The ongoing financial turmoil and financial discussion thread

[Cowboy89]

Originally Posted by Ronald Pagan

I don't necessarily take that view.

I think that very few people took willing and knowingly criminal steps to improve their wealth. Everyone was just greedy and they were completely myopic about creating financial instruments to improve yields and minimize risk. The writing was all over the wall from the get-go yet millions of investors chose to disregard it in the attempt for returns.

I also am highly skeptical of regulations and would posit that lack of or faulty regulations were the problem. Loose monetary policy was the problem with artificially low interest rates. You cannot hope to regulate financial actors because the system is so fluid. All you can hope to do is maintain that investors incur the risk of their investments and that the economic environment represents its current reality. Neither of these two situations are/were present in the wake of this meltdown.

I'm going to agree with you wholeheartedly there. I remember thinking a few years ago that we (North America) got off pretty easy after the tech boom and September 11th. Everyone was so afraid of a little economic bloodletting at the time that interest rates were lowered to levels previously unseen since the 1950s to spur consumer spending. Interest rates never rebounded to pre-2001 levels. Turns out that making it easier for people to tap into their home equity to make ill-advised purchases, helped keep corporate earnings up, but put off the real crash for a time at which collectively the American (and Canadian) consumer had borrowed so much that demand for real estate could not maintain the value that was backstopping the very loans that enabled that kind of activity in the first place. We've been living on borrowed time since 9/11.

[flamesfever]

Originally Posted by Ronald Pagan

I find it funny how people get so shocked by down-cycles but take growth-cycles for granted.

Experience is probably the biggest reason.

[HotHotHeat]

Originally Posted by Ronald Pagan

I find it funny how people get so shocked by down-cycles but take growth-cycles for granted.

I'm not so sure it's taken for granted...Just expected, seeing as it's the basis for our economy. Perpetual growth is the only thing keeping our clocks ticking. Also, this isn't just a down cycle, it's a complete rearrangement of financial structure throughout the entire world. Shocking? No, but definitely painful.

[Claeren]

Originally Posted by Ronald Pagan

I think that very few people took willing and knowingly criminal steps to improve their wealth.

Ohh, right, like when tons of senior executives in NYC at these very same iBanks backdated all of their stock options on 9/11 to garner the maximum future gains?


100% PURE ETHICS I TELL YEAH!


Plenty of people are now on the record saying that lots of people at the top saw it coming but they figured they may as well be the ones making the money and that they knew they would get bailed out at the end of the day. For them it is all 'just paper'. They made money trading each other 'just paper', they will get bailed out with 'just paper' and in their screwed up minds no one really gets hurt if it is 'just paper'.

For example the former CEO of AIG. Worked there for 40 years but was squeezed out a year ago because he was considered too old school for the 'new financial realities of the market'. HE has lost his entire net worth but the new CEO, the new school guy who 'got it' is leaving with a $9 Million package after wiping out 97% of AIGs value.


I would never ever underestimate how brutally messed-up and self-centered a huge perentage of the population is - especially those at the very very top.



Claeren.

[Bobblehead]

http://bigpicture.typepad.com/commen...tory-exem.html

You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.

As Mr. Pickard points out that "The proof is in the pudding — three of the five broker-dealers have blown up."

Interesting. I'm not sure there was any malice, but it does seem to be a pretty strong correlation. Although I notice AIG isn't in that group.

[Claeren]

^ And the final 2 are on their last legs and looking for merger partners.



Claeren.

[Slava]

Claeren, I work in the financial industry and it boggles my mind as well! i suppose that I relate this to a thought that I attribute to Edmund Burke (perhaps mistakenly on my part...but I think that is who it was).

He basically said that democracy is great as long as people are altruistic and vote for the common good. As soon as they realise that they can vote themselves some dollars or advantage though, it falls apart. Same thing in operation here...it works great with an ethical guy like Warren Buffett or Charlie Munger running a corporation, but as soon as personal gain becomes evident things can get ugly.

I do think that its horrible how many hedge funds are going under. Many of them are shutting the doors willingly, and will re-start next year. They know that they aren't making any money this year, so the sentiment basically becomes "why bother". Pretty bad for the average investor with a large piece invested there.

[Claeren]

The scary thing is that American Law (and most of the first world) basically dictates that companies MUST seek profit before all else. It would be illegal for many companies to take action that did not benefit the shareholder in a year over year type way and the way that benefit is measured is almost totally by profit (and/or market share) measures only.

Many an old timer type CEO has been squeezed out because they were not (allegedly!) hip enough to these 'new realities' of making money.

It is stupid.

And don't even get me started on CEO pay....




Claeren.

[Bertuzzied]

Instant boost. Dow jumps like 300 points in 10 minutes.

Feds are considering creation of a repository for banks' bad debt.

[Wookie]

Originally Posted by Claeren

For example the former CEO of AIG. Worked there for 40 years but was squeezed out a year ago because he was considered too old school for the 'new financial realities of the market'. HE has lost his entire net worth but the new CEO, the new school guy who 'got it' is leaving with a $9 Million package after wiping out 97% of AIGs value.
Claeren.

That's a little far fetched don't ya think?

The guy was CEO for 3 months, was brought in after the previous guy was on board for a loss 7.8 billion in the first quarter of this year due to investments and contracts tied to bad loans. But his take home in 2007 was only 13.9 million, pooor pooor old school guy.

But the 97% of AIG's value was taken down by someone in 3 months? Hardly.

AIG shareholders had pushed in recent weeks for Sullivan's ouster after it posted back-to-back quarters of record losses, stemming from more than $20 billion in write-downs on the market value of assets linked to subprime mortgages.

If old school means losing $20 billion then I'm not a fan of old school

[Claeren]

Well maybe not a perfect example, but the point was that he is one of many people on the outside looking in saying that everyone should have known better and that the people at the very top DID know better.

As for the example itself, sure he is still wealthy compared to us but he is/was considered one of the greatest CEOs in American history and has lost most everything that he had (but because he had so much, 3% of that much is still pretty good):

"I've lost my entire net worth, literally my entire net worth," Greenberg said. "I worked 40 years building the greatest insurance company in history, one that everyone in the world envied – who was in this industry."

Greenberg, who privately or through the companies he runs still owns a private jet, an office on Park Avenue and homes in New York City and Brewster, N.Y., likely lost 95 percent of his total assets, or somewhere in the neighborhood of $3 billion, analysts say.

LINK: http://abcnews.go.com/Business/story?id=5826500&page=1


And there were 3 CEOs total, Greenberg left about 2 years ago (after about 40 years)? And really had been squeezed out a couple years before that but there was a bitter fight (and lots of allegations) before he was finally ousted.



Claeren.

[ShaolinFlame]

I will ask my question again:

If the mortgage companies insured by AIG need to collect their insurance because their customers have defaulted, will this bailout keep AIG afloat? Will they need more? Even with a fairly conservative estimate of defaulted mortgages what would be the outlook?

Thanks!

(I am still laughing about my buddy who bought a bunch of Fannie and Freddie stock in July. Not enough to ruin his life or anything, just enough to laugh about his ill fated decision)

[Tron_fdc]

From Claeren's post:

"[Greenberg] is the largest shareholder in the company. Taken together, he and the companies he runs -- C.V. Starr and Starr International -- own 313 million shares of AIG combined," said Ben Silverman, director of research at Insiderscore, a company that tracks executive stock transactions. "Right now that stock is worth $2.05 a share or $625 million. If you go back to the market on Dec. 31, 2007, we're talking about holdings valued at over $17.9 billion."

Wow. Good luck explaining THAT one to the wife.... can anyone here IMAGINE taking a 3 billion dollar personal kick in the junk????

[RougeUnderoos]

They just had Trump in "THE SITUATION ROOM" (well, he was on the phone).

In between advertising fancy hotels and condos his advice for Americans is to go out and buy a house right now because you will get a hell of a deal. "A nicer house than you could ever imagine owning". I suppose he's right, but to provide an example, he said "I just got a hell of a deal on my new golf course, you can too". Errr.

He was pretty upbeat about the whole thing, and mentioned that the stock market gained 400 points today, but he's like that other guy, I'll bet. He can lose 95% of his money and still be rich.

[Bertuzzied]

Hope you guys bought stocks or mutfunds the past couple of days. This market is going to skyrocket today. All the pre-openings are up huge.

Good thing i covered my short on Goldman Sachs yesterday. I'd be having a heart attack right now. Closed at $108 and is going to open at $142. Yikes!

[Bertuzzied]

Tsx up over 600 points

[Wookie]

I'd be prepared to give some of that 600+ today. I wouldn't be surprised to see the tsx close just up a little.

[Claeren]

A lot of people thought this 'crisis' was almost over a few months ago.

It is still not even close to over though IMO.

1) There is still $1T-$3T of bed debt out there.

2) Even if the government eats a lot of it at pennies on the dollar both the bad-debt-holders in question and the government have to find a way to work that much money off of their balanace sheets.

3a) The USA is on the verge of losing its AAA rating (and if they were any other nation they already would have). IF/when they lose that watch out! They need to continue to raise what, $500B/year to pay for just the war and the deficit? Plus these new commitments on top of that? $900B of them so far?

3b) The USA has been printing money like crazy to try and quietly pay for as many of these 'initiatives' as they can, that can only end badly.

(3a + 3b = some potentially seriously bad market scenarios)

4) Canada tends to be about 2 years behind the USA. Our housemarket is where theirs was 2 years ago and a lot of what has happened down there will start to be reflected up here. (reflected, not matched though)




Claeren.

[Bertuzzied]

Originally Posted by Claeren

A lot of people thought this 'crisis' was almost over a few months ago.

It is still not even close to over though IMO.

1) There is still $1T-$3T of bed debt out there.

2) Even if the government eats a lot of it at pennies on the dollar both the bad-debt-holders in question and the government have to find a way to work that much money off of their balanace sheets.

3a) The USA is on the verge of losing its AAA rating (and if they were any other nation they already would have). IF/when they lose that watch out! They need to continue to raise what, $500B/year to pay for just the war and the deficit? Plus these new commitments on top of that? $900B of them so far?

3b) The USA has been printing money like crazy to try and quietly pay for as many of these 'initiatives' as they can, that can only end badly.

(3a + 3b = some potentially seriously bad market scenarios)

4) Canada tends to be about 2 years behind the USA. Our housemarket is where theres was 2 years ago and a lot of what has happened down there will start to be reflected up here. (reflected, not matched though)




Claeren.

I totally agree. Everyone should really look into shorting and puts. I think Ebay Dell, and Yhoo are toast.

[Claeren]

I am just shocked CIBC has not collapsed yet.

I thought for sure this would be the last straw (after years of 'bad straws').



Why do you think Ebay is toast though? (I see some business pressures, but nothing in terms of 'collapse'??)



Claeren.