Monday, September 15, 2008

I don't know much about money

but the news sounds awfully not good. Can someone with a greater knowledge of these things fill me in?


schmidlap said...

It's going to be a bad day for the stock market, and a real bad day for the 24000 employees of Lehman.

But, and this is all just one man's opinion, I think it may be in the long term good. I think there is a sentiment out there in marketland which is happy that the government is *not* getting involved this time. These banks put on risky positions and are paying the price. The market should sort this out, and investors (except LEH shareholders) should be protected by SIPC and FDIC.

Hopefully this sends the message to the rest of the Street that just because Bush and his lackey congress eviscerated any semblance of regulation for this industry, that doesn't mean firms shouldn't self-regulate more aggressively and try to unwind some of their risk.

That said, I don't think this sector has hit the bottom yet. When banks make giant trades with each other, each bank assumes the other one is going to be there tomorrow. (This is called "counterparty risk.") When banks can no longer make that assumption, they may be hesitant to make those giant trades, which can lead to a cascading crisis of confidence and a lot of people holding bad positions. So this could get worse before it gets better. But if, at the end, we have a smaller, more sane i-bank industry (like we had for the 60 years or so prior to Chimpenfuhrer's arrival), I think we're better off in the long run.

I sound just like a libertarian here, I realize. But as long as the little guys are protected by FDIC and SIPC, I say let the old cluttered forest burn so some newer, healthier trees can grow in its place.

drmagoo said...

Thanks, Schmidlap. I am always amused by how the "free market" folks want the government to stay out of their lives unless they need a bailout, then they come crying to mommy.

The thing that worries me in particular is that there doesn't seem to be an end to the bad economic news - every time I turn around, some major company is paying the price for being terribly stupid, and eventually, won't that affect the companies that were less stupid? At what point does it just get really bad?

I'm Not Ned said...

Excellent observations Schmidlap.

It's ironic when the corporate neo-cons cry for corporate welfare at the expense of human welfare.

Our banking industry will soon be following the major banks of the world by consolidating or failing. Yes there are tough days ahead but things will turn around and then we'll start hearing how it only took 4 years for Bush's plan to work!