.

AIG could be more problematic.

CR

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Originally Posted by CountArach

I don't - I care about the people who work for the businesses that will inevitably have to close because of this sort of thing. Don't get me wrong, I still hate mega-corporations and I think there should've been a great deal of intervention before this, but I can accept that the working class at this present time still have to work for someone.

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You realize you're dream of working class revolution is fundamentally flawed and one should really look to real world solutions based on there present situations and assets rather than revert to tired ideological talking points of some overrated 19th century German or some 20th century senator from Arizona

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Originally Posted by Goofball

Out of the mouths of babes...

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A biblical reference! I love you!!

Well, AIG get the federal bailout. $85 billion loan for an 80% stake in the company. Assets should cover the taxpayer bill, the bailout is for an ordered breakup of company assets instead of a firesale.
http://money.cnn.com/2008/09/16/news...ex.htm?cnn=yes

Next!




And can a mod merge the Freddie/Fannie thread with this one, they are pretty much dupes at this point. :bow:

We're talking about a Federal Reserve bailout right? So when they say they're loaning AIG
$85 billion, doesn't that just mean that they're creating $85 billion and giving it to AIG?

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Originally Posted by Strike For The South

You realize you're dream of working class revolution is fundamentally flawed and one should really look to real world solutions based on there present situations and assets rather than revert to tired ideological talking points of some overrated 19th century German or some 20th century senator from Arizona

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I don't want a revolution - nor would I ever. I believe in Democracy much more than I believe in Socialism.

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Just for a little while longer ?

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The working class is always going to work for someone, I would just rather that it was the Government in many more cases.

Anyway that isn't important right now, back on topic...

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Originally Posted by Xiahou

How many of those monopolies came about as a result of government favoritism in the first place? I think many government regulations are only trying to fix problems the government itself created.

In the current mortgage crisis, the government encouraged lenders to make loans to people they would otherwise be hesitant to lend to. "Affordable housing" initiatives were really the opposite- getting people into mortgages and homes that they couldn't afford by encouraging lenders to make risky loans. Now, both parties are telling us that we need even more red tape and regulation from the government to protect us from what the government has already done. :dizzy2:

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Well, firstly, only the government can undo government regulation, so yes, in fact we do need more regulation.

As of the flawed system PJ was referring to, I'd like to say that indeed the system is flawed, or rather not adapted to the new economic circumstances.

Considering that most core economic regulation as we know it today came in the wake of the 1930s crisis and WWII, and a lot of water has gone over that dam since. Fundamental market forces have changed in the past 30 years more than they had in the previous 200, and regulation, I'm afraid, is lagging far behind. This is why, the current situation was never in doubt, just merely a question of when.

Of course the latest governments' trend of overspending and living in debt constantly doesn't help the situation, since all this money comes from banks who need the money back, and this is mainly why the central banks can't just sit back and let them collapse. Imagine the scenario.

If the US debt is 500bn (hypothetically) and the bank they owe 100bn to pulls the money out, the US that has no money either will have to devaluate the currency to be able to pay it back. Which will make oil relatively more expensive, and so on.

What I'm trying to say is that regulation is by far the most painless and viable route IF the system is to be saved. Otherwise, we'll have to come up with a new one.

PS: Ah, and by the way...

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Well, firstly, only the government can undo government regulation, so yes, in fact we do need more regulation.

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How much of this was down to the changes in regulation set up after the wall street crash for financial institutions , first by Reagan and then by Clinton .
Is it all of it or just most of it?

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In the current mortgage crisis, the government encouraged lenders to make loans to people they would otherwise be hesitant to lend to.

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Wasn't that part of the spend like crazy on credit to promote growth plan we heard so much praise for in certain quarters of this forum ?

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the industry will learn from their mistakes.

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Thats what they say every time , yet every time they don't learn and its the taxpayer who gets shafted .

These companies board of directors failed to do their jobs and rein in the CEO's that were excessively reckless with company finances. Considering the scope of their stupidity there should be jail time for some and personal financial/career ruin for everyone responsible. However, what will happen is that those most responsible will not be punished

Spoiler Alert, click show to read: 

thank goodness for bribery...er I mean campaign donations

and the taxpayers bailout will ensure they receive their multi-millon dollar paychecks and golden-parachute serverance and pensions. Thanks chumps!:pirate2:

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Originally Posted by Xiahou

We're talking about a Federal Reserve bailout right? So when they say they're loaning AIG
$85 billion, doesn't that just mean that they're creating $85 billion and giving it to AIG?

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I believe it's the Federal Reserve, but they are not loaning them the money. They are essentially buying the company - $85 billion for 80% of the shares. They will deal with and back the debt, and then sell off AIG's assets to cover it. The company is still going down, the Fed just wants it to be nice and orderly, so the damage is limited. I think the Fed believes that the company's assets, when not sold at bankruptcy rates, should cover the $85 billion.

At some point, I'm waiting for the Crimson Permanent Assurance to start taking over Wall Street. :pirate2:

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Originally Posted by Kush

Getting into my core accounting studies and paying attention the news has taught me that regulation is a good thing.

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Have you turned communist? :inquisitive:

Listening to the news this evening, commentators were saying that the US government (rather the Fed) has run out of money for any more bailouts after AIG, and is seeking $40bn from the markets via Treasury Bonds. Meanwhile, Morgan Stanley is teetering on the edge and Goldman Sachs following it down the slippery slope.

There was even a quote from a Standard and Poors source saying the the US government's Triple A credit rating "is not gifted from God" and may be at risk.

I'd be interested to know if any of these observations are being made in the US - since the markets are still open there.

Just a thing my economics teacher has noted here: Isn't it ironic that the same people who were once calling for less and less government regulation now the ones who were wanting the government to bail out these companies?

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Originally Posted by Banquo's Ghost

Listening to the news this evening, commentators were saying that the US government (rather the Fed) has run out of money for any more bailouts after AIG, and is seeking $40bn from the markets via Treasury Bonds. Meanwhile, Morgan Stanley is teetering on the edge and Goldman Sachs following it down the slippery slope.

There was even a quote from a Standard and Poors source saying the the US government's Triple A credit rating "is not gifted from God" and may be at risk.

I'd be interested to know if any of these observations are being made in the US - since the markets are still open there.

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The Post did mention the Fed's money raising efforts:
http://www.washingtonpost.com/wp-dyn...l?hpid=topnews

As far as I've heard, Morgan and Goldman are still fine. They took hits, but still reported profits for the 3rd quarter. They need to watch out for the new kids though, competing with BoA/JPM will be tough with their current debt levels.

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Originally Posted by TevashSzat

Just a thing my economics teacher has noted here: Isn't it ironic that the same people who were once calling for less and less government regulation now the ones who were wanting the government to bail out these companies?

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Of course, everyone becomes a conservative when it's their money.