Well if Gustav fucks up the oil installations and that port in NOLA we could see a pretty dramatic spike in gasoline prices over the next few weeks thus giving a nice punch in the face to the consumer and perhaps the economy as a whole. I think the Pres would have to release oil from the strategic reserves at that point....no choice I'd think.

No, he wouldn't. And it would be an idiotic choice for him to do so, although there may be political reasons for doing it.

Yikes.

That's crazy.

At some level, recessions are needed. We need a gas-price fueled recession to get off oil. It won't happen any other way. We need a credit-based recession to get Americans out of the mindset that they're entited to have what they cannot afford. It won't happen any other way.

I agree. An occassional recession should avoid the otherwise unavoidable depression.

Problem with this is that businesses lose revenue, which then causes them to toss employees overboard, which creates waves that cause problems for other sectors. I see that unemployment has continued to climb and we may end up with a quarter that finally goes negative soon.

Businesses, and Wall Street, need to learn some lessons as well. The sooner they get out of the quarter-to-quarter evaluation process, the better off they and the rest of us may be. Being a slave to what an analyst says about your very next quarterly financial report is a bad way to run a business that you expect to maintain indefinitely. It encourages short term thinking and punishes investments made for long terms, which has never been a recipe for sustainability.

Late Friday news dump FTW:


Complete bullshit that preferred shares are going to be protected by the government and common shares devalued instead of wiped out. Socialize the losses!

Value Driven: The standard-of-living bubble - Aug. 20, 2008

Could be a busy night.

Lehman looks like it has no buyers and will file bankruptcy.
AIG seems set to announce a major restructuring.
BofA looks set to buy Merrill.

Wonder how all this will play this week. Is it a way out or a foreshadow of a broader collapse of uninsured banks?

World markets are down 3-5 percent. Looks like a good day to stay away from CNBC.

Was going to update this thread with the latest Lehman and Merrill news but you beat me to it.

Just 2 notes of reference from my past.

• I remember entering a Merrill brokerage office in the mid-80s in a nice office building thinking 'nice place'.
  
• I remember being in Times Square late one night with a co-worker and we passed by the Lehman office. They had several limos waiting for a pickup and I remeber seeing 2 Lehman bankers (1 older guy, 1 younger guy) waiting outside in the front. I thought 'wow, lucky younger guy, able to be part of the company'.

Sorry to see them go but maybe things are coming to a head and we can get this past us.

On the contrary, it is days like this that make CNBC worthwhile. I watched more of it this morning than I had in quite a while.

Just heard that the major sponsers of my favourite soccer team are going belly up :(

I hope financial history doesn't forget how Dick Fuld completely fucked up Lehman.

Looks like the Dow will start the day down over 300 points. As warped as it sounds, I can't tell you how excited I am about the relatively low market right now. I am putting quite a bit of money into my 401K over the last year or so. This slow economic period is going to end up being an economic boom for my retirement savings over the long haul.

It will. The boom-to-bust cycle in our economy is primarily driven by the ability to forget about history and do it all over again.

sweet jesus what a weekend

Oil has fallen down by about $5, to just over $96 per barrel.

AIG next?


stock's down ~51% already today

Yippee.

I'm not a Greenspan fan. I think he is one of the reasons for the mess we're in.

+1

My wife works for Merrill as a CA. We are on eggshells right about now.

+2

jeezus - meltdown in the markets today!

I switched my 401k mix from 80/20 stocks/bonds to 40/60 last night. I hope that was the right move, but hearing that Vanguard is heavily invested in AIG stuff makes me pretty damn worried.

This has hit pretty close to home for me. One of my roommates is on a sales desk at Lehman, a girl that's a good friend, she's in HR, and a buddy of mine who is a blast to hang out with, he's over in the asset management division. Sucks for all of them.

I have friends at all the other firms as well, and pretty much the only ones who know they're safe are those at Goldman.

yikes Logan - sorry to hear that

Hope so, but GS is down 13% today so far.

It's not really unusual for other players in a sector to take hits on a day like this, is it? Their numbers will come back up before the end of the week, I bet.

I was about to liquidate a couple of my investment accounts and I wish I had done it on Friday. Now I will have to wait it out a couple of days to see where we go from here.

its actually quite scary how intertwined it all is.

Ive been listening all day and people are really scared about AIG's possible failure and the FED just slammed the door on the idea of a 'bridge loan' but apparently Goldman and JP are being encouraged to help out.

nope, not at all unusual.

I wish I knew enough be able to say. I've been taking a crash course in financial blogs over the past few months and have learned some but not enough to say anything for sure.

I do know that Lehman, Merrill and AIG going down in such a short time with WaMu and Wachovia on the horizon can't be a good thing......especially when as I understand it the FDIC has about $70B in their reserves and WaMu alone is up around $120B in insured deposits.

What pisses me off about Greenspan is he blames others for the mess (such as the government running up the deficit, banks not checking themselves, ect.; which are all valid reasons and components of the mess), but he fails to take any responsibility.

I hope NoSkillz was able to get out of those commodity positions a while back. I was right but I wasn't patience...not a virtue I do well with unfortunately.

I know someone whose livelihood is dependent upon WaMu staying solvent (although he does not work for them directly), so their troubles hit close to home. As for Wachovia, I have banked with them since I was in high school, but we had decided we would kick them to the curb earlier this summer and that should be completed very soon.

Re WaMu: I know a couple of people also (they're based here) and they're also who I do my joint checking with......but of course I'm small potatoes so not too worried about not being able to access stuff. I'm likely going to move that account to my credit union though just to be safe.

I bank through both WaMu and Wachovia - but to be honest I'm not convinced that any American bank is particularly stable at present.

I figure that with WaMu at least there's a decent chance of another institution taking them over because of the nature of their business and the amount of customers they have.

(I'm also small potatoes in the global scheme of things and so not panicing too much about things at present)

He was mainly playing POT as I recall - while its down I think it'll resume its grind upward in the future once the market stabalises (the company has recently announced its buying back 10% of shares because they consider the company heavily under valued at present which is a good sign imho).

Ouch...sent my roommate an email this morning, no problem...just sent one now:

You can find ratings on all American banks here: Banks and Thrifts Screener - TheStreet.com

Logan, May want to remove the email address from the post so that seach bots don't harvest it for spam. Who knows, maybe the system is down...

SI

This doesn't seem to work in Firefox or Safari on a Mac. Is this Windows only?

It appears to only work via Internet Explorer for me.

Yeah its IE only :( There's another link that has similar data but I can't remember what it is.

WaMu may not be dead, but it's coughing blood. Their credit rating was lowered to junk status.

Haha...his last name isn't actually "last"...just kept the first name in there :). Thanks for thinking of it though.

Lets just say I work for one of the companies spread all over the news today. Not a fun day.

And now down another 10% to $1.81 in after hours trading. Yeesh.

I have not read this whole thread but I have listened to many of the "experts" speak. Has anyone actually taken any responsibilty for any of this? It seems to me, Greenspan is dong the same exact thing that every other player in this mess has taken.

I don't buy the Greenspan root cause. Sure he may have setup the environment that got us in this mess but there was plenty of time, other challenges/opportunities since he has left that pretty much makes him minor root cause.

Not necessarily in order but would put the following ahead of Greenspan

1. Paulson
2. Bernanke
3. Mortgage brokers and related financials institutions (greedy)
4. Home owners with 0% down

I read this the first time as, "Greenspan is a dong" ... which I thought was pretty funny.

What a day. Bear, Lehman, Merrill, AIG.

Sorry for being bearish ... I know its not been mentioned before but could we be looking dipping into a uncontrolled spin into a Depression? (what is that definition anyway).

If not, tell me why? It doesn't look as if the world has alot of confidence in our financial institutions and not sure Paulson & Co has the consistency/credibility to restore it. I've always heard it was the lack of liquidiy and confidence for the 29 crash ...

I was thinking about my acquaintence at Lehman, who is one of the leading oil analysts in the country. He was the one that said that the "normal" price of oil should be in the $80-90 range, when it was irrationally up to $150 due to speculation and fear. He bucked the trend when his rival analysts were making more running up the oil futures. He'll be ok since he knew what he was talking about (taking a look at today's price).

I would place more of the blame at the feet of Gramm than I would Greenspan. The crap he authored and got passed into law his last couple of years in Congress led directly to the current financial crisis. Some of the measures passed took a lot of the more esoteric financial vehicles out of the realm of federal governance, leaving the Fed pretty much powerless to do anything about them.

I'd throw in his wife as well, with some of what she did at the CFTC. The two of them setup some real messes while setting themselves up for well-paying consultant/lobbyist jobs. Somehow out of the way just enough to avoid any real culpability.

Isn't Gramm an economic advisor to one of the Presidential candidates? ;)

I blame this on the investment companies. However, there is nothing wrong with what is going on. What is wrong, is if the government comes in to bail them out.

I haven't looked at the big picture in-depth enough to really apportion blame, but I thought Paulson only came in fairly recently, and most of the practices that are at fault in the crisis were already occurring by that point. I mean, it seems the biggest root cause was incorrectly insuring higher-risk mortgages, and that damage would have been done well before Paulson appeared. So I'm curious why you would put Paulson ahead of Greenspan?

Greenspan started the moral hazard back in 1998 with LTCM...its only been on the rise since then and has contributed in no small way to the nonsense we are seeing now....

Nothing wrong? Huge financial institutions collapse as a part of normal routine business? Something is definitely "wrong", now as to whether it requires government intervention is debatable, but to say there is nothing "wrong" going on seems a little strange to me.

Fact is that the government will have to get involved at some point. With the way debt levels have risen in this country, they cannot afford to have investment money going to other economies because investors have lost confidence in the system here. They will have to take action to try and restore that confidence, else the system here will just collapse upon itself (worst case scenario, of course, but not impossible at all).

Yeah, I didn't get that either. Paulson became Secretary in July of 06, replacing John Snow.

Agreed. It's like blaming a battlefield medic for a soldier's wound rather than the guy who shot him.

Unless, as I have seen/heard some economists say, this 'crisis' has been made worse by Paulson since the summer of 2007. I have not looked into that at all, but I heard this angle of the story being presented by someone on CNBC earlier this morning once again. I have not heard anyone blaming him for the entire thing, which surely wouldn't make any sense, but some claim he has exacerbated the meltdown.

I think its been coming a LONG time personally, I also think that outside of financial stocks* most of the drops recently have been out of fear rather than reality ...

My bet presently is that things will stay choppy until around the election, at which point the mindset of people will become more positive and lo and behold things will recover somewhat.

(much like the 'gas price crisis' which was self sustaining while it lasted - but now is going back towards its long term trend, imho the Dow is now behind its 'trend line' and will be forced to buck back up to reality at some point in the future)

*And to be honest out of the financial companies I'm sure that most of them would have been fine if modern communication mediums and fear mongering from those hadn't affected their ability to function normally.

Goldman Sachs missed their earnings projection by 70%. Could be another bloody day on Wall Street.

Marc: I think just the opposite in regards to communication. There are hundreds of billions of dollars in bad loans be written off or still to be fully written off. Without the constant message of we're turning the corner, there are bargains to be had, etc. I think there could have been a much worse crisis. Given the size of the problem it's remarkable that things have held together as well as they have.

I think that the communication has helped in that companies can't hide things, however I think that the 'fear' that is generated has caused as much trouble as the visibility has removed by causing runs on companies and impairing their ability to function.

Thinking rationally about things the default rate on mortages isn't at a level where the paper is valueless yet some loans are trading for literally a 20 pence or under in the pound (or cents on a dollar if you prefer).

Even if all of the loans in question had defaulted and the price of the properties involved been cut by 50% in the present housing market then I'd have thought that taking into account the costs in selling the properties they'd still be worth 30p in the £.

(incidentally why has no bank tried to setup a real-estate arm instead of selling the foreclosed properties at a huge loss? - ie. rental agency; they'd help remove some of the glut from the housing market (helping that recover) and also gain some income from rent while ensuring that the property is kept in a reasonable state of repair)

Who passed the law that removed the 10:1 liquidity cap on all financial companies? Bear Stearns was around 30:1 and Fannie Mae was near 80:1! I'm sure it's not the only cause, but it's definitely a part.

Not quite. Earnings were down 70% from a year ago; they actually beat estimates by 10 cents a share ($1.71 vs $1.81).

Rates stand firm.

there is a feeling on the street that we're truly at the cliff and we could get a monster leg down predicated on AIG or another 'shoe'. However, should we get that 'capitulation' it could be the basis of a nice short term rally in the markets but that wont ease individuals pain.

absolutely

i think you have to look at AIG first and foremost potentially dropping (not sure how they can manage to salvage themselves at this point to be honest, although lord knows everyone will try), and then potentially Goldman/Morgan Stanley...

was saying earlier to folks that i can almost see a scenario where we have BoA, JPMorganChase, and then another retail-bank or two (WellsFargo maybe?) being all that's left standing and having gobbled up all the IB's, because the retail banks have the customer deposits that are helping to keep their balance sheets from looking quite so ugly. We're most of the way there already -- and while WellsFargo may not have the capital to buy say Goldman right now, if Goldman or MS implode the way the others did, it's definately not a stretch.

Not entirely surprised. Rates are supposed to be cut elsewhere in the world and there is some concern about devaluation of our currency (finally).

Goldman Sachs won't fail. They may be the strongest of the weak right.

Oh I hope they don't. I think honestly that GS and MS can survive as-is, but it's just worrisome ya know?

The economy is wierd for me right nowas my job is stable and I'm actually thinking of sellling the house and buying a new bigger one. Pretty much against the trends right now I think. We bought this house in a stable market (this area has seen small gains in home values as we never got overvalued) and will be looking to tradeup in a few years at the latest but it may be time to sell high (current home) and buy low (new home in depressed suburb)

So Barclays may be buying up most of Lehman which will save a bunch of jobs.

And the government is going to bail out AIG.

Logan - where are you seeing that news?

Oh, and MS reported nice earnings (revenue $8bn, $1.32 a share) - they're up 11% in after-hours trading so far.

dola - nevermind - now i see the Barclays/Lehmans news

still nothing concrete on AIG though

another domino falls, as a rather large money market fund "broke the buck" today. Folks had been watching for this over the last year with all of the SIV losses, but money fund sponsors (Bank of America, US Bank, Legg Mason, to name a few) had, to this point, taken action to support and prop up certain funds that were teetering on the brink of falling below the $.995 level mandated by SEC procedures for money funds. This one blew through the buck based on its short-term Lehman holdings and now has an NAV of 97 cents. Pretty remarkable stuff.

http://www.bloomberg.com/apps/news?p...kBs&refer=home

Thanks. What I saw reported was obviously incorrect. Any instability at Sachs would be catastrophic IMO.

So we are flushing $85 billion of more taxpayer money down the drain just to help out a company? I understand the problems of them failing, but jeez.

what's scary is Meredith Whitney continues to be right and her speculation keeps coming true, her forecasts for next year are even worse.

Dumb question, but what exactly is the liquidity cap? Amount you borrowed times your total assets?

At this point, I'd rather they take all these billions they've used to prop up these big companies, who should have known better, and bought health insurance for a lot of honest hard workers that simply cannot afford it. Or invested it in alternative energy... Maybe, if we had allocated all the money we've spent in Iraq on alternative energy, we would not have to give a damn about what happens over there either. So many billions of dollars blown on the wrong things over the past 5 or 6 years. What a disaster...

I thought it was how much you loan out versus how much you actually have. Like being able to loan out $10 for every $1 in actual deposits/assets. I could be wrong...

It's not helping out one company, it's helping out about a thousand companies.

That makes sense. I think I am thinking of debt to assets ratio.

A little socialism apparently isn't a bad thing after all. Although the GOP will easily forget this ever happened when times are better and the "we're a free market capitalist system" message is the one they are trying to sell once again.

This is on Paulson's watch. Regardless of who shot the soldier, the treatment he has used hasn't seem to work well.

This financial situation will be fascinating reading in the post-mortem books in a couple years.

I'm all for the AIG bail out.

I'm completely ignorant, but where does the 85 billion come from? The US doesn't have any extra money, so are we in effect borrowing this from China to loan to AIG.

I understand this in the first place. Problem is, we shouldn't be doing this in the first place.

My question is, are we going to get the money back, plus the interest we are going to have to pay on (as well as adjusted for inflation)? Growing our deficit even more isn't going to help in the long-term. Does AIG have the assets to back up the loan (I've heard the aircraft leasing business is quite valuable)? Are they just trying to get a loan while they try to sell off some of the lucrative assets they have to make it through, which will allow them to inject capital into it's business and pay back the loan?

It's not even that you need "socialism". It the idiots decided to keep money cheap and print it like its going out of style, pass legislation that allowed companies to erase liquidity caps and give anyone a loan or credit, and loose accounting rules. I'm all for responsible regulation.

Fire up that printing press.

I'm curious what point the US debt/deficit has to reach before the country as a whole gets 'downgraded' or whatever the equivalent is for countries borrowing money. At what point would it have to reach before it starts to spiral out of control and cause real, everyday repercussions?

I know that Canada was hurting in a big way back in the late 80s early 90s after years of over spending from Trudeau and Mulroney, and it became a major issue to get our books in the black and actually pay down the debt. Obviously the US has a lot more leverage than a country like Canada, but every country must have a breaking point, right?

I guess that whole "no bailout" thing lasted all of two days. The thing that kills me is that AIG turned down a buyout offer about a week ago and now the Fed will cover it instead. While I understand why they felt they needed to in order to prevent a meltdown, all it really does is put a band-aid over that cut artery, doesn't it?

The old adage is if you (Canada) owe the bank (the World) a thousand dollars, the bank owns you. When we (US) owe the bank (World) a billion dollars, we own the bank. Countries like China have already begun shifting their new investment into a broader range than just US treasuries, but they still have billions in longer-term securities that they simply can't afford to let the US default on. (Same reason why a war between us and China is unlikely.) Not to mention the global economic catastrophe that would affect everywhere if the US economy entered an actual depression. I'm still a much bigger fan of some Schumpeterian economic destruction, and think we're screwing ourselves long-term with these bailouts, but this one isn't quite that bad.
Some phenomenal posts over here - Megan McArdle Yes, it's a U Chicago economist, and some of the better posts mostly take on Democratic party-line commenters, (What should Bush have done, etc.)
but she also points where the Republican memes (It can be traced back to Clinton-era policies demanded expanded loans to minorities) aren't supported well by the data.

That McArdle blog is really good.

This post especially is great:

http://meganmcardle.theatlantic.com/...regulation.php

amusing quote from one of the comment threads on mcardle's blog


+1