Lehman, Merrill news

[Beacon]

MB, I think the difference was that AIG is perceived as being integrally woven into the fabric of the financial markets, in ways that extended way beyond just their own firm. Principally, I think they are the counterparty for a great number of credit default swaps that exist and thus if AIG died, those contracts might rupture, causing widespread damage to a large number of companies.

They didn't want to bail out AIG, I think they had to.

On the subject of short selling, the government is re-enacting the rule against naked short selling effective midnight tonight. It's about time! This will mitigate some of the targeted demolishion of certain financial firms.

 

[NewEnglandLady]

Date: 9/17/2008 10:16:34 AM
Author: Madam Bijoux
What''s puzzling me is why the government would bail AIG out but not help Lehman at all.

I think it has to do with the fact that AIG is insurance--the unsusepecting policyholders would be left out in the cold. At least I think that might be a reason...

BTW, Tradergirl, I''m glad somebody is making money in the market. I keep waiting for my stocks to bottom out...hasn''t happened yet, haha.

 

[Harriet]

I agree that one can make money in this market while having empathy for others. That said, exercising some diplomacy would not be out of order (tradergirl has a history of making such statements).

 

[crown1]

Date: 9/17/2008 11:25:37 AM
Author: Beacon
MB, I think the difference was that AIG is perceived as being integrally woven into the fabric of the financial markets, in ways that extended way beyond just their own firm. Principally, I think they are the counterparty for a great number of credit default swaps that exist and thus if AIG died, those contracts might rupture, causing widespread damage to a large number of companies.

They didn''t want to bail out AIG, I think they had to.

On the subject of short selling, the government is re-enacting the rule against naked short selling effective midnight tonight. It''s about time! This will mitigate some of the targeted demolishion of certain financial firms.

i don''t know anything about short selling. please explain the practice if you have the time. thanks!

 

[Harriet]

Crown 1,

Assume that a stock is trading at $100. Assume also that you decide to borrow 1 unit to short-sell. Let's say the stock falls to $50 and you want to close out your position. Because you have to replace that 1 unit at only $50, you would have made $50.

 

[crown1]

thanks!

 

[Miranda]

Date: 9/17/2008 7:43:19 AM
Author: tradergirl
Well, Harriet, I find your constant whining about everything distasteful. You seem to have an awful lot of good fortune yet never seem to stop complaining.

I know that things are tough in hedge fund land and that there may be no bonus this year and this is where your anger is coming from. Frankly, after the obscenity of the past few years'' Wall Street bonuses and ''compensation'' which are created by taking undue risk with shareholder money and investors money, I think a few years of reality check is in order. That may mean one less Leon Mege ring for you but ultimately a healthier financial landscape for everyone else.

And I don''t spend even 5 minutes feeling bad about making money as the market goes down. There are plenty of hedge funds who are also doing it. I give more than half of my income away to charity so I sleep well at night.

I thought you were going away tradergirl.

I smell class envy.

 

[Beacon]

Harriet lays this out exactly right. However, there is a practice called "naked short selling" where the seller does not even have to borrow the security to effect the short sale. This makes it very easy to short stocks, as you do not need to have custody of the companies shares in order to sell them.

Effective tonight, the naked short selling practice is illegal and things will go back to the method that Harriet outlines, i.e. one must borrow the shares to short them.

 

[Beacon]

Date: 9/17/2008 11:49:09 AM
Author: Miranda

Date: 9/17/2008 7:43:19 AM
Author: tradergirl
Well, Harriet, I find your constant whining about everything distasteful. You seem to have an awful lot of good fortune yet never seem to stop complaining.

I know that things are tough in hedge fund land and that there may be no bonus this year and this is where your anger is coming from. Frankly, after the obscenity of the past few years'' Wall Street bonuses and ''compensation'' which are created by taking undue risk with shareholder money and investors money, I think a few years of reality check is in order. That may mean one less Leon Mege ring for you but ultimately a healthier financial landscape for everyone else.

And I don''t spend even 5 minutes feeling bad about making money as the market goes down. There are plenty of hedge funds who are also doing it. I give more than half of my income away to charity so I sleep well at night.

I thought you were going away tradergirl.

I smell class envy.

I must say, the current activities of the financial markets are not creating a healthier landscape for anyone. Viable firms are being whipsawed and may end up with larger capital demands than they can manage.

If you mean that the widespread overleveraged positions that are unwinding is healthy, well yes, perhaps, though it would be nicer if they unwound in a more orderly way. N.B. a short sale is by definition a leveraged position.

 

[Harriet]

Crown 1,

You're welcome. Hope that made sense.

Thanks for your well wishes. My rough time is in large part due to my health.

 

[crown1]

thanks beacon!

 

[Linda W]

Date: 9/17/2008 11:49:09 AM
Author: Miranda

Date: 9/17/2008 7:43:19 AM

Author: tradergirl

Well, Harriet, I find your constant whining about everything distasteful. You seem to have an awful lot of good fortune yet never seem to stop complaining.


I know that things are tough in hedge fund land and that there may be no bonus this year and this is where your anger is coming from. Frankly, after the obscenity of the past few years'' Wall Street bonuses and ''compensation'' which are created by taking undue risk with shareholder money and investors money, I think a few years of reality check is in order. That may mean one less Leon Mege ring for you but ultimately a healthier financial landscape for everyone else.


And I don''t spend even 5 minutes feeling bad about making money as the market goes down. There are plenty of hedge funds who are also doing it. I give more than half of my income away to charity so I sleep well at night.

I thought you were going away tradergirl.


I smell class envy.

Yes, tradergirl, we thought you were going away. All of your posts in the past, since you have joined, have been snarky. Please do take a powder again.

 

[MichelleCarmen]

Date: 9/17/2008 11:49:09 AM
Author: Miranda
I thought you were going away tradergirl.

I smell class envy.

Where is the post that tradergirl said she wouldn't be posting anymore? I can't seem to locate it.

ETA - seems the whole point to these new posts IS for drama. Click on the "report concern" bar at the bottom of the posts to make sure the posts are noted.

 

[Ali]

Please stay on topic. Thank you for your consideration.

 

[Madam Bijoux]

Thanks for the info, Beacon.

 

[AGBF]

Well...to get back to one of the original questions as to whether anyone was hurt by this...we were not. However, I commented to Dancing Fire that he, at least, had not had stock in an entity that was nationalized . Guess who did?

My husband has had a long career in banking and has worked for a few financial services firms that were not banks, including Standard & Poors. When he joined the Federal Reserve Board he had to liquidate all the stock he had acquired in banks, stock given as compensation, due to any potential conflict of interest. He was unhappy that he had to liquidate all his Citibank stock, but it turned out not to have been such a bad thing.

On the other hand, he had also worked for Freddie Mac. Like everyone else, they compensate their workers with stock. Guess whose stock turned to zero dollars? I''m not complaining. He hadn''t worked there for long. He feels sorry for friends who had had long careers there and did not dump their stock. My feeling is that if we can pay our mortgage and afford groceries and gasoline to get to jobs we still hold that we are among the lucky Americans. But I am worried about whether a big Depression is coming.

Deborah

 

[Skippy123]

Date: 9/17/2008 12:56:15 PM
Author: AGBF


Well...to get back to one of the original questions as to whether anyone was hurt by this...we were not. However, I commented to Dancing Fire that he, at least, had not had stock in an entity that was nationalized . Guess who did?

My husband has had a long career in banking and has worked for a few financial services firms that were not banks, including Standard & Poors. When he joined the Federal Reserve Board he had to liquidate all the stock he had acquired in banks, stock given as compensation, due to any potential conflict of interest. He was unhappy that he had to liquidate all his Citibank stock, but it turned out not to have been such a bad thing.

On the other hand, he had also worked for Freddie Mac. Like everyone else, they compensate their workers with stock. Guess whose stock turned to zero dollars? I''m not complaining. He hadn''t worked there for long. He feels sorry for friends who had had long careers there and did not dump their stock. My feeling is that if we can pay our mortgage and afford groceries and gasoline to get to jobs we still hold that we are among the lucky Americans. But I am worried about whether a big Depression is coming.

Deborah

I agree.

 

[Harriet]

Deb,

I''m so sorry.

 

[Dancing Fire]

i have nothing aganist short sellers like TG,in fact i do sell short from time to time,but most of my holding are in long position.

 

[NewEnglandLady]

Date: 9/17/2008 1:42:58 PM
Author: Dancing Fire
i have nothing aganist short sellers like TG,in fact i do sell short from time to time,but most of my holding are in long position.

Ditto. I usually go short and long on two similar stocks if I'm going on vacation and can't be tied to my computer the whole time. The balance usually keeps me from losing (or gaining) too much. The majority of the time I just go long, though. The bottom line is that we don't invest (in stocks) what we can't afford to lose, so if I lose it, I lose it. I don't want to lose it, but I can't count on keeping it.

 

[Dancing Fire]

hate to say it but....i don''t think the financial sector will bottom until we see a few hundred more banks go out of business.

 

[elle]

Now that NEL mentioned about the insurance part of AIG, would policy holders be affected?

Harriet - Any opinions about the run at AIA (S''pore) since news broke? MAS assurances that every company has to have sufficient assets to cover the policies aren''t quite getting through. My family has decades of savings tied up in AIA policies...

 

[ChargerGrrl]

Date: 9/16/2008 7:24:27 PM
Author: Hudson_Hawk
Bummer. I''ve got a WAMU card from college that I''m still paying off. I don''t operate on credit anymore.

Good way to go, HH! I wish that more folks followed this advice.

I think that the next domino to fall in this financial game is the credit card one. I read an article about how CC delinquencies are rising as homes are no longer available as a "revolving piggy bank". we''re seeing an uptick in CC advances and debt.

Then again, folks are having to go to extreme measures to keep food on the table and gas in the car. I feel for them.

 

[fleur-de-lis]

Date: 9/17/2008 2:48:15 PM
Author: elle
Now that NEL mentioned about the insurance part of AIG, would policy holders be affected?

Short answer: No, not based on today''s events alone.

The insurance policies most individuals think of when they describe themselves as "policy holders" are car insurance policies, life insurance policies, and jewelry policies. Those policies are required by law to be held by subsidiaries based in individual states and are subject to regulation (including reserves and other general oversight) under both state and federal law. Those divisions are quite secure. They also form the basis of collateral to justify the 85B dollar "loan" by the federal government, along with other profitable divisions.

Unfortunately, that is only one portion of AIG''s insurance business. The parent company also insures many things that are have not been subject to governmental regulation and oversight. If I had to guess, it is the part that deals with mortgages, tranches, bonds, bond rating, and bond insurance that brought AIG to its near-collapse, and necessitated the intervention.

If anyone''s interested, I can explain further; just let me know.

f-d-l

 

[NewEnglandLady]

Good point FDL, I probably should have done more research first, I just thought maybe that could be a reason. Thanks for the clarification!

 

[Beacon]

Date: 9/17/2008 1:59:11 PM
Author: Dancing Fire
hate to say it but....i don''t think the financial sector will bottom until we see a few hundred more banks go out of business.

They may go under, I don''t know about hundreds of banks, but certainly there could be scores of small banks that disappear. These will be taken over by larger ones. It won''t affect much, IMO.

 

[purrfectpear]

I don''t think it would be seemly for anyone to "gloat" over the economic downturn, however let''s not overuse the term "people are suffering" lightly either.

Suffering is not losing your $160K job, or your $80K bonus, a few hundred thou in the market, or your $800K condo, OK? Suffering is no roof over your head no matter how humble, no food on the table except govt. cheese, and the inability to get a job at WalMart.

Anything short of that is just bad luck and a requirement to downsize, IMO.

As long as we aren''t destitute we really shouldn''t whine too, too much about suffering.

 

[meresal]

I work for a international municipal bond trustee bank, and the amount of tenders we have dealt with today is unreal. Some are $22 mil and others are only $850,000. Many/most, that I have seen, have nothing to do with AIG or Lehman directly. I have 3 trades a month with Lehman, and lucky me, they were to be settled yesterday and today. The whole process has become insane, and my desk alone already has tenders for tomorrow.

I just thought that I could give a little bit of info, from another viewpoint. No personal opinions here.

 

[Beacon]

Date: 9/17/2008 4:31:30 PM
Author: purrfectpear
I don't think it would be seemly for anyone to 'gloat' over the economic downturn, however let's not overuse the term 'people are suffering' lightly either.

Suffering is not losing your $160K job, or your $80K bonus, a few hundred thou in the market, or your $800K condo, OK? Suffering is no roof over your head no matter how humble, no food on the table except govt. cheese, and the inability to get a job at WalMart.

Anything short of that is just bad luck and a requirement to downsize, IMO.

As long as we aren't destitute we really shouldn't whine too, too much about suffering.

I do see your point, meaning: live by the sword, die by the sword. I don't feel too sorry for Fuld (LEH CEO) who just lost 660 million of personal net worth. Nope, he had control of his destiny to a great extent and just screwed it up.

But there are many people who have menial jobs, admin jobs, that will be out of work and never had much savings to start with who are just cogs in the wheels of this insanity. They could lose their homes and they will suffer and are suffering now with anxiety.

So I would say that this crisis will hurt regular people. Even the NYT ran an article today showing how the car drivers in NYC suddenly have a severe downturn of work. Those are blue collar jobs, directly affected.

 

[Linda W]

I agree Beacon. There are so many foreclosured homes around us, it breaks my heart. Families with small children, wondering where they are going to go. Many of the men, can''t get another job in their field of work.



Linda