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

[FactionHeir]

So basically the investors are playing with people's retirements and themselves getting paid 6 digit bonusses in addition to their salary. Those bonusses could go into the retirement funds to alleviate the problem.

[Crazed Rabbit]

So basically the investors are playing with people's retirements and themselves getting paid 6 digit bonusses in addition to their salary. Those bonusses could go into the retirement funds to alleviate the problem.

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.

Plus it can cause job losses.

Why do you care for Wall Street fools?

CR

[Oleander Ardens]

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

[Lemur]

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

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

[Ironside]

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

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

[Crazed Rabbit]

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

The overall economy suffers.

CR

[Ironside]

The overall economy suffers.

CR

And that's because?....

[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...

[Lemur]

Look what Sarbanes-Oxley has done...

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

[Ironside]

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...

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.

[PanzerJaeger]

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.

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. )

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...

[TinCow]

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

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.

[drone]

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

[CountArach]

Why do you care for Wall Street fools?

CR

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.

[LittleGrizzly]

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

Just for a little while longer ?

[Xiahou]

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.

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.

[SwordsMaster]

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.

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...

[Tribesman]

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

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?

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

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 ?

the industry will learn from their mistakes.

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

[Hosakawa Tito]

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!

[Adrian II]

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

Agreed. That's why I opened the other thread about what could and should be done in the way of regulation of markets. Panzerjaeger is right that mismanagement is not a crime. And Crazed Rabbit is right that under a favouritist regime mismanagement is actually 'good' (profitable) management. Structural change is needed, but social structures are not that pliable. Outside police states, that is.

[Crazed Rabbit]

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.

"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

[Strike For The South]

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.

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

[CountArach]

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

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

Just for a little while longer ?

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...