September 15th, 2008 by john 
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In what seems to have become common place, we had another weekend of nasty financial news. First up, the announcement by Lehman Brothers that it has filed for Chapter 11 bankruptcy. The 158 year old company was unable to work out a deal to be purchased. In a separate move, Bank of America agreed to purchase Merrill Lynch, saving it from a similar fate. Add these failures to the collapse of Bear Stearn’s and you have 3 of the 5 largest US investment banks failing in 2008. Not to mention the government bail out of Freddie Mac and Fannie Mae. And as if that were not enough, AIG the worlds largest insurance company, is asking the Federal Reserve for “emergency funding”.
Tough Road Ahead
Where do we go from here? Hard to say. We are definatley in uncharted waters. Or at least uncharted by todays CEO’s and government officials. Many financial experts agree that there will probably be more major financial institution carnage before its over. Former Federal Reserve Chairman Alan Greenspan agreed on Sunday and added “the government should not protect them all”. As painful as that will be, he’s probably right. Until we eradicate the cancers in our financial system, we cannot begin to heal it.
What’s That Mean?
Unfortunately for Joe consumer, all of this financial pain will equate to tougher lending standards and the inability for many to borrow money. To put a positive spin on things, this will keep some people who have no business borrowing, from doing so.
What do you think? Are we about through this 14 month credit crisis? Or we just getting warmed up? In either case, wake me up when this Nightmare on Wallstreet is over!
** A little good news **
Oil is trading below $100 per barrel today at about $96!!!
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{ 12 comments… read them below or add one }
Don’t forget the CEO of WAMU left on Friday. Think Andrew McCain departing as Chairman of the Board of Silver State Bank at the end of July and it being taken control of by the Fed. Though not any certainty, it is indicative of what may be coming for WAMU too.
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John reply on September 16th, 2008 7:59 am:
Rich, yes we will have to wait and see what happens with WAMU. Seems the bad news is spreading like a disease.
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“Until we eradicate the cancers in our financial system, we cannot begin to heal it.”
well put, john, well put.
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John reply on September 16th, 2008 7:59 am:
Why, thank you, thank you Sarah!
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I definitely think this is the beginning, I don’t think anything is going to get better yet.
I do believe we are going down a rough road and it is about to get even more so.
Don’t really know what else to say, it is very scary and I also do not think there is such a thing as job security anymore.
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John reply on September 16th, 2008 8:05 am:
wblmom – Unfortunately, I think you are correct. And as far as job security, that is a thing of the past. Something future generations will sit around the camp fire telling their children about how their great-grandparents “had it so good”.
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Well oil price going down is the silver lining to the dark clouds.
I dont think anyone knows what are the cancers in the financial systems. Things were going along fine and then suddenly out of the blue this crisis hit us. The smartest financial experts hadn’t foreseen this and I dont think they have any ideas for the future either.
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John reply on September 16th, 2008 8:12 am:
Ivs, absolutely! However, many did predict the housing bubble and it’s impending implosion. Those trying to warn people about it were cast as negative, alarmist. Most people choose to ignore the warning signs.
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It seems like every time I open up the business page it’s one crisis after another…and it IS a bit scary. But, what can ya do? Most of our money in banks is protected by FDIC–if for some unimaginable reason that falls, then not just you and I are in trouble, the whole world is. I doubt it will come to that. In the meantime, my advice is to sit tight, spend less, enjoy each day, and livelife365, baby!
peace,
mike
livelife365
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John reply on September 16th, 2008 8:13 am:
Mike – You’re right, there is not much the average Joe can do about these weekly crisis’, other than shore up your own finances.
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I’m also in the category of believing that we’ve got at least several more months to go. I could go into long discussions about why based on stock prices, outstanding credit issues, current housing prices etc.However, I would like to share a slightly different view of this. You see, I worked with mortgage backed securities back in the eighties at Lehman. Years later, I’ve ended up losing my own house in foreclosure.
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John, you and I seem to be on the same track I just wrote about this yesterday also. The only piece that you did not include-which further strengthens your argument, was that the Fed’s bought $70 billion in mortgage-backed repos, so on top of the $200 billion for Fannie and Freddie and the possible $25 billion loan to AIG, that is a lot of money to be spending in a weeks time.
Great post!!
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John reply on September 16th, 2008 7:36 pm:
Just finished reading your in depth post on the subject, nice work Bridget! CNN is reporting that AIG is claiming it will only be able to operate for one more day without an infusion of cash….AND the government is talking about placing AIG in a “conservatorship”….sound familiar? More trouble ahead. Stay tuned….
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I am no financial whiz but even I can see something dismal and dangerous here.
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John reply on September 16th, 2008 7:30 pm:
Unfortunately, things are looking fairly dismal right now, Heidi. Also, there was even more bad news announced today. It’s pretty scary stuff! Hopefully there will be light at the end of the tunnel soon AND more importantly, the source of light is not a freight train!
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Hopefully now that everybody has seen the government let one of the big boys fail, they will smarten up and quit running their businesses with the idea that Uncle Sam will help.
I think the good news about oil being down is the reason Lehman went under when they did. I believe they were offsetting their massive losses in mortgage securities with futures bets on oil, and when oil started selling off, game over.
I seriously hope that this will bottom out soon. I’m still buying gold and silver though as a hedge against whatever is in store for our currency and financial system.
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John reply on September 18th, 2008 9:35 pm:
Maybe, although it seems to be 50/50 chance whether the gov will bail you out!
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crisis happens all the time…and as they say risk is inevitable once you get into business. the only sensible thing to do is to be cautious all the time.
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John reply on September 18th, 2008 9:55 pm:
Yes, but part of the problem here is that the businesses have not taken the actual risk here. Our government, the tax payers, seem to have taken the real risk here, without directly knowing it.
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John, terrible credit policies led us where we are now, although I am not too happy about all those lay offs in these firms. Many talented people that could be used elsewhere in the economy. Hope things will settle down a bit with the ban on short selling.
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John reply on September 25th, 2008 10:34 pm:
Yes, the ban on short selling should help calm things down a bit.
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Sometimes, you don’t know what to think anymore. You have just got to sit and wonder how will all of this impact us in the next 3 months. All these different experts are saying this and that. Especially with the gov’t trying to bail these organizations out. This is beginning to sound like an era when Fred Trump got his deal with the US. Respectfully, Matt Thompson
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