Monday, September 15, 2008

Wall Street in Denial

In an article on Sunday, Andrew Barry writing in Barron's wrote, "It's tempting to say that AIG is a bargain." he goes on to say " calculations indicate that AIG and Merrill shares are cheap".
On Monday Merrill was sold to Bank Of America in a distress sale, AIG shares fell 50% and AIG has 48 hours in which to raise $ 40 billion or go bust. Here's what the CEO of Lehman had to say recently " This firm has a history of facing adversity.. We are on the right track to put these last two quarters behind us." On Monday ( Today) Lehaman filed for Bankruptcy.

The degree of self serving statements from people and Magazines who are regarded as pillars of Wall Street even while institutions are on their death beds is not only misleading and deceptive but also an indicator of how much Wall street is in denial about the seriousness of this finacial crisis. It is'nt as if the lies in these statements are exposed over a period of time, they are proved to be totally wrong within 24 hours. The culture of fooling the public has now been combined with a disbelief that this happenning.

How can people who are supposed to be the best brains in the country be so stupid? How can Institutions which have been household names for a 100 years go belly up without warning? Why do people insist that this is business as usual and in the famous words of Dick Cheyne say, " stuff happens". My answer is that greed makes us all stupid. No one questions the fact that the root cause of the sub prime crisis is pure unabashed greed. Yet no one is ready to reaxamine the great Capitalist mantra that greed is good. No one questions that greed makes us unethical. No one is ready to question that Capitalism as practiced in the US mostly works through creating monopolies of vested interests, exploitation of the powerless and the uninformed and is unprincipled and fraudulent at the highest levels.

No one questions because from the regulators to the rating agencies down to lowest level of stock broker, all have a finger in this gravy train. No one wants to kill the goose that kills the golden egg. If the myth is kept alive long enough then the system will surely correct itself like it has done in the past.

This will not happen because the goose that has been laying the golden egg died a few years ago. What we see today is a charade to make people believe that Capitaism is alive and well and it is Communism that died. The facts on the ground are horrendous whether any one cares to look at them critically or not. Merrill Lynch was the great bull of Wall Street. Merrill died a few months ago, John Thain ( it's new CEO) was simply embalming it to give a proper funeral to a worthy giant.

The Domino effects of Lehman's fall have yet to be seen. Citibank has unsecured outstandings of over $ 130 billion to Lehman. For $ 130 billion Citi could have bought two Merrills. Lehman's filing is the biggest corporate bankruptcy in history in terms of assets held. Lehman has assets of $ 639 billion.

The current PR output from the street is that it is the Investment Banks who were the naughty boys, the Commercial Banks are sound. This is not true. Citi is in deep trouble as is Wachovia but the Bank which will really be in trouble soon is Bank of America. This is a story of greed written all over it's face. B of A has just bought Merrill but previously it bought Country Wide Financial the largest originator of Mortgages. B of A believes like very one else that institutions are at a bargain. They have been on a spending spree lately and will learn very quickly that they have overpaid for buying junk. The so called Retail Network of Merrill is a bunch of brokers trained in a market which only went up. If this is the Crown Jewels of Merrill then God help BOA.

General Electric, the most venerable of the names has a large portfolio of subprime loans in its GE Capital sub. and this is no small change. GE will not file for Bankruptcy but there is a good chance that AIG would. Of the $40 billion it needs to fend off Bankruptcy, it has $ 20 billion within it's organisation but the other 20 could pose serious difficulties particularly because it has to be raised within the next 48 hours.

Is it just Wall Street that is in denial or also the USA. Unknown to itself, the US stopped being a super power the day it attacked Iraq on false pretences. Perhaps it stopped being a super power even before, but this was an acid test in which it should have come to terms with reality. Once again greed ( greed for cheap oil) was it's undoing once again the media, the brains trusts, the elected representatives continue to preserve a charade of invincibilty in the face of defeats by weaker, inconsequential adversaries. Instead of admitting defeat, every one is busy redefining victory. If this was not such a tragedy it would be laughable.

Merrill was founded in 1914, AIG in 1919 ( went public in 1969), Bank of America in 1904,Bear Sterns in 1923, Lehman in 1844 and the USA in 1776. Over the years we have all looked up to these fine Institutions and benefitted from them. I wish they could be saved but no one can save some one who has become addicted to greed, who worships on the alter of materialism and who have lost their principles and their humanity in the pure unadultrated pursuit of wealth.



Khalid Elley said...

the elected representatives continue to preserve a charade of invincibilty in the face of defeats by weaker, inconsequential adversaries. Instead of admitting defeat, every one is busy redefining victory. If this was not such a tragedy it would be laughable"
Certainly a very well expressed aricle; the Americans have survived by this system for over 200 years and the 'American way of life' is far too precious for them. In fact, they think that is the only way of life; everything else is 'crazy'. So they will go to any extent to preseve their life style and keep their oil guzzling automobiles going with a/c at full blast....... ....even if they have to cause much more misery around the globe.

Owaise Saadat said...

Khusro...beautifull y expressed. Are we witnessing the demise of capitalism the way the Soviet Empire crumbled in 1989 ??? The jolt is a blessing.... .conspicuous consumption at every level was getting out of hand, may be people will draw a lesson.

Kathleen Orzec said...

I must say I agree with your assessment. Have always despaired when Forbes came out with their lists, when I saw the huge severance payouts CEO's received for screwing up their companies, the huge retirement packages and the unabridged greed of the hedge firm principals. This economic climate is almost making me think about voting for Obama. How much more can he f_ _ _ it up!