Lehman going bankrupt. Bank of America buying Merrill Lynch(dealbook.blogs.nytimes.com)
dealbook.blogs.nytimes.com
Lehman going bankrupt. Bank of America buying Merrill Lynch
http://dealbook.blogs.nytimes.com/2008/09/14/bank-of-america-in-talks-to-buy-merrill-lynch/
22 comments
What'd you think of the comment comparing BlackRock's fate to ML's? Are BlackRock and Citadel and places like that the new ML's and Lehmans?
Citadel, definitely. They already have started doing certain things once the domain of investment banks -- they make markets in stocks and options, for example. Recently they've hired a number of prominent fixed income traders, e.g. the head of JPMorgan's mortgage trading department. I think they're well on their way to becoming a leading securities firm. They're certainly big enough to purchase a smaller boutique to bring in expertise in mergers, IPOs, debt offerings, etc. The only problem is regulatory, given that they're a hedge fund, but I imagine this eventually could be resolved -- after all, Citi and JPMorgan all have large internal hedge fund arms.
Blackrock is a very different company. They manage more than a trillion dollars worth of assets, making Citadel seem paltry at ~$25bn. They haven't really shown much interest in branching away from their area of expertise: fixed income asset management.
Blackrock is a very different company. They manage more than a trillion dollars worth of assets, making Citadel seem paltry at ~$25bn. They haven't really shown much interest in branching away from their area of expertise: fixed income asset management.
Just talked to a Blackrock guy today. Something really interesting that I didn't know is that Blackrock does not invest on their own behalf. He said this is why their CEO, Larry Fink, is often quoted as stating: "We do not take on balance sheet risk".
This severely limits balance sheet risk and although it doesn't make them bullet proof or anything, it certainly makes me feel better about their chances. Additionally, although this strategy hurt them in the short term, it seems to be working in the long term.
This severely limits balance sheet risk and although it doesn't make them bullet proof or anything, it certainly makes me feel better about their chances. Additionally, although this strategy hurt them in the short term, it seems to be working in the long term.
Quick question, if you'll indulge: where do you find those CDS numbers you mentioned?
Maybe he has access to a Bloomberg Terminal
What I wouldn't give for a Bloomie.
I used to work at Bloomberg, you would be surprised how little everyone used it even though it was free to us.
[deleted]
I would love to be around your job right now as a mortgage bond trader. Interesting times we live in.
I'd like to hear some more of your views... if you wish, you can contact me [see profile].
N.B.: Long SKF.
I'd like to hear some more of your views... if you wish, you can contact me [see profile].
N.B.: Long SKF.
Called 6 months ago...did you play it?
http://news.ycombinator.com/item?id=138567
http://news.ycombinator.com/item?id=138567
Um... What makes you think that Goldman is endangered? It stock price is only down 20% from 09/2007 which is bad but not even close to catastrophic (and significantly better than most other investment banks). Furthermore, it is one of the few financial institutions which foresaw (to a small degree) the oncoming subprime crisis (and made over $4 billion through shorts).
Right now things seem stable there, but the same could have been said of Lehman pre-Bear crisis. The problem is that like Bear and Lehman, Goldman relies on financing from other Wall Street firms to finance its operations. While a commercial bank like BofA also borrows money on a daily basis, it also has a massive base of deposits which it can use. More than 10% of our nation's deposits are held at BofA -- a staggering number. That's why BofA could afford to buy Countrywide and now Merrill, and why JPMorganChase could afford to buy Bear. If LIBOR (the interbank lending rate) spikes, if repo rates spike, if funding desks increase their haircuts (thereby limiting the amount of money that can be borrowed against a given par amount of collateral), firms like Goldman will find it much more expensive to operate. And given the troubles that other investment banks have had, I don't think banks are going to be very willing to lend to each other when we open up tomorrow morning.
I wouldn't be surprised if Goldman/MorganS snap up the likes of Wachovia just to stay competitive.
Given the difference in market cap, I'd be surprised if either could afford it - GS =~ 60bn, MS =~ 40bn, WB =~ 33.5 bn on 835bn AUM. They're not exactly small, post A.G. Edwards.
[deleted]
You are not wrong, but stock prices are a reflection of trouble - just because trouble isn't reflected in a stock price yet doesn't mean there isn't any. Lehman's stock price 10 days ago being proof of that ;-)
It's confirmed. Lehman to File for Bankruptcy Protection
http://dealbook.blogs.nytimes.com/2008/09/14/lehman-to-file-...
http://dealbook.blogs.nytimes.com/2008/09/14/lehman-to-file-...
Unfortunately the demise of these financial institutions is a symptom of American financial decay that has plagued every level of society - from the government, to companies to every day people - we are all spoiled on easy credit.
Our hardwork and innovation are the things that still makes the American economy unstoppable. But if we don't live within our means and stop borrowing like there is no tomorrow, we are simply paving the way for a long and sad decline.
Our hardwork and innovation are the things that still makes the American economy unstoppable. But if we don't live within our means and stop borrowing like there is no tomorrow, we are simply paving the way for a long and sad decline.
And if we do live within our means, and stop borrowing, we'll cause a recession.
No, I don't have answers.
No, I don't have answers.
I've come to think that maybe there isn't anything wrong with a recession. There's no way to make a major correction without discomfort. Discipline hurts.
And to think that less than a year ago I was thinking "I'm sick of this physics thing, I'm going to go and become one of those overpaid finance guys"
I'm so glad I didn't. Otherwise I'd probably be unemployed in New York City right now, with a $3000 a month lease.
I'm so glad I didn't. Otherwise I'd probably be unemployed in New York City right now, with a $3000 a month lease.
the finance industry has a very short-term memory though...
in less than 5 years, you will see them again inventing all sorts of financial schemes and create billions of wealth magically out of nowhere
in less than 5 years, you will see them again inventing all sorts of financial schemes and create billions of wealth magically out of nowhere
Not this time. The fancy pants bankers are going to be out of work for a loooooong time this go round.
The shenanigans are all predicated on cheap credit. Interest rates world wide will be going up, up, up!
The shenanigans are all predicated on cheap credit. Interest rates world wide will be going up, up, up!
Why? Isn't credit a market like any other, regulated by supply and demand? What makes you think interest rates will go up?
Trillions worth of wealth are going poof all over the world. That's the supply diminishing.
Governments are also trying hard to inflate, which will drive rates up.
Governments are also trying hard to inflate, which will drive rates up.
I knew of a guy who's now in Wall Street, in the very eye of the storm. He also started a company in 2000. What bad luck...he's like a shitstorm seaker or something.
Good thing for Merrill that the Glass-Steagall Act has been repealed. If the credit crisis had happened before 1999, Merrill would simply have to declare bankruptcy if it couldn't find a non-bank buyer. A lot of leftist politicians have been calling to reinstate the restrictions on depository institutions and Investment Banks being owned by the same entity. However, when you restrict the capital flows in an industry you reduce the possibilities for restructuring in times of crisis, thereby making it more likely that some firms will fail.
It's no coincidence that the US had some of the most restrictive banking laws in the world in the 1930s and it also had the most bank failures during the depression. This deal shows the advantages of deregulation.
It's no coincidence that the US had some of the most restrictive banking laws in the world in the 1930s and it also had the most bank failures during the depression. This deal shows the advantages of deregulation.
I would beg to differ - recent bank failures are a result of the free market running amuck on easy credit and dumb investments (home loans without income verifications). The 30s were a lot less regulated and the great depression was a result of a free market moving without any government oversight or interference (Hoover responded to the crash by proposing to let the free market sort itself out, which in turn lead to a vicious run on banks.)
There is a fine balance between free-market economics and regulatory oversight. Bubbles will take place regardless of the level of regulation. Too much regulation can make small business life a pain, but regulation and oversight prevent swings and spectacular failures like the ones we are witnessing.
There is a fine balance between free-market economics and regulatory oversight. Bubbles will take place regardless of the level of regulation. Too much regulation can make small business life a pain, but regulation and oversight prevent swings and spectacular failures like the ones we are witnessing.
> the great depression was a result of a free market moving
> without any government oversight or interference
Citation?
To put forward an alternative - Friedman demonstrated that the depression was caused by the government failing to honour its a promise fundamental to its fractional model to see banks through liquidity shortages and a (quite understandable) general lack of confidence resulting from the damage that caused.
I agree about the market running amuck, but not a free market - the housing bubble is linked to the credit problems and the government had a heavy hand in causing that.
Citation?
To put forward an alternative - Friedman demonstrated that the depression was caused by the government failing to honour its a promise fundamental to its fractional model to see banks through liquidity shortages and a (quite understandable) general lack of confidence resulting from the damage that caused.
I agree about the market running amuck, but not a free market - the housing bubble is linked to the credit problems and the government had a heavy hand in causing that.
>recent bank failures are a result of the free market running amuck on easy credit and dumb investments (home loans without income verifications)
Easy credit was the deliberate goal of the federal government starting in the early 2000's. There was a very mild recession and the government pulled out all the stops to prevent it from getting worse by subsidizing borrowing to keep interest rates well below free market levels. They killed a fly with a cannon and spawned a giant financial bubble.
In the free market, people that lend money have the incentive to make sure it gets paid back. This calculus becomes complicated when the subjective factor of the government's whims for the credit market is added in.
As far as "dumb investments" go, loans to homeowners were made in the environment of an unprecedented price bubble that was spawned by the loose monetary policy of the federal government. Many "dumb" mortgages are not dumb to make when the value of the underlying collateral is increasing by 30% every year.
I know it is the standard line that we need more regulation, but I don't see how any regulator could have been more inclined to make good decisions in such unprecedented circumstances than the market. In hindsight it is easy to say that the Government should have restricted the supply of mortgages, but this is directly the opposite its goals to increase home ownership. Personally, I wish they would stick to the goal of protecting our rights and property and butt out of everything else.
>The 30s were a lot less regulated and the great depression was a result of a free market moving without any government oversight or interference
I know this is the standard line, but many government actions worsened the Great Depression in the United States and compounded its misery. The two major monetary events of the Great Depression were directly caused by the government - 1) the contraction of the money supply and 2) massive bank failures. 1) was the policy of our wonderful omniscient technocrats at the Federal Reserve and 2) was the result of unitary branching laws and other laws meant to punish "big banks" and prevent them from forming. Anti-bank populism is nothing new in the United States. I don't have the numbers on me, but I seem to remember that the United States (with many anti-bank laws) had thousands of bank failures while Canada (with few such laws) had like 4. The fact is, "big banks" weather hard times easier, and restricting capital flows in the industry make misery for all when unexpected events happen.
On top of that, the government acted to institute a price-floor for labor at a time when prices in general were falling, thereby creating massive unemployment. In an attempt to remedy the deflation caused by monetary restriction, the government burnt food and passed a massive tariff which ended up restricting the supply of consumer goods and food.
The general problem was a fall in the price level. In the Free Market, the price of labor would have fallen to match other goods and business as normal would have resumed. However, the government decided restrict the supply of labor and other goods, like food, to increase the prices of these goods. They succeeded in this, but they did not drive up the general price level. Instead, they increased the price of these goods relative to everything else, causing shortages in both (unemployment and food shortage). Then the government instituted more programs to fix the problems it had caused, including massive government hiring programs, subsidies, and a war. Noone suggests to this day that maybe they shouldn't have gotten their grubby little ignorant fingers so deep into the economy in the first place.
I am not an expert in the Great Depression, just an interested amateur. Still, it is obvious from a cursory glance at the facts that explaining it as a morality tale on the failure of Free Markets is much too simple, although that is the common interpretation taught to High School students. It hurts me to hear the President who presided over the longest, deepest, and most painful depression in US history credited only with "ending it".
Easy credit was the deliberate goal of the federal government starting in the early 2000's. There was a very mild recession and the government pulled out all the stops to prevent it from getting worse by subsidizing borrowing to keep interest rates well below free market levels. They killed a fly with a cannon and spawned a giant financial bubble.
In the free market, people that lend money have the incentive to make sure it gets paid back. This calculus becomes complicated when the subjective factor of the government's whims for the credit market is added in.
As far as "dumb investments" go, loans to homeowners were made in the environment of an unprecedented price bubble that was spawned by the loose monetary policy of the federal government. Many "dumb" mortgages are not dumb to make when the value of the underlying collateral is increasing by 30% every year.
I know it is the standard line that we need more regulation, but I don't see how any regulator could have been more inclined to make good decisions in such unprecedented circumstances than the market. In hindsight it is easy to say that the Government should have restricted the supply of mortgages, but this is directly the opposite its goals to increase home ownership. Personally, I wish they would stick to the goal of protecting our rights and property and butt out of everything else.
>The 30s were a lot less regulated and the great depression was a result of a free market moving without any government oversight or interference
I know this is the standard line, but many government actions worsened the Great Depression in the United States and compounded its misery. The two major monetary events of the Great Depression were directly caused by the government - 1) the contraction of the money supply and 2) massive bank failures. 1) was the policy of our wonderful omniscient technocrats at the Federal Reserve and 2) was the result of unitary branching laws and other laws meant to punish "big banks" and prevent them from forming. Anti-bank populism is nothing new in the United States. I don't have the numbers on me, but I seem to remember that the United States (with many anti-bank laws) had thousands of bank failures while Canada (with few such laws) had like 4. The fact is, "big banks" weather hard times easier, and restricting capital flows in the industry make misery for all when unexpected events happen.
On top of that, the government acted to institute a price-floor for labor at a time when prices in general were falling, thereby creating massive unemployment. In an attempt to remedy the deflation caused by monetary restriction, the government burnt food and passed a massive tariff which ended up restricting the supply of consumer goods and food.
The general problem was a fall in the price level. In the Free Market, the price of labor would have fallen to match other goods and business as normal would have resumed. However, the government decided restrict the supply of labor and other goods, like food, to increase the prices of these goods. They succeeded in this, but they did not drive up the general price level. Instead, they increased the price of these goods relative to everything else, causing shortages in both (unemployment and food shortage). Then the government instituted more programs to fix the problems it had caused, including massive government hiring programs, subsidies, and a war. Noone suggests to this day that maybe they shouldn't have gotten their grubby little ignorant fingers so deep into the economy in the first place.
I am not an expert in the Great Depression, just an interested amateur. Still, it is obvious from a cursory glance at the facts that explaining it as a morality tale on the failure of Free Markets is much too simple, although that is the common interpretation taught to High School students. It hurts me to hear the President who presided over the longest, deepest, and most painful depression in US history credited only with "ending it".
the free market caused banks to take bad loans knowing that they could turn around and sell these loans to fannie mae and freddie mac who were taking all these bad loans because they knew that the government would not allow them to fail?
no I stand by the free market, problems pop up when corporations collude with the government. bailouts are socialism for the rich.
no I stand by the free market, problems pop up when corporations collude with the government. bailouts are socialism for the rich.
The 30s were more regulated than today in many ways. It was illegal to own gold. What and how much to farm was ordered by the federal government. Labor laws and interventions were extreme. If you traveled back in time to the 30s to participate in the economy it would seem almost fascist/socialist. This is why the depression lasted so long and got so severe in America. Other countries suffered similar initial setbacks as the US, but recovered far more quickly.
It is a ridiculous myth that Hoover was laissez faire. He intervened massively in the economy and FDR merely continued his policies. There's little FDR did in his first year that hadn't been drawn up by Hoover.
> regulation and oversight prevent swings
The housing crisis is the direct result of a deliberately orchestrated policy to subsidize housing.
The root cause of bubbles is monetary policy, anyway, not regulation.
It is a ridiculous myth that Hoover was laissez faire. He intervened massively in the economy and FDR merely continued his policies. There's little FDR did in his first year that hadn't been drawn up by Hoover.
> regulation and oversight prevent swings
The housing crisis is the direct result of a deliberately orchestrated policy to subsidize housing.
The root cause of bubbles is monetary policy, anyway, not regulation.
'It was illegal to own gold.'
From http://www.coin-newbies.com/articles/gold_never_illegal.html:
'Presidential Executive Order 6102, April 5, 1933, made it illegal to "hoard" gold. The order exempted anyone whose "usual and customary" business required gold. (Dentists and jewelers come to mind. Electronic fabricators would come under this once electronics was invented.) Anyone could own up to $100 in gold coin. In 1933, $100 was two or three months wages for the average worker, about $6000 to $10,000 in today's money.'
From http://www.coin-newbies.com/articles/gold_never_illegal.html:
'Presidential Executive Order 6102, April 5, 1933, made it illegal to "hoard" gold. The order exempted anyone whose "usual and customary" business required gold. (Dentists and jewelers come to mind. Electronic fabricators would come under this once electronics was invented.) Anyone could own up to $100 in gold coin. In 1933, $100 was two or three months wages for the average worker, about $6000 to $10,000 in today's money.'
It's more complicated that that, of course, since the crisis might have been less likely had Glass-Steagall remained law.
Japan has no equivalent to glass-steagall and their financial system exploded after a massive property bubble. The laws in Japan actually force more financing functions into single banking entities than makes sense -- the opposite of glass-steagall.
If these entities want to be rescued like banks, they need to be regulated like banks. We need greater transparency along with smart regulation. Allowing these entities to merge to create bigger entities that in turn become too big to fail is no solution. I'm all for the free market, when it is actually "free." Not some bastardized version where its effect is to transfer profits to private corporations and the risks to tax payers.
Ok. Deal is done. Acquisition sealed.
http://online.wsj.com/article/SB122142278543033525.html?mod=...
http://online.wsj.com/article/SB122142278543033525.html?mod=...
Almost everyone in the financial industry has known about this for a while.
It seems your average investor who unknowingly owns some of these companies considered 'stable' and 'recession proof' traditionally that are falling apart. Usually after average investors get really burned it results in a lengthy downturn in the market.
However, the good news is that the clusterfuck of credit debt may finally be ending with some major institutions going under.
It seems your average investor who unknowingly owns some of these companies considered 'stable' and 'recession proof' traditionally that are falling apart. Usually after average investors get really burned it results in a lengthy downturn in the market.
However, the good news is that the clusterfuck of credit debt may finally be ending with some major institutions going under.
Nouriel Roubini, aka Dr Doom:
If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system
Sep 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). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.
If Lehman collapses expect a run on all of the other broker dealers and the collapse of the shadow banking system
Sep 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). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.
Black Rock is going to be able to pick off a ridiculous amount of talent. Their internal "alerts" for a mortgage crisis went off ~2 years ago so their exposure is minimal. At least that's what their employees tell me...
Heard it all before right?
Heard it all before right?
Well, it will be interesting to see how it works out, since Merrill owns 49% of BlackRock.
Good catch - I completely forgot about that. I believe PNC bank also has a significant interest in Blackrock.
Is tomorrow gonna be the second Black Monday? Latest pre-market figures are showing DOW down 300 pts.
http://money.cnn.com/data/premarket/
http://money.cnn.com/data/premarket/
and we'll see a wave of laid off finance guys going early to MBA programs or law school this year.
some dude on NPR (an interviewee, not an NPR employee) said that they should have gotten into agriculture or energy.
Or trying to learn to hack.
there are maybe 3 people posting in this thread who have any idea what they are talking about.
[deleted]
"In letting Lehman fail the federal government puts a fine point on an obvious question: Why didn't they let Bear Stearns go, too? This business about the markets having time to adjust to Lehman's problems is baloney. The markets didn't adjust to Bear Stearns collapse; the markets looked at what the Fed had done for Bear Stearns and assumed they'd do it for Lehman."
From http://www.bloomberg.com/apps/news?pid=20601039&sid=ai1w...
From http://www.bloomberg.com/apps/news?pid=20601039&sid=ai1w...
Next on the chopping block is AIG followed immediately afterwards by Washington Mutual. AIG was desparately trying to raise money this weekend and WaMu has been hurting for some time.
If you look at the parallels between the progression of events at Bear Stearns and the progression of events at Lehman, you can draw many similarities to the events now ocurring at AIG.
If you look at the parallels between the progression of events at Bear Stearns and the progression of events at Lehman, you can draw many similarities to the events now ocurring at AIG.
[deleted]
This all reminds me of a book by historian Paul Kennedy. "The Rise and Fall of Great Powers." Y'all should read it.
But who's on the other side of all this loss? I bet someone's got tricks up their sleeve.
Bill Gross and PIMCO
Asian banks who has been crediting this whole mess for the last 20 years and now started asking for the pay back.
The day foreigners realize creditworthness of this nation, it will be so much done.
Can you imagine this country without credit. Not only easy credit, but without access to credit at all. And mountains of debt to pay off before anyone will even think about buying another T-bill.
Capitalism: system in which you save to raise capital to fund investment (production).
Definitely not one where you spend on credit that you hope to never pay back living from credited bubble to credited bubble.
The day foreigners realize creditworthness of this nation, it will be so much done.
Can you imagine this country without credit. Not only easy credit, but without access to credit at all. And mountains of debt to pay off before anyone will even think about buying another T-bill.
Capitalism: system in which you save to raise capital to fund investment (production).
Definitely not one where you spend on credit that you hope to never pay back living from credited bubble to credited bubble.
The day foreigners realize creditworthness of this nation...
They realize it. But they have a dilemma...
http://en.wikipedia.org/wiki/Prisoner's_dilemma
They realize it. But they have a dilemma...
http://en.wikipedia.org/wiki/Prisoner's_dilemma
Well, they do, but here is the thing they are afraid of:
Before WW2 the US economy was doing poorly. The war brought a lot of war manufacturing business and huge boom in the US occurred thanks to the war production.
Economist at the time were afraid that the end of war will kill the boom because there will be no more war production needed. Well, once the war was over big US companies just switched their production capacity to civilian markets: cars manufacturing, appliances, houses construction... there was no contraction after the war. Opposite: 50s were the time of enormous economic boom.
Now, you are mistaken with setting "Prisoner dilemma" as the problem foreigners have. They may also look at their situation from the same perspective as Americans did during WW2. That is: If we stop producing for the export to the US (war effort) - there will be crisis. Who will buy our stuff but the American consumer. Well, no fear. Just switch production to your domestic markets as US did by switching industrial production to its domestic market after WW2. Nothing bad will happen with China the day "war" will be over and China will stop exporting production to the US. They will just realize that they have huge 1.3 billion consumer market at home and no need to export to the US. They will just switch production.
Therefore, Prisoner's dilemma has nothing to do with the fear of losing market based on false predictions. Nothing happened to the US market once the war was over. Nothing will happen to China once its main customer goes bankrupt.
Economist at the time were afraid that the end of war will kill the boom because there will be no more war production needed. Well, once the war was over big US companies just switched their production capacity to civilian markets: cars manufacturing, appliances, houses construction... there was no contraction after the war. Opposite: 50s were the time of enormous economic boom.
Now, you are mistaken with setting "Prisoner dilemma" as the problem foreigners have. They may also look at their situation from the same perspective as Americans did during WW2. That is: If we stop producing for the export to the US (war effort) - there will be crisis. Who will buy our stuff but the American consumer. Well, no fear. Just switch production to your domestic markets as US did by switching industrial production to its domestic market after WW2. Nothing bad will happen with China the day "war" will be over and China will stop exporting production to the US. They will just realize that they have huge 1.3 billion consumer market at home and no need to export to the US. They will just switch production.
Therefore, Prisoner's dilemma has nothing to do with the fear of losing market based on false predictions. Nothing happened to the US market once the war was over. Nothing will happen to China once its main customer goes bankrupt.
This idea of the war as a creator of strong economies doesn't stand up.
If it was then we could create wealth by wandering down the road and throwing bricks through people's windows and smashing up their cars.
Wars cause a sudden drop in population, which causes labour to become more valuable (historically something that tended to happen after major plagues), so there are individual stories of improved circumstance. Wars also require people to make sacrifices in their standard of living and succeed in achieving this more easily than under other circumstances.
Regardless of all of that - you can't demonstrate that the US in the 50s had a stronger economic situation than it would have done had it been allowed to continue along its course without a war.
> Nothing will happen to China once its main customer > goes bankrupt.
If we see a major downturn in consumption as a result of the things that are unfolding now, I'll be expecting massive upheaval in China. People have seem general improvement with the party's policies to date but will become less accommodating when the state continues to take a share of a shrinking pie.
If it was then we could create wealth by wandering down the road and throwing bricks through people's windows and smashing up their cars.
Wars cause a sudden drop in population, which causes labour to become more valuable (historically something that tended to happen after major plagues), so there are individual stories of improved circumstance. Wars also require people to make sacrifices in their standard of living and succeed in achieving this more easily than under other circumstances.
Regardless of all of that - you can't demonstrate that the US in the 50s had a stronger economic situation than it would have done had it been allowed to continue along its course without a war.
> Nothing will happen to China once its main customer > goes bankrupt.
If we see a major downturn in consumption as a result of the things that are unfolding now, I'll be expecting massive upheaval in China. People have seem general improvement with the party's policies to date but will become less accommodating when the state continues to take a share of a shrinking pie.
Well, once the war was over big US companies just switched their production capacity to civilian markets
It's not quite as simple as that; the US was the only major industrial power that didn't need to rebuild its infrastructure from rubble. That gave the US a huge leg up. Granted it was subsidising reconstruction in the rest of the world, but that also served to create markets for exporting to. If it hadn't been for WW2, the British Empire would still be a - if not the - superpower today.
It's not quite as simple as that; the US was the only major industrial power that didn't need to rebuild its infrastructure from rubble. That gave the US a huge leg up. Granted it was subsidising reconstruction in the rest of the world, but that also served to create markets for exporting to. If it hadn't been for WW2, the British Empire would still be a - if not the - superpower today.
They have a prisoner's dilemma because the first country that drops the dollar (in a big way) wins. The last guy holding the dollar (the prisoner who doesn't snitch) takes the worst of it. If they all hold steady, they all lose--somewhat.
> huge boom in the US occurred thanks to the war production.
Myth. Every meaningful measure of standard of living and financial conditions continued to deteriorate through the war. Unemployment only went down because millions were drafted. GDP temporarily went up because of war materiel purchases, but this had no knock on positive economic effects.
> Nothing happened to the US market once the war was over.
Yes it did. Unemployment shot way up. It looked like the depression was going to continue just as it had. The difference was that most of the New Deal was scaled back. The government lowered intervention in the economy compared to the 30s and growth took off. The war did absolutely nothing to end the depression and made life worse.
Myth. Every meaningful measure of standard of living and financial conditions continued to deteriorate through the war. Unemployment only went down because millions were drafted. GDP temporarily went up because of war materiel purchases, but this had no knock on positive economic effects.
> Nothing happened to the US market once the war was over.
Yes it did. Unemployment shot way up. It looked like the depression was going to continue just as it had. The difference was that most of the New Deal was scaled back. The government lowered intervention in the economy compared to the 30s and growth took off. The war did absolutely nothing to end the depression and made life worse.
Taleb vindicated again.
None of the banks wanted to touch Lehman and even if they did, their own balance sheets are almost as bad.
... so instead they go and buy Merrill? Not sure I agree with you a hundred percent on your police work there, Lou.
Well, I don't know the internals but Merrill might have a better balance sheet than Lehman. Also, BOA might be trying the whole "get too big to fail" thing - riding the wave of moral hazard and hoping for a government bail out if they ever hit the rocks hard.
So they're trying to replicate Bear? If they were, then paying $25-$30/share for Merill would be teh FAIL. Merrill most definitely has a better balance sheet (given the stockholder's equity section) than Lehman, and also less exposure to the types of risky securities that are failing.
I for one wouldn't want to be in ownership of any financial in this market.
On a side note, money seems to be going through almost a daily rotation of sectors. One day tech's up while everything else is down, the next day its biotech, commodities etc.. Tomorrow is going to be a down day for financials, which has meant an up day for techs in recent days. I guess we'll just have to wait and see.
I for one wouldn't want to be in ownership of any financial in this market.
On a side note, money seems to be going through almost a daily rotation of sectors. One day tech's up while everything else is down, the next day its biotech, commodities etc.. Tomorrow is going to be a down day for financials, which has meant an up day for techs in recent days. I guess we'll just have to wait and see.
I wonder if the MBA programs will get flooded with all these ex-bankers
so once they graduate, they go and ruin other companies. MBA = useless.
Unless something like finance, where it teaches hard skills, MBAs are pretty much BS. I have been reading "Ahead of the Curve", by one of the Telegraph's editors, that went to HBS to get his MBA. Very interesting, but at the end the real goal of an MBA is pure greediness, to make the students rich.
For many professions, get a master's degree, might mean maybe going to research, and do something good. Especially in hard sciences. For MBAs the degree is only used to make more money, the rest doesn't matter.
Just a warning, to those people that are hiring, to really be careful to hire somebody with a shiny degree from a top MBA school.
For many professions, get a master's degree, might mean maybe going to research, and do something good. Especially in hard sciences. For MBAs the degree is only used to make more money, the rest doesn't matter.
Just a warning, to those people that are hiring, to really be careful to hire somebody with a shiny degree from a top MBA school.
At the risk of being downmodded, I must ask: why is this article on a site for HACKERS? Seriously, this article is SUIT NEWS all the way . . .
Higher interest rates = less credit & financing = fewer startups
Your conclusion assumes that startups are an intrinsic aspect of hacking, hackers, and the hacker condition.
I disagree.
Even if it were so, outside funding (credit and financing) is most definitely not an indispensable requisite to starting a startup.
I disagree.
Even if it were so, outside funding (credit and financing) is most definitely not an indispensable requisite to starting a startup.
This afternoon, the cost of insuring Goldman and Morgan Stanley's debt via credit default swaps went through the roof. We'll see how things play out.