Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Tectonic Turmoil

by afew Mon Sep 15th, 2008 at 05:44:17 AM EST

After Jerome a Paris's diary Lehman: more socialising the losses of the rich, today's news:

Bloomberg.com: `Tectonic' Shift on Wall Street as Lehman Fails, Merrill Sold

Sept. 15 (Bloomberg) -- In the biggest reshaping of the financial industry since the Great Depression, two of Wall Street's most storied firms, Merrill Lynch & Co. and Lehman Brothers Holdings Inc., headed toward extinction.

New York-based Lehman, founded 158 years ago, said early today that it plans to file for Chapter 11 bankruptcy protection after failing to find a buyer. Merrill Lynch, 94 years old and also based in New York, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal hashed out yesterday.

FT.com / Wall Street in turmoil

Wall Street was in turmoil on Monday as Merrill Lynch found shelter in a $50bn takeover by Bank of America and Lehman Brothers said it would file for bankruptcy protection.

BofA’s bold bid for Merrill came as the world’s top banks abandoned efforts to save Lehman and set out to build a firewall against further financial chaos with a $70bn liquidity pool to support other vulnerable institutions.

Wall Street in turmoil. Tectonic shift. See Jerome's diary and the comments (including on Greenspan's offering), and see below for collateral damage re Europe and insurance.


FT.com : Bank shares plummet in Europe

In the UK, HBOS, the country’s biggest-listed mortgage lender, was 17.4 per cent lower at 233p as investors continued to worry about its own capital position. The bank was the biggest faller on the market. Barclays lost 10.1 per cent to 315p, Royal Bank of Scotland fell 8.9 per cent to 213½p.

The picture was the same across the continent. Deutsche Bank lost 4.7 per cent to €55.2 and France’s Crédit Agricole fell 9 per cent to €12.80. UBS was 1.9 per cent lower at SFr21.60. Société Générale was 8 per cent lower at €59.89.

Worries about the health of the insurance sector grew after AIG of the US said it was seeking to raise $10bn-$20bn of new capital. Its Frankfurt-listed shares lost 31.1 per cent to €6.30 ahead of the opening in New York.

Friends Provident was one of the biggest fallers on London’s FTSE 100, on fears about the extent of the spread of the contagion in the sector. Friends was 11.4 per cent lower at 87.6p, while Aviva lost 6.2 per cent to 500.9p. RSA Insurance was 3.6per cent weaker at 152.2p

Display:
Bloomberg.com: U.S.

Sept. 15 (Bloomberg) -- U.S. stock-index futures tumbled on concern Lehman Brothers Holdings Inc.'s bankruptcy filing will exacerbate credit-market turmoil.

Lehman, once the fourth-largest U.S. investment bank, has filed a Chapter 11 petition after potential buyers abandoned talks and the U.S. government declined to fund a takeover of the crippled firm. Bank of America Corp. cemented its status as the largest U.S. consumer bank by agreeing to acquire Merrill Lynch & Co., the world's biggest brokerage firm, for about $50 billion.

AIG may take sizable markdowns on Lehman impact: UBS | Markets | Markets News | Reuters

(Reuters) - American International Group Inc will likely incur sizable markdowns, as the liquidation of Lehman Brothers Holdings Inc is expected to put substantial pressure on structured finance securities and credit default swaps (CDS), according to analysts at UBS.

AIG may incur over $10 billion in super-senior CDS losses, and $5 billion in realized investment portfolio losses in the third quarter, the analysts said.

AIG, which has been hit by $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor's putting the company's credit ratings on negative watch, indicating a possible downgrade.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Sep 15th, 2008 at 05:51:26 AM EST
3 A.M. CA time, watching "Squawk Box" on CNBC.

Hilarious show this morning.  Financial pundits sitting around like a bunch of gossiping old ladies.  New language being generated ... "terrorist accounts".  Like the sound of that.  And ALL OF THESE POOR PEOPLE WHO WILL BE OUT OF WORK!!!  I feel so SORRY for those worthless fuckers.

MORE!  I NEED MORE!  

HEADS!  I WANT TO SEE HEADS!  BLOODY HEADS!

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 06:02:39 AM EST
More language cropping up:

PANIC

DEPRESSION

I'll keep you posted.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 06:25:51 AM EST
[ Parent ]
"AIG clinging for dear life"

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 06:32:39 AM EST
[ Parent ]
"Putting up firewalls but they're not dealing with the fire"

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 06:52:00 AM EST
[ Parent ]
On the contrary - the "fire" is lack of liquidity and they've been pumping liquidity like mad for a year.

They removed the firewalls with the repeal of Glass-Steagall and this is the result.

Note that Phil Gramm was one of the sponsors of the repeal bill and he's rumoured to be slated as McCain's Treasury Secretary. Note also that Clinton failed to veto the repeal.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 06:58:15 AM EST
[ Parent ]
Note also that Clinton failed to veto the repeal.
The senate voted with more than 90% for that. A veto would have been overturned. You state it, as if the Bill Clinton failed to do the will of the majority or even a significant minority of democrats. He didn't. Large bipartisan support of the bill. Nobody the democrats can blame.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Mon Sep 15th, 2008 at 01:26:03 PM EST
[ Parent ]
Nobody the democrats can blame.

I was personalising it in Clinton, but you're right, the rot goes deeper.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 01:43:51 PM EST
[ Parent ]
"We're in a business environment we've never seen before"

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 07:05:26 AM EST
[ Parent ]
Switching to CSPAN Washington Journal call-in show:

"Huge blow to capitalism in America"

"A remarkable fall from grace (Merrill)"

"Our money is falling through a sieve"

"This is unfettered capitalism (not said in a NICE way)"

A definite sense of excitement/anxiety in everyone.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 07:17:16 AM EST
[ Parent ]
Why is nobody saying 'huge blow to market fundamentalism'?

The Washington Consensus finally eats its own...

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 07:22:36 AM EST
[ Parent ]
People bringing up similarities to the '20's Great Depression.

People are REALLY ON this A.M.  Not the usual hicks from Tenn, Ala, Miss., W. Vir. etc.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 07:24:48 AM EST
[ Parent ]
"The bank melt-down"

"Our govt. is running this big corporate welfare show.  The people need to STORM the Capitol Building"  "I'm scared!"

I LOVE IT!

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 07:30:58 AM EST
[ Parent ]
Whaa...???

This is the Black Monday of the Crash of 2008. But remember the stock market continued to slide (though it didn't crash again) for several years after 1929.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 07:34:22 AM EST
[ Parent ]
Back to Squawk Box:

People looking to the DOW to see what's next.

Drop your socks and grab your cocks, we're going to a party!

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 07:46:35 AM EST
[ Parent ]
You know what they say... 'Follow the Dow'

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 07:50:13 AM EST
[ Parent ]
Greenspan, a Neocon for certain. And an advocate for Friedman's right wing offering to value the rich before the poor, because the poor will continue to remain poor until the rich get richer. Did anyone really believe this bullshit in Europe?

by shergald on Mon Sep 15th, 2008 at 02:57:49 PM EST
[ Parent ]
Cross-posting some items from other threads:

FT.com: Bank shares plummet in Europe (September 15 2008)

The European Central Bank announced emergency steps to counter is financial turmoil in the wake of the crisis in the US banking system. It announced a special operation offering unlimited overnight liquidity to markets.

Earlier, using language similar to that it has used previously used to signal possible intervention in financial markets, the Frankfurt-based institution said it "continues to closely monitor the conditions in the euro area money market".

...

The Federal Reserve agreed to take equities as collateral for emergency loans for the first time ever, as the chances of a rate cut at its scheduled meeting this week grew according to interest rate futures trading.



A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 06:10:17 AM EST
FT.com: Bank shares plummet in Europe (September 15 2008)
Looking ahead, Goldman Sachs and Morgan Stanley are due to report third quarter results this week. Analysts at SocGen said: "Their earnings should represent a relatively easier barrier for the market to overcome, but we will then be in a vacuum of sorts as far as single names are concerned given that the full reporting season is still some four weeks away."


A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 06:12:44 AM EST
[ Parent ]
FT.com: Bank shares plummet in Europe
Banking stocks fell across Europe on Monday after the dramatic overnight news of Lehman Brothers' bankruptcy and Bank of America's $50bn takeover of Merrill Lynch.

...

"Black Monday? Try Blacker Than a Dark Cellar at Midnight Monday," said Mark Priest, senior trader at ETX Capital.

"Bear Stearns has gone, Lehman's gone, Merrill's gone - it's carnage. People are worried about what will emerge when Lehman Brothers unravels itself, and the ripple effects that that could cause. It looks like people have moved their money back into commodities - gold and silver are up, but otherwise there are few safe havens."




A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 06:13:47 AM EST
[ Parent ]
"Black Monday? Try Blacker Than a Dark Cellar at Midnight Monday," said Mark Priest, senior trader at ETX Capital.
Luckily he wasn't hired for his skills as a poet.
by Colman (colman at eurotrib.com) on Mon Sep 15th, 2008 at 06:14:54 AM EST
[ Parent ]
Global markets dive after Lehman declares bankruptcy - Times Online

Global stock markets plunged this morning after it emerged that Lehman Brothers, the 158-year old bank, had filed for bankruptcy after the failure of a weekend of rescue talks masterminded by US Government.

The Bank of England moved to calm UK markets today by pumping £5 billion into the short-term money markets, to guard against fears that financial markets will grind to a halt if banks, spooked by the collapse of Lehman, stop lending to each other.

Earlier this morning, the Bank said it was "monitoring carefully conditions in sterling money markets and will take appropriate actions if necessary to stabilise those markets".

In London, the FTSE 100 index of leading blue chip companies fell by 184.1 points to 5,232.6 in morning trade, reversing gains made at the end of last week when a chance to secure Lehman's future remained.

The printing machines must be working at high speed.

by Fran on Mon Sep 15th, 2008 at 06:13:15 AM EST
GOOD MORNING EUROPE!!!!

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 06:15:53 AM EST
[ Parent ]
The printing machines must be working at high speed.

According to Galbraith's The Great Crash 1929 at the height of the crash the ticker tape was printing so much that it printed 2 hours late. By the time tape-watchers found out their holdings were being wiped out, they were way too late to react.

On the general situation, the collapse of Lehman signals the end of "organised support" (a stock phrase referring to small investors' hopes that J P Morgan would ride in to save them).

Another recycled comment:

Jerome a Paris:
His view is shared by Larry Summers, the former US Treasury secretary, who wrote in the FT last week: "It is not unreasonable to hope that, in the US at least, the financial crisis will remain in remission."

Some analysts also agree. "Increase risk exposures," JPMorgan advised clients in their latest research. The US stock market is up 8.6 per cent from its March low.

This turn in sentiment is based on the idea that radical action by US authorities has put a floor under the financial system

Holy shit, this sounds like the "organised support" during the crash of 1929.
[On 24 October 1929]

In New York at least the panic was over by noon. At noon the organized support appeared.

At twelve o'clock reporters learned that a meeting was convening at 23 Wall Street at the offices of J. P. Morgan and Company. The word was quickly passed as to who was there -- Charles E. Mitchell, the Chairman of the Board of National City Bank, Albert H. Wiggin, the Chairman of the Chase National Bank, William C. Potter, the President of the Guaranty Trust Company, Seward Prosser, the Chairman of the Bankers Trust Company, and the host, Thomas W. Lamont, the senior partner of Morgan's. According to legend, during the panic of 1907 the elder Morgan had brought to a halt the discussion of whether to save the tottering Trust Company of  America by saying that the place to stop the panic was there. It was stopped. Now, twenty-two years later, that drama was being re-enacted. The elder Morgan was dead. His son was in Europe. But equally determined men were moving in. They were tha nation's most powerful financiers. They had not yet been pilloried and maligned by New Dealers. The very news that they would act would release people from the fear to which they had surrendered.

It did. A decision was quickly reached to pool resources to support the market. The meeting broke up, and Thomas Lamont met the reporters. His manner was described as serious, but his words were reassuring. In what Frederick Lewis Allen later called one of the most remarkable understatements of all time, he told the newspapermen, 'There has been a little distress selling on the Stock Eschange.' He added that this was 'due to a technical condition of the market' rather than any fundamental cause, and told the newsmen that things were 'susceptible to betterment'. The bankers, he let it be known, had decided to better things.

Word had already reached the floor of the Exchange that the bankers were meeting, and the news ticker had spread the magic word afield. Prices firmed at once and started to rise. Then at one-thirty Richard Whitney appeared on the floor and went to the post were steel was traded. Whitney was perhaps the best-known figure on the floor. He was one of the group of men of good background and appropriate education who, in that time, were expected to manage the affairs of the Exchange. Currently he was vice-president of the Exchange, but in the absence of E. H. H. Simmons in Hawaii he was serving as acting president. What was much more important at the moment, he was known as floor trader for Morgan's and, indeed, his older brother was a Morgan partner.

As he made his way through the teeming crowd, Whitney appeared debonair and self-confident -- some later described his manner as jaunty. (His own firm dealt largely in bonds, so it is improbable that he had been much involved in the turmoil of the morning.) At the Steel post he bid 205 for 10,000 shares. This was the price of the last sale, and the current bids were several points lower. In an operation that was totally devoid of normal commercial reticence, he got 200 shares and then left the rest of the order with the specialist. He continued on his way, placing similar orders for fifteen or twenty other stocks.

This was it. The bankers, obviously, had moved in. The moment was electric. Fear vanished, and gave way to concern lest the new advance be missed. Prices boomed upward.

That was a Thursday. The following Monday
At four-thirty in the afternoon the bankers assembled once more at Morgan's, and they remained in session until six-thirty. They were described as taking a philosophical attitude, and they told the press that the situation 'retained hopeful features', although these were not specified. But the statement they released after the meeting made it clear what had been discussed for the two hours. It was no part of the bankers' purpose, the statement said, to maintain any particular level of prices or to protect anyone's profit. Rather the aim was to have an orderly market, one in which offers would be met by bids at some price. The bankers were only concerned that 'air holes' as Mr Lamont dubbed them, did not appear.

...

... But no one assailed the bankers for letting the people down. There was even some talk that on the next day the market might receive organized support. -- John K. Galbraith in The Great Crash 1929

The "floor under the market" that was put in place in March/April of this year has been removed.


A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 06:28:13 AM EST
[ Parent ]
How does the concept stand up to scrutiny, now? Would it be worth re-posting the summary text?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 06:17:41 AM EST

"Dutch Disease" was a term coined in the 1970s by the magazine The Economist to describe the syndrome suffered by the Netherlands after the discovery of the massive Groningen field propelled natural gas into the driving seat of the economy. The extractive sector became so profitable that it attracted the lion's share of new investment, and the resulting gas export boom altered the trade balance and boosted the currency, causing difficulties for the rest of an export-oriented economy. And, as with the "oil curse" that has struck other countries, depletion of the resource has since proved to be extremely painful.

On a larger scale, but of similar nature, is the high-profitability disorder that has, until recently, characterised the financial sector.  The biggest single sector in the 2007 S&P 500 market capitalisation index, weighing 7%-8% of US GDP, its share in total corporate profits stood last year at over 40% from below 20% in the 1970s. Net total income growth in recent years has predominantly benefited a relatively small number of people either working directly in the sector or owners of financial assets. In the UK, where the sector's share of GDP rose to 9.4% in 2006, from 5.5% in 2001, City-dominated London received 50% of total foreign investment. Per capita Gross Valued Added rose by between 8% and 9% over the last decade in London while, in all other regions of the UK, it stagnated or fell. In fact, the phenomenon is so firmly based in the money centers of New York and especially London, that the label "Anglo Disease", by allusion to "Dutch Disease", might appear to be no unfair moniker.

How to describe the pathology of this ailment? Financiers, now unchecked by regulation or restrictions on leverage, can monetize many kinds of future revenue streams today, generating instant profits they and their clients can capture. That capacity to create apparent wealth out of thin air without limit cannot be matched by any other sector in the economy. Unsurprisingly, it sucks in talent, resources and skills that are not available for infrastructure investment or other economic activities.

Meanwhile, the investors who have made those immediate profits possible still want to ensure that the future flows that underpin them do in fact materialize--and so they will impose their rules and discipline on the underlying economic activity. The result is an unrelenting focus on profits and shareholder value. Struggling to meet "return on capital" criteria, many non-financial activities experience yet further reductions in capital allocation, and relative decline. Meanwhile, public debate is dominated by financial analysts, as "net present value" becomes the standard prism through which to view any human activity.

Public policy attempts to provide balance are hamstrung by the fact that, from the financial viewpoint, regulations and tax are restrictions on entrepreneurship and profit to be opposed and if possible eliminated. As for labor, return on capital is improved if its cost can be reduced. Outsourcing, offshoring, and labor market flexibility have helped keep wages in check. Hence a major symptom of the Anglo Disease is long-term stagnation of the majority of incomes.

Flat incomes might constrain domestic demand, but easy credit (to the further benefit of the financial industry that channels it) has buttressed household spending. Expansionist monetary policies in the West have combined with Chinese mercantilism to offer rapid asset price increases with no consumer goods or wage inflation, generating high corporate profits. Global trade imbalances and what was a massive asset bubble created an economy blessed with the appearance of strong, inflation-free growth--an illusion that helped validate the underlying policies, despite rising inequality and ballooning, unsustainable, debt burdens. Starting with subprime lending, but now extending to other financial activities, market players have suddenly become scared by their collective imprudence and have engaged in a brutal process of deleveraging. While the credit crunch devastates bank balance sheets, the wider economy is also suffering.  Credit available to businesses is shrinking, and the spigot of house equity withdrawals is turned off for consumers. The reality of declining or stagnant incomes for the majority can no longer be camouflaged. Prospects are dire, and  further damage to the banking sector and the overall economy is likely.

The imbalances will only be unwound, ultimately, if incomes match spending more closely. That can, of course, happen through a consumer spending slump and an  inevitably painful recession. The financial wagers and high-priced assets that surfed on a nicely growing economy will, at some point, have to be marked down as losses, as is happening already. The Anglo Disease will face treatment by the kind of drastic purge that threatens the patient's very life.

There remains another way: higher wages across the board, and a more modest financial sector restrained by regulators and unable to impose the artificially high return-on-capital requirements made possible only by excessive leverage. Making banking boring again is, compared to the alternative, a fairly gentle cure for the Anglo Disease.

John Evans, a writer, and Jérôme Guillet, an investment banker in the energy sector, are editors of the European Tribune, a current affairs website.

John, would you post it again on the FP?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 06:21:03 AM EST
[ Parent ]
OK.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Sep 15th, 2008 at 06:50:12 AM EST
[ Parent ]
Focusing on the disease now, rather on how it looked before it crashed?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 07:07:14 AM EST
[ Parent ]
And if so possible, relaunch the French version to Le Monde and the English version to an English paper (FT/Guardian/Independent).
by Nomad on Mon Sep 15th, 2008 at 07:53:07 AM EST
[ Parent ]
Yes, that too.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Sep 15th, 2008 at 12:11:30 PM EST
[ Parent ]
Yes, I think so. But things may move quickly for a while.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Sep 15th, 2008 at 12:09:36 PM EST
[ Parent ]
Paul Krugman: Financial Russian Roulette - SPIEGEL ONLINE - News - International

If institutions need to be rescued like banks, they should be regulated like banks -- why were we so unprepared for this latest shock?

 Can the Fed do anything to stop the continuing series of collapses of major financial institutions? Will the US financial system collapse today, or maybe over the next few days? I don't think so -- but I'm nowhere near certain. You see, Lehman Brothers, a major investment bank, is apparently about to go under. And nobody knows what will happen next.

To understand the problem, you need to know that the old world of banking, in which institutions housed in big marble buildings accepted deposits and lent the money out to long-term clients, has largely vanished, replaced by what is widely called the "shadow banking system." Depository banks, the guys in the marble buildings, now play only a minor role in channeling funds from savers to borrowers; most of the business of finance is carried out through complex deals arranged by "nondepository" institutions, institutions like the late lamented Bear Stearns -- and Lehman.

The new system was supposed to do a better job of spreading and reducing risk. But in the aftermath of the housing bust and the resulting mortgage crisis, it seems apparent that risk wasn't so much reduced as hidden: all too many investors had no idea how exposed they were.

by Fran on Mon Sep 15th, 2008 at 06:18:22 AM EST
Well, when there's something that serious people find fitting to call "the shadow banking system", you have a problem of regulation, don't you?

Nouriel Roubini via Angry Bear: If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system (September 13, 2008)

It is now clear that we are again - as we were in mid- March at the time of the Bear Stearns collapse - an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). ...

...

... Thus, a collapse of Lehman would trigger a panic and a potential run on all sort of other broker dealers and also on other distressed financial institutions like banks (WaMu) and insurance companies (AIG) and smaller member of the shadow financial system (distressed and highly leveraged hedge funds, etc.).

...

What we are facing now if the beginning of the unraveling and collapse of the entire shadow financial system, a system of institutions (broker dealers, hedge funds, private equity funds, SIVs, conduits, etc.) that look like banks (as they borrow short, are highly leveraged and lend and invest long and in illiquid ways) and thus are highly vulnerable to bank like runs; but unlike banks they are not properly regulated and supervised, they don't have access to deposit insurance and don't have access to the lender of last resort support of the central bank (with now only a small group of them having access to the limited and conditional and thus fragile support of the Fed). So no wonder that this shadow banking system is now collapsing. The entire conduits/SIV system has already collapsed with the roll-off of their ABCP financing; next is the collapse of the broker dealers (Bear, Lehman and soon enough the other ones) that rely mostly on unstable overnight repos and other very short term funding for their financing; next will be hundreds of poorly managed hedge funds that will face a tsunami of redemptions; and finally runs on money market funds that are not supported by a large financial institutions or other smaller member of the shadow banking system as well as highly leveraged and distressed private equity funds cannot be ruled out either.

...



A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 15th, 2008 at 07:08:02 AM EST
[ Parent ]
Well one thing that would save the old independent investment bank would be to reinstate Glass-Seagall. After all, the business world needs the functions they traditionally perform, and if by law they have to be independent of other financial institutions, they'll keep on existing.
by MarekNYC on Tue Sep 16th, 2008 at 12:55:10 AM EST
[ Parent ]
At least according to McCain.

TPM Election Central | Talking Points Memo | McCain This Morning: "The Fundamentals Of Our Economy Are Strong"

Here's the full quote:

"You know that there's been tremendous turmoil in our financial markets and Wall St. And it is -- people are frightened by these events. Our economy, I think still -- the fundamentals of our economy are strong. But these are very, very difficult times."

McCain did refer to the big Wall Street events of here, so it isn't like this was an unintentional gaffe; this is what he wanted to say. Arguably, of course, that could make this worse. Not cutting this line out on this morning, of all mornings, is a serious mistake.

by Fran on Mon Sep 15th, 2008 at 12:15:09 PM EST
[ Parent ]
Finanzkrise reisst die Börsen auf eine Talfahrt (Wirtschaft, Börsen und Märkte, NZZ Online)
Aktien von Banken und Versicherungen stark unter Druck
financial crisis tears exchanges on a descent (economy, stock exchanges and markets, NZZ Online)

Shares of banks and insurance companies under strong pressure
Die Verschärfung der amerikanischen Finanzkrise hat am Montag die Börsen auf eine rasante Talfahrt geschickt. Anleger fliehen aus Aktien. Vor allem die Titel von Banken und Versicherungen kommen stark unter Druck.

The tightening of the U.S. financial crisis had the stock exchanges on Monday at a rapid descent. Investors are fleeing from equities. Above all, the titles of banks and insurance companies come under strong pressure.

(sda/Reuters/ap)/tsf. Die Hiobsbotschaften aus den USA haben die Börsen in Europa auf Jahrestiefstände einbrechen lassen. In der Schweiz notierte der Schwergewichte-Index SMI um 9 Uhr 20 um 2,4% tiefer auf 7044 Punkten. Der breit gefasste SPI verlor 2,1% auf 5907 Punkte.(sda /Reuters /ap) /TSF. The bad news from the U.S. had the stock exchanges on a tumble in Europe to a yearly low . In Switzerland the the heavyweights Index SMI quoted by 9.20 am by 2.4% lower at 7044 points. The broad SPI lost 2.1% to 5907 points.
Zu den Verlierern zählten die beiden Grossbanken. Die UBS-Titel eröffneten bei 21,86 Franken oder 7,06% unter dem Kurs vom vergangenen Freitag. Credit Suisse notierten bei 49,70 Franken, was einen Verlust von 5,51% bedeutete. Auch der Rückversicherer Swiss Re büsste mehr als 5% ein.Among the losers were the two big banks. UBS title opened at 21.86 francs, or 7,06% below the rate of last Friday. Credit Suisse quoted at 49.70 francs, representing a loss of 5.51%. Even the reinsurer Swiss Re lost more than 5%.
by Fran on Mon Sep 15th, 2008 at 06:28:00 AM EST
Interesting, nothing about the finance crisis on Russian sites, yet!
by Fran on Mon Sep 15th, 2008 at 06:31:26 AM EST
They're too busy laughing to type.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 06:55:28 AM EST
[ Parent ]
The Russians will be pointing and laughing.

It's the fall of the Greenback Wall.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 15th, 2008 at 07:01:21 AM EST
[ Parent ]
Daily Kos: Rejoice! The Beast Is Mortally Wounded

Lehman and Merrill did not disappear overnight.

They were Raptured.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 15th, 2008 at 07:06:41 AM EST


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Sep 15th, 2008 at 07:09:51 AM EST
[ Parent ]
7:15 AM EST CNBC's Squawk Box has a roundtable going...what amazes me is everyone (except for Andrew Sorkin still pushing anti-regulation) dissing Wall St CEO's who cheerlead rather than disclose while calling for help and regulation from the fed (this is where Sorkin puts his two cents in - he evidently thinks being leveraged 24:1 is a good business model).

NJ Gov Jon Corzine seems to think anything to prevent a basic resent of the values of assets is the way to go. (NJ has already cut its budget, and sees lower revenues in future).

I have to go to work now - maybe I'm lucky to be able to this morning - but I'm going to be wondering what going on all day.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon Sep 15th, 2008 at 07:27:07 AM EST
What's amazing is that the DOW hasn't reacted to this at all.

300 points is NOTHING in the face of the total failure of banking in the United States.

This means people are NOT calling and pulling their investments out of Goldman Sachs, Morgan Stanley and Merrill Lynch (if they pulled out of ML, safe to say that BoA would reconsider). I'm also hearing that people on Wall Street expect the financial firms to be reconstituted as largely independently running firms with their current headquarters remaining in place.

I am more panicked than the people on Wall Street, in other words.

So, what are we missing on this thread?

by Upstate NY on Mon Sep 15th, 2008 at 02:37:57 PM EST
Just got back from an hour walk, had time to think.

In light of what we've seen in the last 12 hours, who wants to have a weekly ET prayer group; I'll lead it.

We'll need JE-BUS to get through the next year.

Any takers?

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 02:42:01 PM EST
[ Parent ]
Not quite 3 P.M. EST and we've broken through neg 350 on the DOW.  Can we hit neg 400 before the close?  Who's in the betting pool?

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon Sep 15th, 2008 at 02:52:05 PM EST
Well, this makes more sense.

There is clearly a lot more to sell-off.

Maybe this caught everyone by surprise.
More selling the rest of the week.

by Upstate NY on Mon Sep 15th, 2008 at 03:09:20 PM EST
[ Parent ]


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