Some BIG US financial sector news...

[Alex Franke]

I decided to catch up on some news tonight and caught some big ones. Lehman Bros is looking down the barrel of bankruptcy (if not already filed), looks like B of A is acquiring Merrill Lynch. AIG is dumping assets and going to the feds for short term financing... Lots and lots of financials news, it seems... and all on the heels of the fannie mae, frddie mac news last week.

So if you invest, get ready for a wild ride! I think this weekend will probably go down in the history books!

[jonmulzer]

That is putting it mildly. Right now we are teetering on the verge of the next Great Depression.

[BobSch]

That is putting it mildly. Right now we are teetering on the verge of the next Great Depression.

Depression? A deep recession, perhaps, but I don't think we'll ever see anything like '29 and the following years again.

[Gator95]

Trust in our financial institutions is what keeps everything moving. If that drops out, then the whole system locks up.

This is going to be a very ugly week.

[dlminehart]

See Paul Krugman's op-ed piece in the NY Times for a good summary of what's going on, and what the issues are. [ http://tinyurl.com/5wq85l ] Basically, he says it is similar to 1929, in that the banking system is now linked inextricably with Wall Street via the same monetization of loans in which the mixture of failing subprimes has caused failures already of Bear Stearns, etc. I hear that other financial institutions are on the verge of reporting bad numbers, and the unknown risks are keeping everyone (including the Fed) from jumping in to snap up "bargains". Hold onto your hats.

[jackellis]

I saw a very interesting analysis of the whole housing sector credit meltdown. It's thesis was that Freddie had been established to help ensure credit for home buyers and stability for those who lend. The feds spun it off to the private sector so the debt would be off the federal books and it established Fannie to provide competition.

Eventually both the private sector and the quasi public agencies (Freddie and Fannie) cratered when underwriting standards got too loose.

It was in Time: http://www.time.com/time/magazine/ar...840584,00.html

[430752]

let 'em brun?

I'd love to say let them burn, and believe that is apt given the havoc the wreaked upon the joe and jane everyman with this real estate debacle, except that we all must realize a broken banking/financial system is bad for all of us. So, in an odd situation, we must help them, those which so recently hurt us.

In another odd twist, and believing that a depression is now a genuine possibility (if unlikely), it was the last depression that gave us banking regulation which may have helped avoid the present situation. That law (glass-steagel, sp?) and others, were eventually repealed in the 80's and 90's and now look where we are. Never let the fox guard the chicken coop. I can't think of one industry where deregulation has helped...airlines? cable/telecom? banking?

Well, at least I've got my mattress as the lender of last resort. Won't be too long now before average minded people start thinking that banks aren't the best places to keep money. 1929 deja vu?

[cgallery]

None of this even gets us close to a depression. As long as Treasury can sell notes to foreign central banks, we will be okay.

I may be going out on a limb here, but I think we're now at the bottom. For perhaps the next couple of weeks the markets will swing wildly. But I think normalcy will return after that.

These are the big fish people. Ain't no bigger. And if BofA and Citi and JP are gonna be okay (and are buying where appropriate), we're all gonna be okay.

Like I said, the only possible exception is if China, Japan, or Europe get stupid, sense weakness, and start asking for more gravy on the notes. If that happens then the entire house of cards could fall. It is possible that one of them could pull this, but at that level (economists running central banks) the global risks of pushing the envelope are pretty well understood.

[herb fellows]

It's not that a foreign government IS going to pull our plug, it's simply that they COULD! That is pathetic! Would you let yourself get to the point where a stranger, or worse yet someone who might want to harm you, was holding the mortgage on your house?

The same people make the same 'mistakes' time and again, and we end up paying dearly for it.

Somethin's gotta give! I, for one, am tired of bailing out companies that wouldn't give me the time of day with my tax dollars, which is what we are doing, one way or the other, directly or indirectly.

[shoottx]

The difference between a recession and a depression!

A recession is when your friends or people you know suffer financially, from investments gone bad, poor business, job loss or other circumstances.

A depression is when you suffer financially, from investments gone bad, poor business, job loss or other circumstances.

[radhak]

Being not very astute about all this, I keep looking for others to explain what's happening. http://www.npr.org/money has a bunch of articles/blogs that are very helpful. edit : please ignore the political stuff on that page today, did not see that before; you could just scroll down to the real important stuff - wallstreet stuff.

Like this one compares the 'size' of the company : Why No Bailout Of Lehman: Not Big Enough?, which I used to think was market capitalization. But the reality is about the size of the debt they hold. Lehman has debt of around $60B, while Freddie/Fannie had a total of almost $5 Trillion !!!

And this compares Bear Stearns with LehmanIlliquid Vs. Insolvent: Why Lehman Isn't Bear Stearns, in truly my language : pizza!

[cgallery]

It's not that a foreign government IS going to pull our plug, it's simply that they COULD!

In principle, I agree. But in pulling the plug, they'd find themselves going down the drain right behind us.

The only thing saving all of us is the fact that all the central banks understand that they have, in fact, built a giant house of cards, and that the only tool at their disposal is the manipulation of fiat currencies (including the USD).

This should be a wake up call to the economists that run central banks. It foreshadows what will happen in another 10-15 years if the U.S. is unable to get our own house in order.

Essentially, we need to quickly eliminate our deficits and start running a budget surplus in order to reduce our debt, or else what is going to happen during these next two weeks (short term) and two years (while the FM^2) debacle clears) will seem like a walk in the park compared to what is coming in about ten to fifteen years.

[jackellis]

I've been thinking about the psychology behind a lot of these problems. In some respects, it's a case of "we have met the enemy and it is us". We want a high yield on the money we put into savings and a low rate on our mortgages. As depositors, we want the banks to lend prudently but as borrowers, we constantly try to push the envelope on how much we can borrow and how much collateral we must provide. As stockholders and investors (even through retirement plans), we want growth and since companies get punished heavily when they don't deliver, corporate managements often take more risk than perhaps they should. Mind you these are generalizations and aren't aimed at any specific group or individual.

In some respects, the government guarantees have made this worse. While they can limit the likelihood of a run on the bank, they also encourage depositors to shop around for the highest yields they can find without considering the relative safety of their investments.

I'll say this: The boards of directors of the companies that are in trouble are probably the most culpable. Their job is to supervise corporate managements and many of them have done an absolutely horrible job.

[BobSch]

I'll say this: The boards of directors of the companies that are in trouble are probably the most culpable. Their job is to supervise corporate managements and many of them have done an absolutely horrible job.

And do you think any of them will suffer from their abysmal decisions? I'm just cynical enough to think not.

[Alex Franke]

Ererything's on sale!

Wow -- a 500 point drop in the DOW industrials -- about 4.5%, and about the same in the S&P500... I'm feeling a little beat up here. :/ Might be time to start shopping for some deals, though. I wonder how long this will last...