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Lehman going bankrupt. Bank of America buying Merrill Lynch
- mtw 18y agoand we'll see a wave of laid off finance guys going early to MBA programs or law school this year.
- daniel-cussen 18y agoOr trying to learn to hack.
- nihilocrat 18y agosome dude on NPR (an interviewee, not an NPR employee) said that they should have gotten into agriculture or energy.
- tortilla 18y agoNone of the banks wanted to touch Lehman and even if they did, their own balance sheets are almost as bad.
- tptacek 18y ago... so instead they go and buy Merrill? Not sure I agree with you a hundred percent on your police work there, Lou.
- caudicus 18y agoWell, 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.
- incomethax 18y agoSo 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.
- furiouslol 18y agoIt's confirmed. Lehman to File for Bankruptcy Protection http://dealbook.blogs.nytimes.com/2008/09/14/lehman-to-file-for-bankruptcy-protection/ http://dealbook.blogs.nytimes.com/2008/09/14/lehman-to-file-...
- deleted 18y ago[deleted]
- fallentimes 18y agoBlack 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?
- ctkrohn 18y agoWell, it will be interesting to see how it works out, since Merrill owns 49% of BlackRock.
- fallentimes 18y agoGood catch - I completely forgot about that. I believe PNC bank also has a significant interest in Blackrock.
- zandorg 18y agoBut who's on the other side of all this loss? I bet someone's got tricks up their sleeve.
- robak 18y agoAsian 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.
- mynameishere 18y agoThe day foreigners realize creditworthness of this nation... They realize it. But they have a dilemma... http://en.wikipedia.org/wiki/Prisoner's_dilemma http://en.wikipedia.org/wiki/Prisoner's_dilemma
- robak 18y agoWell, 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.
- vaksel 18y agoI wonder if the MBA programs will get flooded with all these ex-bankers
- ardit33 18y agoso 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.
- ctkrohn 18y agoThe scary thing is that by the end of the year or so, we could be left without any of the former big five investment banks. The only remaining titans would be the commercial banks -- Citi, BofA, JPMorgan. I'd expect new market leaders to emerge from the current cohort of smaller regional dealers, boutique special-purpose investment banks, hedge funds, etc., but it will be a while before all this is sorted out. Even Goldman is endangered... anyone without a significant deposit base who is forced to rely on borrowed money can be struck down at any time. 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.
- tptacek 18y agoWhat'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?
- fallentimes 18y agoJust 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.
- ctkrohn 18y agoCitadel, 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.
- hugh 18y agoAnd 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 $3000 a month lease.
- mtw 18y agothe finance industry has a very short-term memory though... in less than 5 years, you will see them again inventing all sorts of financial schemes and create billions of wealth magically out of nowhere
- hugh 18y agoI'm sure they will. Maybe I'll show up then, and claim my billion.
- sammyo 18y agoLet's just hope that's not the price of a loaf of bread.
- kingkongrevenge 18y agoNot this time. The fancy pants bankers are going to be out of work for a loooooong time this go round. The shenanigans are all predicated on cheap credit. Interest rates world wide will be going up, up, up!
- Tichy 18y agoWhy? Isn't credit a market like any other, regulated by supply and demand? What makes you think interest rates will go up?
- kingkongrevenge 18y agoTrillions worth of wealth are going poof all over the world. That's the supply diminishing. Governments are also trying hard to inflate, which will drive rates up.
- mtw 18y agoWamu (washington mutual) is also feared to be next
- smakz 18y agowamu smartly raised private capital to the tune of 7$ billion to ride this wave out (before all the other guys failed). Wamu might fail, but I'd bet AIG fails first.
- Prrometheus 18y agoGood 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.
- jfarmer 18y agoIt's more complicated that that, of course, since the crisis might have been less likely had Glass-Steagall remained law.
- kingkongrevenge 18y agoJapan 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.
- raheemm 18y agoI 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.
- mrtron 18y agoAlmost 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.
- furiouslol 18y agoOk. Deal is done. Acquisition sealed. http://online.wsj.com/article/SB122142278543033525.html?mod=special_coverage http://online.wsj.com/article/SB122142278543033525.html?mod=...
- nickb 18y agoIs 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/
- furiouslol 18y agoNouriel 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.
- raheemm 18y agoUnfortunately 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.
- ars 18y agoAnd if we do live within our means, and stop borrowing, we'll cause a recession. No, I don't have answers.
- jcromartie 18y agoI'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.
- kul 18y agoTaleb vindicated again.
- sown 18y agoThis all reminds me of a book by historian Paul Kennedy. "The Rise and Fall of Great Powers." Y'all should read it.
- mroman 18y agoAt 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 . . .
- sd 18y agoHigher interest rates = less credit & financing = fewer startups
- mroman 18y agoYour 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.
- brentr 18y agoNext 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.
- deleted 18y ago[deleted]
- rwebb 18y agothere are maybe 3 people posting in this thread who have any idea what they are talking about.
- umangjaipuria 18y ago"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=ai1w0bUy9iNA&refer=home http://www.bloomberg.com/apps/news?pid=20601039&sid=ai1w...