Black Monday

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The turmoil in European stock markets caused by the implosion of US bank Lehman Bros. and the scurrying for shelter of Merrill Lynch and AIG is impressive. All indices are down by as much as 5% and still the NYSE has just only started trading.

Things are coming to a head earlier than I expected, I had thought the FED would somehow manage to keep the lid on it for another 52 days, say. But the pressure within the system is obviously too strong and honestly there is not much that the Fed can do anymore. With a federal debt of staggering proportions, no economic growth and soaring inflation, kick starting the money press once again, when it already is in overdrive, is hardly a good idea. So panic is the word.

The Times: ‘Black Monday’ threatens London

The $70 billion lifebelt organised by the banks over the weekend is clearly designed to boost confidence, while the Federal Reserve has also tried to calm jitters by extending the sort of collateral that banks can use to obtain loans.

The question must be whether this will be enough to head off the inevitable panic once Wall Street opens. The omens are not good. This could be the second phase of a global crisis that started a year ago. London will inevitably not be immune.(read this and more here and here)

The Telegraph: Everybody is going to be laid off

Nevertheless, a few of those passing out from the high-rise office’s glass doors did stop to explain the mood inside the building. Koen Thijsson was the first employee out the door. He was carrying his belongings in a cardboard box and said: “This is it. I think it’s going to be all of us”. (read this)

The Independent sees UK jobs at risk as the financial markets are fully global

Thousands of jobs were at risk today after the UK arm of troubled investment bank Lehman Brothers was placed into administration.

The move follows Lehman’s US holding company filing for Chapter 11 bankruptcy protection this morning.

Tony Lomas, partner with administrator PricewaterhouseCoopers, said: “Because the group managed its funding on a global basis, the UK trading operation found itself unable to meet its obligations when the flow of funds dried up last night.”(read this)

The Guardian provides you with an Q&A on the goings on, but employees have more pressing concerns:

The bank employs around 4,000 staff in London, and another 1,000 in High Wycombe. A rumour even swept the City that the bonuses already handed to staff could be clawed back, if it could be proven that Lehman was no longer solvent when the money was paid. (read this)

It is not even two years, but the financial markets and their employees have come a long way from here.

Next time someone asks me, why I was so intensely interested in the US Presidential elections, I will bite the person’s head off. It is not the financial markets alone that worry me so much, I’m too poor to own shares anyway, but the global economy, which is in danger by  the mindless capitalism-gone-hogwild of the Bush years.  It did some people a lot of good, but those are clearly a chosen few. All of you and us have been fooled into thinking “it’s good for the economy – it’s good for me”. Hogwash. There are investments out there which are structured, hedged, derivative and what not. But where are the investments in innovation in the car industries, in the energy industries, in your infrastructure and ours? Where are the investments into your and our future? The middle class families will somehow struggle through this crisis as they have done in others. Some will fall off the face of the earth and end up not being middle class anymore. Very few will somehow crash through the glass ceiling and make fortunes. The affluent however, will not be touched at all by this. For them the party goes on. But like an unruly kid the economy and it’s players need rules, or they will do damage to themselves and to others. And them is not really who I am worried about.

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5 thoughts on “Black Monday

  1. I just read this over at Huffington Post:

    http://www.huffingtonpost.com/2008/09/15/wall-streets-black-monday_n_126387.html

    “Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That’s out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.

    Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen’s firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.

    “If we don’t get ahead of this, we are going to face a run on the retail banks by election day,” he said.”

  2. Great post EV…..Maybe I should say very informative instead since it’s not great the bank’s are going under…..Think I should keep extra cash out again this month incase bull shit bush and company decide to raid the S.S. fund to the point I no longer get a check…..Troubled time’s for all but the wealthy…..Peace, Blessings and Justice

  3. “…predicts that approximately 110 banks with $850 billion in assets could close by next July. ”

    Just in time to drop the whole fucking mess into President Obama’s lap.

    As planned…

  4. And I think the important hing to understand is that these dire predictions will happen only if we don’t change our financial laws. We need to repeal many of the financial laws that were changed by the Republicans (of whom Phil Gramm was in the vanguard). Remember when Reagan (the dead one) signed the law that, effectively, de-regulated the Savings & Loan industry? Remember what he said when he signed it? “Gentlemen, we’ve just hit the jackpot.” I wish I was making that up, but they finally got what they wanted – the banks now had the right to take greater risks with your life savings.

    If we go back to regulating the banks and savings institutions, as they ought to be, then we may be able to save many of those failing banks. We should change other laws, too. As I understand it, a corporation is required to maximize its profits for its shareholders. This should change. In addition to limiting how much in bonuses can be paid to anyone on the board of directors (a scam if I ever heard one), corporations should be reuired to maximize their company’s solvency, not its profits. A CEO should be required to make sure his or her company stays in business from year-to-year, not make its Preferred Stock holders wealthier and wealthier. (They should also do away with “preferred stocks” and only issue “common stocks”, so that all investors share the same risk.)

    Things can be changed, but if they aren’t, then we are headed toward a Mega Depression.

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