Update: A Marquee firm files for Bankruptcy, US Govt bails out AIG

[coffee_rules]

I have lost 12 K in my 401K this year. I plan to lose more money.

[Rajiv]

Can the smarties tell me how would this effect JP Morgan Chase

[coffee_rules]

If JP Morgan chase has invested in bond insurance (default protection) or sub-prime mortgage or any other investment that has invested in these two sectors, they are bound to be affected. It is like a cascade effect. One investment sector affects all those who had invested in that sector, who will in turn affect all those who had invested in that sector..so on and so forth....

[fineleg]

What is the course of action you folks are taking in this market? Rough market is an understatement.

I have lost 12 K in my 401K this year. I plan to lose more money.

Certainly red everywhere. How do we plan not to lose more money? :P

[Rajiv]

That Susan Orman keeps saying, invest but dont pull out..I don;t get it??

[fineleg]

That Susan Orman keeps saying' date=' invest but dont pull out..I don;t get it??[/quote'] it means money you dont need for next 5 years, keep it in the stock market - diversified.

[Dhondy]

Back to my pet peeve- the lack of scientific principles underpinning finance, which makes it a very dangerous area for those who are less adventurous to stray into. For those who say that they saw this crisis coming- they are lying- they didn't. People like Larry Elliot of The Guardian are going to town as to how they saw the bust following the boom. Sure he did, he wrote a best-selling book on it, but that's how the financial markets have always worked. A downturn always follows a peak, and it doesn't take a genius to predict one. In fact, financial punditry is one of the most over-rated areas of scholarhood that I have had the misfortune of coming across. It essentially involves jumping on a bandwagon and predicting what everybody else already knows- that something on the up is likely to go higher, and then retreat slightly, or that another entity bound for the floor is likely to keep falling. Big deal. Even a freshman Physics student knows that that's called momentum. Why do you want to fill reams and reams of newsprint with such obvious stuff? Sometime ago, with the pound sterling buying $2.11, the forex divisions of some renowned houses started predicting £2.50. The dollar promptly turned around and recently touched 1.74 to the pound. Another gentleman with a pretty good track record predicted that it would keep falling until it hit $1.50. "Wouldn't touch cable it with a bargepole in the short term", he said. Sterling ended the week at $1.83. These are the sort of people you trust your pensions,stocks and mortgages with? They have no clue, none at all. The truth is that all finance goes through cycles, and predicting when an upswing ends and another begins is well nigh impossible. That's why there is place for both Keynesian economics, that encompasses the tax cutting gambit of Bush just before the credit crunch and the laissez faire policies advocated by Friedman or Hayak that preceded it and led to the debacle itself. Everything goes- in a certain part of the cycle. Sure enough, after the inevitable crash, somebody will be wiser for the event, look back and point his finger at one or the other policy- that's why he is a financial pundit, a pseudo-scientific fake who has 20-20 vision...in hindsight. Nothing epitomises the folly of finance as a discipline than the fate of KfW. This, a German bank, from the nation that boasts the world's foremost engineering brains, handed over 350 million Euros to Lehman Brothers- precisely two hours before they collapsed. Just goes to show the respective calibre of grads who join engineering and finance in that country.

[punjabi_khota]

Back to my pet peeve- the lack of scientific principles underpinning finance, which makes it a very dangerous area for those who are less adventurous to stray into. For those who say that they saw this crisis coming- they are lying- they didn't. People like Larry Elliot of The Guardian are going to town as to how they saw the bust following the boom. Sure he did, he wrote a best-selling book on it, but that's how the financial markets have always worked. A downturn always follows a peak, and it doesn't take a genius to predict one. In fact, financial punditry is one of the most over-rated areas of scholarhood that I have had the misfortune of coming across. It essentially involves jumping on a bandwagon and predicting what everybody else already knows- that something on the up is likely to go higher, and then retreat slightly, or that another entity bound for the floor is likely to keep falling. Big deal. Even a freshman Physics student knows that that's called momentum. Why do you want to fill reams and reams of newsprint with such obvious stuff? Sometime ago, with the pound sterling buying $2.11, the forex divisions of some renowned houses started predicting £2.50. The dollar promptly turned around and recently touched 1.74 to the pound. Another gentleman with a pretty good track record predicted that it would keep falling until it hit $1.50. "Wouldn't touch cable it with a bargepole in the short term", he said. Sterling ended the week at $1.83. These are the sort of people you trust your pensions,stocks and mortgages with? They have no clue, none at all. The truth is that all finance goes through cycles, and predicting when an upswing ends and another begins is well nigh impossible. That's why there is place for both Keynesian economics, that encompasses the tax cutting gambit of Bush just before the credit crunch and the laissez faire policies advocated by Friedman or Hayak that preceded it and led to the debacle itself. Everything goes- in a certain part of the cycle. Sure enough, after the inevitable crash, somebody will be wiser for the event, look back and point his finger at one or the other policy- that's why he is a financial pundit, a pseudo-scientific fake who has 20-20 vision...in hindsight. Nothing epitomises the folly of finance as a discipline than the fate of KfW. This, a German bank, from the nation that boasts the world's foremost engineering brains, handed over 350 million Euros to Lehman Brothers- precisely two hours before they collapsed. Just goes to show the respective calibre of grads who join engineering and finance in that country.

Nice post Dhondy. :hatsoff: This is something that has always irked me to no end. How exact is this science of Finance and Economics anyways. I have some Math professors here who tell not to believe anything an economist has to say. About 30% of my fellow IIT grads (Mechanical engg. major) joined finance industry in India and abroad, about a year after graduation in 2005. They said it was better than stagnating in the software industry, and they 'might' get to use the hard earned analytical skills. They were earning 15+ lakhs PA in 2007-2008 in India and 100K+ in US. Half of them are now jobless and it is tough find another job. I have been tempted to foray into this sector, since the math used by financial analysts has a significant overlap with my own research area (chaos,dynamical systems,stochastic methods), but the recent events have again made me think hard about this. How much of it is actual science ? and how much of it is guesswork ?

[retterimp]

well i dont know about economists and frankly dont care, but traders dont have to be right all the time. infact the best traders are only right about 50% of the time (majority of traders are only right about 20-30% of time). but they still make money...why?? because their winners far outweigh their losers. in the end trading is about discipline/psychology/risk, doesnt matter if your from MIT, if you dont practice correct risk management, you wont succeed. and all those crying about their 401k, well thats what you get for not paying attention to the markets. you cant make money by sitting on ur ***** and hoping for the best..it takes hard work.

[Rajiv]

^^ but they still make money...why?? because their winners far outweigh their losers. in the end trading is about discipline/psychology/ris ..similar to bookies in cricket, they keep it between the 2 columns and always make some money

[Rajiv]

Watching CNN whole day now 1) NO new jobs 2 100K new jobs needed every month ( instead losing 70K ) 3) Salaries not going up but Mortgages are 4) People don't spend, economy doesn't roll 5) Manucfaturing says MADE in CHINA

[SachDan]

Lehman reopens as Barclays Capital; 10,000 jobs offered 23 Sep 2008, 1600 hrs IST,PTI NEW YORK: Lehman Brothers' North American operations, which were acquired by global financial services major Barclays, has reopened under the new ownership and over 10,000 employees have been offered jobs in the combined entity. These actions follow the Bankruptcy Court for Southern District of New York's approval for Barclays acquisition of Lehman Brothers' North America operations which include fixed income and equity sales, trading and research, prime services, investment banking, principal investing and private investment management businesses. The integration process for the combined businesses began immediately after the court's decision, Barclays said in a statement last night. However, the process is still continuing, thus Lehman's sales and trading business was not able to conduct business yesterday, while the capital markets and trading businesses would become fully functional shortly, it added. "Employment offers have been made to all employees of the Lehman Brothers businesses that have been acquired by Barclays Capital, including Lehman Brothers Private Investment Management business, transferring to Barclays Wealth, the wealth management arm of Barclays PLC," the statement said. The combined firm will use the name Barclays Capital while the financial major has also purchased rights to use Lehman Brothers name and will consider opportunities to do so. "Barclays-Lehman Brothers partnership is now a reality. With all that our combined firm has to offer, we have a great business to tell our clients about. We have been delighted by the enthusiastic response of the senior Lehman Brothers executives to whom we have offered leadership positions in our combined firm," Barclays PLC President Bob Diamond said.

[fineleg]

"Barclays-Lehman Brothers partnership is now a reality. With all that our combined firm has to offer, we have a great business to tell our clients about. We have been delighted by the enthusiastic response of the senior Lehman Brothers executives to whom we have offered leadership positions in our combined firm," Barclays PLC President Bob Diamond said.

These executives are as useless as Yuseless in Test matches!

[Lurker]

well i dont know about economists and frankly dont care' date=' [b']but traders dont have to be right all the time. infact the best traders are only right about 50% of the time (majority of traders are only right about 20-30% of time). but they still make money...why?? because their winners far outweigh their losers. in the end trading is about discipline/psychology/risk, doesnt matter if your from MIT, if you dont practice correct risk management, you wont succeed. and all those crying about their 401k, well thats what you get for not paying attention to the markets. you cant make money by sitting on ur ***** and hoping for the best..it takes hard work.

You are theoretically quite right but that theory is not at all valid in this market. The reason US economy is being hit is rather simple - People have been lend money when they could not afford in the first place. During the last decade a "noble" idea was framed in United States economy where every citizen(or legal alien) could buy a house without making a decent down payment. While earlier you needed to put in say 20%, now you could essentially walk in a new house without putting down a dime. Now this greatly affected(in a positive way) builders lobby. It also greatly affected the Retail lobby since people could now use this "saved" money to buy a car. I have seen enough people buying a new house and a new car in last 5 years without spending what would seem valid. But of course this was a long term recipe disaster. These days you turn on CNN and you see a person making 15$ an hour(about 35,000$ after taxes) howling how she is unable to pay mortgage for a 450,000 house. Seriously do they think we are stupid?? Why would someone who has a salary like that buy a house like that in the first place??? And why was she lent 450,000 by the banks??? As for 401K, savings etc I can see why people are worried. I mean when someone puts his money in 401 K he basically entrusts his money manager, and generally these are the best in the business a la Morgan Stanley, to make them money and atleast keep it safe. When the savings starts to dwindle it is not exactly the person's fault really. xxx

[fineleg]

As for 401K, savings etc I can see why people are worried. I mean when someone puts his money in 401 K he basically entrusts his money manager, and generally these are the best in the business a la Morgan Stanley, to make them money and atleast keep it safe. When the savings starts to dwindle it is not exactly the person's fault really. xxx

best in business or so we hope :(( Actually no more - they have proved that they can be as reckless. Was it Putnam? whose money mkt fund (money market fund for heavensake) fell to 97 cents instead of the stable $1 value Yes, its not under FDIC, but still!?

[The Outsider]

So it has happened - the end of investment banking as we knew it. Morgan Stanley and Goldman Sachs have both become commercial banks now. BTW, I don't understand this grudge against CEOs earning tons of money.......whats wrong with them getting millions of dollars if someone is willing to pay them?

[Lurker]

WaMu Retail banking bought by JPMC. Biggest bank to fail.

[Lurker]

Can the smarties tell me how would this effect JP Morgan Chase

So I guess its fair to say now that JPMC would be one of the few that would come out stronger after this whole fiasco. Apparently they made the smartest move in Investment banking when they pulled out of subprime market around 2006. What they sold was lapped up by Citibank, Lehmann, Bear Sterns etc as a "Stupid" move. Well who is laughing now?? JPMC has already bought Bear Sterns and WaMu Retail banking, both would turn out a huge assett to them in completely diversified manners. Apparently in the Great Depression of early 20th centuries Mr. Morgan had helped bail out the USA economy, seems the basta**ds did it again!!!

[Ram]

Contrary to popular opinion that all these cheap acquisitions is good for JPMC, I think it could backfire on them badly in the long run. If anything, I think they would have acquired WaMu anyway, but the Bear Stearns acquisition was more or less forced on them by the Fed, coz, quite simply, they were probably the only entity to have the kind of assests and required leeway for risk, to take over that firm. Because of all these acquisitions, JPMC's credit rating may be affected, it stocks may suffer too. As far as the good points of this acquistion is concerend, WaMu has a significant presence in Florida and California, two places where the retail banking arm of JPMC, The Chase bank, has relatively lesser presence. So, this acquisition will help them increase their national footprint. That now makes Chase bank the second largest commerical bank in the US, after BoA.

[Lurker]

We will have to wait and watch how JPMC fares in the long run. Although a fair argument is that if JPMC tanks USA is doomed anyway as it is the 2nd largest bank and by most account the most prominent one since the number 1(BoA) has reached there by M&A and not exactly has a track record of being where it is. What would be interesting to watch is how does WaMu failure impact Indian companies. WaMu is a big account for many Tech giants, notably CTS who has a large footprint in their Seattle HQ as also Loan quarters in California. Needless to say Lending is gonna be shut down but would the new acquisition mean curtains for consulting? Or would consultants be kept on and full time employees let go. It should be very interesting to watch...unless you work at a WaMu client site that is.