Lehman Brothers Collapse

[Sebrof]

Shorting allows traders to put in mechanisms to stop bubbles developing.

 

Really? Doesn't seem to be a very reliable mechanism does it? We have had two massive bubbles in eight years.

 

Funny how extreme market movements stopped today as a ban on shorting 30 prominent stocks was introduced.

 

I bet they shit themselves as they tried to close their exposure off and found they couldn't.

 

The shorting occurs when you sell what you don't have. There is no way they can prevent you buying stock to enable you to return the stock you borrowed.

 

S

[When Skies Are Grey]

So with Bradford and Bingley being "nationalised" and Fortis the next main Bank in the firing line, the end doesnt seem in sight yet!

 

The FTSE is down 220 points on the day....its all looking a bit bleak!!

[manshimajin]

I wonder when the financial regulators will start examining the activities of bank board members and senior management?

 

Fundamentally they have been one or more of stupid, incompetent or dishonest.

 

Stupid because they have allowed employees to get involved with financial instruments they don't understand at senior or junior levels.

 

Incompetent because they have numerous examples in recent years of the risks of bonus motivated bank fraud - Leeson, Ruzniak and others - so what have the Board Remuneration and Audit Committees done to evaluate, control and mitigate these risks? Have they ever questioned the risks related to the bonuses they have signed off on?

 

Dishonest if they have know that toxic loans have been bundled up, securitised and passed on to others - no wonder they won't lend money to each other now - each bank knows what it it has done and assumes the others are every bit as bad as it is.

 

Whilst it won't fix the damage these people have done if the regulators require their dismissal and disqualifcation it would set examples for future behaviour.

[Amadeus]

Wups

House votes down bail-out package

[manshimajin]

Wups

House votes down bail-out package

Now who was it who was mocking me a few weeks ago for saying that the "Bank of Under The Mattress" was the best place to put your money for the time being?

 

I'm going out to buy some vegetable seeds tomorrow!

[Sebrof]

Wups

House votes down bail-out package

 

Turkeys voting for Christmas.

 

S

[Chinahand]

bloody hell - I think its going to be a busy day tomorrow for some people!

 

We are definitely living in unprecidented times!

[pongo]

Turkeys voting for Christmas.

 

What does that mean in this context?

 

For years it has been argued that the free market should be allowed to operate with the minimum of restrictions and regulation. Much of this thinking was based on a dogma and ideology which emerged during the late 1960s and the 1970s from the right wing think tanks. Many of the people close to this thinking were also close to the markets. Some brilliant minds too in many cases.

 

Of course - if the market was really free then children would still go up chimneys and slavery would never have been abolished. Controls exist for good reasons. So the thinking was always flawed to a degree.

 

But if you think that you believe in a free market then it is very difficult to argue in favour of propping up failing institutions. Much better to let them fail. The institutions which survive will survive for the right reasons.

 

Lots of other people have already made the forest fire analogy. The forest grows back stronger.

 

All that said - the US deal will quite obviously eventually be passed. Keith Joseph and his friends would not have supported it. IMO and I don't pretend to know how it will happen - this deal will make things worse in the long run. Because it goes against common sense ultimately.

[Chinahand]

I really don't know what to make of this - in many ways the bad loans etc are now a secondary issue - banks etc just aren't lending to each other.

 

As a result more and more of them are seizing up: not due to insolvency from bad loans, but because of illiquidity - because of this people are even less willing to lend money out - which makes it even more likely that more banks will clog up.

 

And the only lender willing to lend are now governments, but this isn't solving the crisis - investors are abandoning corporate bonds and pushing rates up through the roof and rushing into government bonds - this is now putting the big liquidity funds at risk - but if the government intervenes they aren't really encouraging investors back into the market - the government aren't stopping the money flight, they are hardly making it smaller - its not helping confidence, but just seems to be confirming investor's panic that the only buyers of corporate bonds are governments.

 

I just don't know where this will end.

 

The great depression was caused by government meddling in trade which destroyed something like 60% of world trade - economies just stopped.

 

A very similar thing is happening now, but in finance.

 

Smoot Hawley put the world back 50 years - and created the economic conditions for fascism and totalitarian communism.

 

I really am concerned about what is going on at the moment. I just hope it isn't history repeating itself - this time on the left hand of the balance sheet, compared to the right hand in the 1930s.

[germann]

And we all know what happened as a result of the depression of the 30s.

 

The geopolitical implications of this are just as worrying as the economic consequences.

[Mutley]

And we all know what happened as a result of the depression of the 30s.

 

The geopolitical implications of this are just as worrying as the economic consequences.

The far right have just been voted in, in Austria...

 

My mistake. The far right have made substantial gains in Austria.

 

http://news.bbc.co.uk/2/hi/europe/7641441.stm

[pongo]

The great depression was caused by government meddling in trade which destroyed something like 60% of world trade - economies just stopped.

 

A very similar thing is happening now, but in finance.

 

Smoot Hawley put the world back 50 years - and created the economic conditions for fascism and totalitarian communism.

 

I have no fixed opinion about any of this interesting stuff although I understand the strong case against intervention (=live by the sword - die by the sword). Nobody who argued in favor of free market capitalism can then reasonably support intervention.

 

In what ways is Smoot Hawley similar or comparable to the proposed intervention ? Other than that it is another intervention.

 

I still see what is happening as essentially an inevitable correction - including a correction of confidence. Banks are no different from British Leyland. Would be one point of view. They should be allowed to go bust.

 

[The establishment of totalitarian communism and the rise of fascism obviously pre dates even the 1929 crash. Indeed - the totalitarianism never became established in the countries which were most affected by the depressions.]

[Albert Tatlock]

I really don't know what to make of this - in many ways the bad loans etc are now a secondary issue - banks etc just aren't lending to each other.

Four words - 'Smoke and mirrors economy'.

[manshimajin]

I wonder how the oil exporting states will react to all this? They have been adding fuel to the bank cock-up fire (figuratively) as oil prices sky-rocketed. This was good for them as it meant more oil income. But now the value of their investments in Western economies and the assets they own in USA and UK are all dropping like the proverbial stone. So what they were winning on the swings they are now losing in spades on the roundabout.

 

And the demand for oil from developed economies is likely to fall off significantly in recessionary times.

 

Will they reduce production to try and get more money for their oil and risk further fall-off in demand? Or will they take steps to get oil prices down to try and stimulate economic activity?

 

Could be an interesting one to watch.

 

PS: I see oil is down 10% this evening - governments should try harder than usual to ensure falls in its price are passed on into the economy and we should all pray for a very mild winter!

[Albert Tatlock]

And we all know what happened as a result of the depression of the 30s.

 

The geopolitical implications of this are just as worrying as the economic consequences.

Hey, this sounds just the right time to release my new book 'Mein Gott!'

 

Having seen recessions in the 70s, 80s, and 90s, I've been predicting this mess for well over 4 years. We have learned sod all from history, again. I've been reading some of the past posts on here, and I bet there's a few posters on here choking on their words cornflakes this week. It's exactly because of 'smoke and mirrors' in the finance world, whilst Tony Bliar, Gordon Broon and Bush were happy to accept the tax generated from it, that this mess has been allowed to 'creep up' on everyone.

 

All the ingredients are there for a major recession, if not a depression: debt, government meddling, lack of regulation and the money supply drying up - but what's different this time, don't forget, is that we've outsourced most of the 'proper jobs' to Asia and Jobrobistan, so it's even more important to concentrate on the world view of all this in 2008. Globalisation has changed the world economy much since 1929 and the 30s. The geopolitical implications of a major reccession could indeed have major effects.

 

Left to the banks it will take too long to sort this mess out, and we'd enter at least a major recession IMO. Personally, to solve it I am for injecting the $700 billion (and more) into the system, as it seems the only current option to bring confidence back to the banks and markets, and increase the money supply. Whilst $2500 each sounds a lot for the yanks (or for each of us), it's sod all in terms of when you compare it to the possibility of being unemployed for 4 years. And, if and when this is 'fixed', there should be tougher regulation on lending, directly linked to the ability to pay it back i.e. 4 times salary max for a mortgage, and an end to fancy 'bury-the-risk' financial products and associated bonuses. Buy to let lending also has a lot to do with all this, and also needs to be curtailed and regulated, as it's responsible for a sixth of all the current debt.

 

If the money supply doesn't get going soon, lots of jobs (even here) could soon be lost - as cash flow affects all companies: on a daily basis, expansion, R&D etc. etc. Inject the money now, and blamestorm and deal with the hangings later is the way to go IMO. Many financial institutions are also restructuring, which may affect the island too - for better or worse, who knows - though I suspect for worse, because if Obama and the OECD ever needed a remit for 'tackling' finance across the world they've certainly got one now, as well as a motive to grab back as much tax as possible from wherever possible (including offshore) to pay back some of the tax payer billions used in this current bail out. There is the possibility that, even if things get 'back to normal', the island could come out the worse for this in the long term with the legislation and regulation that is likely to come - so the island needs to be even more ready and geared up for any possible onslaught.

 

As for going to the right or left, and socialism or fascism over this, I think we are well on the way here already to socialist-fascism - using health and security as the drivers. The sooner Broon and his cronies, and Bush and his neo-cons, go the better - as they couldn't have made the world a worse place than if they'd tried, and between them have wasted trillions cocking it up, along with the swindlers, speculators, liars, cheats and ignoramouses that have been allowed to 'run' the finance sector into the ground. But the problem is the alternatives on offer have little more to offer us either, though starting with a 'clean slate' they will have the opportunity to sort out the mess to ensure it won't happen again - well at least not for another 10 years until they get kicked out that is.