The problem is when there is risk that banking groups with substantial retail operations like Citi or Barclays will find themselves belly-up. We have met the enemy, and he is us — Pogo
Empathy for Jerome, man, this can't be good for ambiance where he works...
BTW, if you're still to see the LibDems today, could you ask their views on the Growth and Stability Pact and regional investment? Oh and, how'd you like Strasbourg? (I have a very good line on a job there, and am wondering what it's like...) Fai de bèn a Bertrand, te lou rendra en cagant
The problem is when there is risk that banking groups with substantial retail operations like Citi or Barclays will find themselves belly-up.
Isn't that most of them?
NR may have had the most aggressive (read - 'totally freaking insane') business model in the UK high street, but don't all of the banks and building societies do at least some of their business in the same way?
I'm finding it hard to imagine how finance will work if the main investment banks are replaced with big smoking craters.
In fact the NR Foundation has quite an interesting position in any solution, because although they "only" got 5% of the profits, they are entitled upon a takeover to 15% of the votes (I think that's how it works).
Uncanny echoes here of the Barings fiasco and the resulting demise of much of the Baring Foundation's "wealth". "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Banks, except investment banks, should have pretty much zero exposure to all this subprime crap.
Still, the bank stock just keep falling. Trading at p/e around 8-9 last time I checked.
This would all have been academic to me if I hadn't inherited a small amount of SE-bank shares, bought by my grandmother somewhere back in the mists of time.
Selling is out of the question due to the accumulated capital gains tax and the bureacracy of selling shares bought before 1990, so I shouldn't really care about the stock losing about 30 % of its value since the peak. It can never be more than a little dividend printing press.
Still, it's a bit irritating. Peak oil is not an energy crisis. It is a liquid fuel crisis.
A good thing for us up here is that that transformation hasn't really happened in Scandinavia. Banks, except investment banks, should have pretty much zero exposure to all this subprime crap. Still, the bank stock just keep falling. Trading at p/e around 8-9 last time I checked.
LY:In retrospect it was a mistake to let Citibank and Goldman Sachs define what a good market or a good regulation might be. Well - who'd have thought, etc? If you hand the hen house over to the foxes, it's not as if they're golng to eat everything and leave a bloody mess.
In retrospect it was a mistake to let Citibank and Goldman Sachs define what a good market or a good regulation might be.
Well - who'd have thought, etc? If you hand the hen house over to the foxes, it's not as if they're golng to eat everything and leave a bloody mess.
Fears rise of `earnings recession' Wall Street analysts are rapidly losing faith in US companies' ability to rekindle profit growth before the end of the year, raising the prospect of the first "earnings recession" - two consecutive quarters of falling profits - in more than five years. Mounting troubles in the financial sector have led analysts to reduce sharply their forecasts for earnings growth in the final quarter of the year. (...) The deterioration in the profit outlook is mainly due to the bigger-than-expected write-downs by large financial groups such as Citigroup and Merrill Lynch as a result of the turmoil in the credit markets. The energy and consumer discretionary sectors have also experienced a sharp decline in third-quarter earnings. Analysts, however, still expect a rebound in the fourth quarter. In contrast, the financial sector, which comprises 20 per cent of the S&P 500, saw a decline of 16 per cent in year-on-year profits during the third quarter, and now faces a slide of 9 per cent for the last three months of the year.
Wall Street analysts are rapidly losing faith in US companies' ability to rekindle profit growth before the end of the year, raising the prospect of the first "earnings recession" - two consecutive quarters of falling profits - in more than five years.
Mounting troubles in the financial sector have led analysts to reduce sharply their forecasts for earnings growth in the final quarter of the year.
(...)
The deterioration in the profit outlook is mainly due to the bigger-than-expected write-downs by large financial groups such as Citigroup and Merrill Lynch as a result of the turmoil in the credit markets.
The energy and consumer discretionary sectors have also experienced a sharp decline in third-quarter earnings. Analysts, however, still expect a rebound in the fourth quarter.
In contrast, the financial sector, which comprises 20 per cent of the S&P 500, saw a decline of 16 per cent in year-on-year profits during the third quarter, and now faces a slide of 9 per cent for the last three months of the year.
Other numbers suggest that finance and housing provided 40-50% of total growth in the US and the UK in recent years. These sectors just slowing down is enough to throw the economy overall into a nasty spin. In the long run, we're all dead. John Maynard Keynes
Having said that, in your other comments you and rdf have me back on the fence wondering if things won't turn out as catastrophically as they seemed at first.
Still, two things worry me: how much of the damage is unkown and hiddeen and the lack of separation between investment and retail/commercial banks. Truth unfolds in time through a communal process.
The global economy was flooded with liquidity, but that's not an excuse for these large investment houses handing out mortgages to people wanting to buy million-dollar condos in Malibu on middle-class salaries.
And, really, why should we slash rates to get more money into the hands of Morgan Stanley? Welfare is apparently Satanic in America, unless it comes in the form of rate cuts to the stock dealers or agricultural subsidies to the flyover states. (Somehow those two groups still find the balls to blame welfare on inner-city blacks.)
This latest rate cut was Ben Bernanke being bullied out of his lunch money. The economy grew at 4% last quarter. Well above trend growth. Unemployment is at 4.7%. Even if the former is revised down, and even if we suffer a recession, this is hardly an issue of the sky falling, and it does not warrant nearly a full percentage point in cuts over a period of a month and a half. A lot of investment houses are going to lose their asses. Well, I'm sorry, but that's capitalism. It ain't always pretty.
It's not going to be a catastrophe. It's going to be a nasty decline in house prices, involving a lot of foreclosures and bankruptcies. But it's also going to be a period in which the dollar falls and the world economy rebalances quite a bit.
Look, quite a few of the suits on Wall Street are going to lose it all. What does that mean? It means quite a few of the suits on Wall Street are going to lose it all. It doesn't mean production everywhere else immediately shuts down. It doesn't mean we're all out of work. At worst, it will mean a pretty rough recession, but even this seems unlikely to me. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
