Archive for September 15th, 2008
Congratulations!! (to me ofcourse) for getting 100+ visitors in a day , for the first time on my blog. On 15th September 2008, traffic touched a 3 figure mark.
Whew…I was always waiting for this to come.
And that’s not all….Lumuhuku even moved from 0 to 1000 visitors within 15 days!! I agree that these figures are nothing to boast about, when compared to many popular blogs. But I am very happy to get to these checkpoints…
Decision I took about 15 days back, to move to WordPress seems to be a good one. Thanks WordPress for an exciting population of eager readers..
Cheers to Lumuhuku…
Let their be love…
Nothing much, except that a number of major US financial institutions are on their way to die a ‘piece’ful death.
Continuing the destruction which started the last year, few more of the once-proud financial institutions have been brought to their knees as a result of billions of dollars in losses because of bad mortgage finance and real estate investments.
In what should be termed as one of the most disastrous and dramatic days in Wall Street’s history,
Merrill Lynch agreed to sell itself to Bank of America for roughly $44 billion to avert a deepening financial crisis.
Lehman Brothers, a prominent securities firm, hurtled toward liquidation after it failed to find a buyer.
AIG runs out of cash, talks to Fed and plans to sell automotive business, annuities.
A group of global banks and securities firms announced late Sunday a $70 billion loan program to help ease credit shortage.
Former Federal Reserve Chairman Alan Greenspan offered a woeful outlook of America’s economic situation on Sunday, saying the crisis with the country’s financial institutions was as dire as he had ever seen in his long career, and predicting that one or more of those institutions would likely collapse in the near future.
There’s no question that this is in the process of outstripping anything I’ve seen and it still is not resolved and still has a way to go and, indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes. That will induce a series of events around the globe which will stabilize the system.
Though the government took control of the troubled mortgage finance companies Fannie Mae and Freddie Mac only a week ago, investors have become increasingly nervous about the difficulties of major financial institutions to recover from their losses. How things play out could affect the broader economy, which has been weakening steadily as the financial crisis has deepened over the last year, with unemployment increasing as the nation’s growth rate has slowed.
Why is not possible to save Lehman now?
It was heard on the street that the bankers were told that the government would not bail out Lehman and that it was up to Wall Street to solve its problems. Lehman’s stock tumbled sharply last week as concerns about its financial condition grew and other firms started to pull back from doing business with it, threatening its viability.
Without government backing, Lehman began trying to find a buyer, focusing on Barclays, the big British bank, and Bank of America. At the same time, other Wall Street executives grew more concerned about their own precarious situation.
Bank of America eventually walked away from its talks with Lehman after the government refused to take responsibility for losses on some of Lehman’s most troubled real-estate assets, something it agreed to do when JP Morgan Chase bought Bear Stearns to save it from a bankruptcy filing in March.
For Lehman, the end essentially came Sunday morning when its last potential suitor, Barclays, walked away from a deal, saying it could not obtain a shareholder vote to approve a transaction before Monday morning, something required under London Stock Exchange listing rules, one person close to the matter said. Other people involved in the talks said the Financial Services Authority, the British securities regulator, had discouraged Barclays from pursuing a deal.
While offering to help Wall Street organize a shotgun marriage for Lehman, both the Fed chairman, Ben S. Bernanke, and Mr. Paulson had warned that they would not put taxpayer money at risk simply to prevent a Lehman collapse.
So what exactly did happen in Merrill Lynch & Bank of America Deal?
American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion. The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation’s prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter. Driven by Chief Executive Kenneth Lewis, Bank of America has already made dozens of acquisitions large and small, including the purchase of ailing mortgage lender Countrywide Financial Corp. earlier this year. In adding Merrill Lynch, it would control the nation’s largest force of stock brokers as well as a well-regarded investment bank. A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.
It would also show how the credit crisis has created opportunities for financially sound buyers. At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago, and half its all-time peak value of early 2007. Merrill shares changed hands at $17.05 each on Friday, after falling sharply in the wake of Lehman’s looming demise.
On Sunday morning, the deal of Merrill Lynch & BoA was cemented. Merrill’s “thundering herd” of 17,000 brokers will be combined with Bank of America’s smaller group of wealth advisers and called Merrill Lynch Wealth Management. For Bank of America, which this year bought Countrywide Financial, the troubled mortgage lender, the purchase of Merrill puts it at the pinnacle of American finance, making it the biggest brokerage house and consumer banking franchise.
What’s wrong with AIG?
Insurer American International Group Inc., succumbing to relentless investor pressure that drove its shares down 31% on Friday alone, is pulling together a survival plan that includes selling off some of its most valuable assets, raising more capital and going to the Federal Reserve for help, people familiar with the situation said.
The measures are aimed at staving off a downgrade by major credit-rating firms. AIG executives worried that such an action would set off a chain reaction that could be fatal to the firm. The insurer, which has already raised $20 billion in fresh capital so far this year, was seeking to raise an additional $40 billion to avoid a downgrade.
During a weekend scramble to shore up its finances, AIG turned down a capital infusion from a group of private-equity firms led by J.C. Flowers & Co. because an option tied to the offer would have effectively given them control of the company, an 89-year-old giant that does business in nearly every corner of the world.
The proposed option would have allowed the firms to acquire AIG for $8 billion under certain conditions. That price is just one-fourth of AIG’s current market value.
The assets AIG intends to sell include its domestic automotive business and its annuities unit, according to people familiar with the matter. It also looked into selling its aircraft-leasing arm, International Lease Finance Corp., but it isn’t clear whether action on ILFC will be part of the emergency steps. AIG also considered shifting assets from its regulated insurance business to its holding company, which would help the holding company respond to demands for cash or collateral.
Who is next to die?
The fate of both Morgan Stanley and Goldman Sachs will be front and center Monday morning, as the Street wakes up to a world where the independent broker-dealer are increasingly thin in number. This tumultuous year has made it clear that investment banks like Lehman and Bear Stearns face vulnerabilities that commercial banks such as J.P. Morgan and Bank of America are less prone to. The investment banks must constantly depend on short- and medium-term money markets to fund their operations. Commercial banks, meanwhile, can count on more stable consumer deposit bases. In a highly volatile market, some advantages accrue to banks that can rely on those more stable deposit bases.
So who is trying to help those who are still not ready to die like their bigger competitors?
A group of global banks and securities firms announced late Sunday a $70 billion loan program that financial companies can tap to help ease a credit shortage that threatens global financial markets.
The ten banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool. The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs. The banks said the program will be available to participating banks which can get a cash infusion up to a maximum of one-third of the total size of the pool. The size of the loan program might increase as “other banks are permitted to join.”
All participating banks intend to use this facility beginning this week, the statement said. The banks also include Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Merrill Lynch & Co., Morgan Stanley and UBS.
The banks made the announcement to try to head off market disruptions after the possible failure of investment bank Lehman Brothers Holdings Inc. Lehman was expected to file for bankruptcy by Monday after succumbing to dwindling investor confidence due to losses from its real estate holdings.
What the new presidential candidates have to say on this?
Instead of trying to figure out what should be done by him to save the economy, Barack Obama took aim at Sen. John McCain’s economic message, saying his presidential rival does not have a vision for moving the economy forward.
He told –
You would be hard-pressed to explain to me what John McCain’s economic vision is about how he’s gonna get this economy back on track. That, I believe, is somebody who is out of touch with what is — should be the central question of this election.
So, can’t the government help bailout all of them?
Most economists say that bailouts are often bad economic policy because each rescue tends to encourage “moral hazard” — the tendency of institutions and investors to take even bigger risks because they assume the government will rescue them, too.
To earn is human. To err is American . . . . . . ;-)