Sunday, June 10, 2018

I've Seen the Lights Go Out on Wall Street

With apologies to Billy Joel:

I've seen the lights go out on Wall Street
I saw the stock markets laid low
And life went on beyond the Bloomberg screens
They all bought Lexuses
And left there long ago

They held a concert out in Greenwich
To watch investment bankers glow
They called our securities junk
And made our business bunk
But we went right on with the show!
There is just too much to digest right now with Lehman Brothers declaring bankruptcy (see news release), Merrill Lynch being bought by Bank of America for $50 billion, and AIG supposedly seeking funding to help stay afloat. I suppose there are bazillions of sites out there cataloguing the implications of what some are calling the demise of Wall Street. This being the IPE Zone, I will stick to the more global implications:

(1) Roubini was right (yawn): the days of independent broker-dealers are numbered as two of their ranks ceased to be such in a single day, joining Bear Stearns. What remain are Morgan Stanley and Goldman Sachs;

(2) What's wrong with old-fashioned retail banking? Now that dowdy old Bank of America has swallowed up Countrywide and Merrill Lynch, the wasteful excesses of subprime casino capitalism have been revealed;

(3) European and Asian stock markets are getting hammered hard as risk assessments readjust upward and credit will probably tighten;

(4) Interestingly, the Europeans who are supposed to take a more hands-on approach to corporate governance than their American counterparts are actually leaving matters more to the vagaries of the much-vaunted "market forces." Meanwhile, the ever-so-meddlesome Fed is now accepting stocks for cash loans [!], opening American taxpayers to pick up an open tab. French Finance Minister Christine Legarde is now lecturing the US on how its government cannot always come to the rescue given the Lehman bankruptcy. Ooh, the irony;

(5) This dollar rally nonsense is gradually waning. As far as America goes, subprime garbage in, subprime garbage out.

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