Monday, September 15, 2008

The elastic-band theory

What a day!
Have you noticed that the quicker and harder you pull an elastic band, the slower and careful you have to be when pulling it back to avoid injury to self? And you can only snap so far before it breaks injuring self.

In one day, the finance industry has lost two ib-s possibly an insurer and will almost certainly loose Morgan Stanley unless it can figure out how it'll fund itself going forward. GS will survive because the world still needs a specialist deal-maker, but even it will have to withdraw to the hills as it were. I can't see it doing some of the proprietary stuff it does now in a year's time. Interestingly, Hank Poulson was GS's CEO before he became head of Treasury so he'll be loving today seeing two of his rivals go out of business.
No more this... or the green of Lehman Brothers that inspired this blog's color. While many blame the reward system,
the issue is leverage. Interest rates were kept low for an unreasonably long-time until everybody started taking the benign environment for granted. Leverage financed a lot of new products to the extent that some even forgot what underlay some of the derivatives they were buying. And for that we have to thank Greenspan....


Ssembonge said...

They really messed this one big time. MS should have been taken out before LEH but they have a lot of systemic risk that will expose everyone.

Hope you are taking it in stride.

Been there, done that and survived to tell a story.

MainaT said...

Its an interesting time.

Watch the UK bank with a large share of the mortgage market.