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Lehman anyone?

#1 Lehman anyone?
15/09/2008 10:46

Nick Adams

No discussion on Lehman. Strange!!!

Any thoughts on why companies do not have enough leverage or reserve? Are their asset so volatile as to sublime do fast?

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#2 RE: Lehman anyone?
15/09/2008 11:44

Rant to Nick Adams (#1)

Lehman files for Bankruptcy. Employees walking out of the NY branch with brown boxes, not sure what is contained in them. I'm curious.

I would have agreed with your statement about 10 years ago. The substantial growth in the past 10 years has seen substantial increases of IB, amongst others. This growth had fueled a toxic engineering of financial instruments that no-one would understand, not even the Phd's that wrote them. Coupled with the trading of commodities and the substantial compensations for results, have fueled a 'greed' culture. The devastating effect of this is no-one was monitoring this whole debarcle. I spoke to someone in the FSA about IB and she replied, "No way! Everyone avoids trying to regulate or standardise IB because it is in a state of chaos, it is best to let it run its course". I didn't agree with her as it is her job to ensure regulation, I suppose.

IB have outstripped their capability of leveraging on their assets as security. The losses are substantial, and it is now becoming clear as time progresses, how incompetent financial companies have been. No, not niave. They know too well what is happening, know the ramifications of the results, and expect this to be shouldered by the Governments.

Take the investment by the PM to the Big 4 banks. We will never know who got what, and how much. But we will know far darker secrets of the cold war.

I say, "What goes up, must come down". Touche.

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#3 RE: Lehman anyone?
15/09/2008 11:52

No to Rant (#2)

No, not Bankruptcy. Bankruptcy protection. There is a difference.

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#4 RE: Lehman anyone?
15/09/2008 12:01

Rant to No (#3)

Yes :) Chapter 11.

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#5 RE: Lehman anyone?
15/09/2008 12:22

no to Rant (#4)

precisely my point. As a very, very, very senior consultant, I know this.

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#6 RE: Lehman anyone?
15/09/2008 12:31

Nick Adams to no (#5)

I think its prudent to call the shots and go out drinking with the Lehman guys tonight to find what was in the brown box.

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#7 RE: Lehman anyone?
15/09/2008 12:40

Anon to Rant (#4)

Try explaining the diiference to all the Lehman staff who have been sacked this morning!!

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#8 RE: Lehman anyone?
15/09/2008 14:09

ZB to Anon (#7)

I am afraid this whole sorry decadant affair has been coming. I mean just how does one create wealth out of thin air. All the money that these profligate banks invested has been going after assets that were simply crumbling shacks in places like deepest darkest Alabama. Undoubtedly, the credit crunch will continue, spawned by a combination of western decadence, ill-conceived market liberalisation and breath-taking incompetance (crikey you'd think and ACN process mapper may have caused this).

My take on this sorry affair, never forget that genuine wealth is only created in two ways: hard work and ingenuity...none is this evident from this sorry debacle.

My personal feeling is that there is one more 'major' bank that will go under

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#9 RE: Lehman anyone?
15/09/2008 14:27

Mars A Day to ZB (#8)

Predictions everyone?

I'm predicting Merill will be acquired - by Bank of America or Barclays, and Goldman will go to the wall but survive in a much smaller and more neutered state.

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#10 RE: Lehman anyone?
15/09/2008 14:31

ZB to Mars A Day (#9)

Mars I think the Goldman situation is ok. Its management has traditionally been quite conversative in regards investment and most if its fees are earned on advisory and transaction based banking. It business model is financially robust and operationally prudent, although I think its latest foray into emerging markets could be shortlived: perhaps based on capital growth and less on income based activiites


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#11 RE: Lehman anyone?
15/09/2008 14:46

anon to ZB (#10)

I thought the acquisition of Merrill by BoA had already been announced?

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#12 RE: Lehman anyone?
15/09/2008 15:05

Mars A Day to anon (#11)

Anon you might be right - I don't get much chance to see the news just lately. Is it a done deal then?

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#13 RE: Lehman anyone?
15/09/2008 15:39

ZB to Mars A Day (#12)

The Merrill acquisition has been spawned by externalities, namely strategic re-positioning, process enhancements and balance sheet restoration and preservation. The Merrill business model is predicated on robust, enduring and durable work. The current gyrations in staff turnover and uncertain financial climate and sub-optimal asset based pricing mechanisms made the acquisition both practically desirable operationally feasible and strategically noteworthy.

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#14 RE: Lehman anyone?
15/09/2008 15:58

anon to ZB (#10)

The 'trick' (and why they will be OK) of GS is threefold:

1. They ruthlessly scrutinse those being recommended for Partner

2. The senior GS guys invest most of their own money through GS

3. They reward their risk analysts as much as their market makers

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#15 RE: Lehman anyone?
15/09/2008 22:09

BIB to anon (#14)

Not seen too many IB is better than consulting threads recently.

I guess most of the IB guys no longer have access to the internet anymore. Indeed, they only have access to electricity when they stick 50p in the meter!

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#16 RE: Lehman anyone?
16/09/2008 14:20

hardhat to BIB (#15)

Nick can you re-phrase your second question.

Its not a proper question because it doesnt really make sense, even if you understand some of the key principles of asset volatility.

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#17 RE: Lehman anyone?
17/09/2008 20:48

JD to hardhat (#16)

1) I think Nick's bizzarely worded question meant to say, were their assets so risky that they could go from thinking they were ok, to filing for bankruptcy so quickly

2) Goldman Sachs did very well out the of the whole credit crunch. Apparently they take a non-emotional/follow the crow, quantitative based approach to risk, and as a result identified the US mortgage market as a key risk and repositioned themselves in advance

3) The brown boxes contain packs of paper. To print out cv's on.

4) Finally my take on the original question. Packaging up riskier assets with less riskier ones provided banks with a new source of revenue, as assets that you previously wouldn't have touched now became useable. The problem was bank were using their traditional view of asset pricing when in fact the riskier stuff required newer methods of pricing.

Seeing as it's causing such a big crisis for the whole world I think FS should be much better regulated. I have no knowledge whatsoever of FS so this is all a guess:

a) IB's pay into an insurance pool which would be big enough to cover the losses of upto x% of banks going bankrupt

b) Big Bonus culture discouraged

c) High risk assets must have tight control/regulation before they can be traded (e.g. mortgage lenders behaving wildly just because they can sell on their risk)

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#18 RE: Lehman anyone?
18/09/2008 00:17

Bigcat to JD (#17)

Mars doesn't have time to look at the news much lately but he has plenty of time to continuously comment his often one sided views on this forum. Hmmm. Interesting!

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#19 RE: Lehman anyone?
18/09/2008 10:08

Mars A Day to Bigcat (#18)

Why one-sided Bigcat?

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#20 RE: Lehman anyone?
18/09/2008 10:26

Bloggsy to Mars A Day (#19)

"Goldman Sachs did very well out the of the whole credit crunch". I don't think so - they've started to write down like everybody else and profits down 70% this quarter. Read the press, they're on the ropes and looking to sell-off.

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