Sunday, September 14, 2008

Financial Mess

I'm watching football at 9pm tonight and get this text message "Are you watching what's going on?" from a former coworker who's now at Citi. I write back quickly and turn on CNN, figuring we attacked some country, or some building just collapsed. Can't find anything when someone else writes me "Lehman is going to file, BofA is buying Merrill, AIG is getting downgraded and WAMU is prob next."

These are just some of the messages I've recieved since (I will continue to update through the day w/what I recieve):

"Lehman left at the alter while Merrill is getting eloped." - Coworker

"My puts are going to be up huge" (That's what she said) - Former Coworker

"It's so scary. My freinds are clearing their desks now." - Friend at a bank

"I can't imagine what tomorrow will be like at work :(." - Finance Friend at a bank

"I am in SHOCK."

"I'm in tears right now over this." - Buyside Friend who should be fine

"I'm totally glued to CNBC now, its disgusting! Tears are falling down my face" - Friend at a distressed fund

"I can't wait to open an account at Merrill of America Brothers and Bear Morgan Mutual" - Me

"I AM IN THE OFFICE IF ANYONE NEEDS ANYTHING" - My UBS sales coverage (drove to Stanford from UWS)

"I can not believe how everything is unraveling."

"I kind of whish I was at the office now to talk with more people about this, though I'm glad I'm not at ML or Leh's office right now, they are interviewing people as they walk out."

"Leaving for the day, it's been a long one. XXXXX will be trading lehman bonds for the next few hours. See you all bright and early at 4am" - 8:30pm on Sunday from CS Trader

"I work right next door to Lehman. It's a mob scene out there. Reporters all over the street approaching people as they leave the building with their stuff" - Friend

"SALES, I'D SEND OUT CASH RUNS BUT THEY ARE USELESS RIGHT NOW, TELL ME WHAT U NEED AND I CAN GET U LEVELS BUT RUNS JUST TOO VOLATILE AT MOMENT" (runs are lists of trading levels for loans) - Bank Trader

Directly Impacted Quotes:

"It has been a complete pleasure working with you all over my nine plus years at Lehman Brothers. I will be in touch. In the meantime, please feel free to contact me at the following for now..." - 9pm Sunday from a Lehman High Yield analyst

"Here is my contact info" - 8pm Sunday from Lehman Analyst

"I WOULD LIKE TO THANK THE CLIENTS OF LEHMAN BROTHERS AS WELL ASMY FELLOW EMPLOYEES FOR MAKING THESE LAST 8 YEARS HERE TRULY MEMORABLE. IT HAS BEEN AN HONOR WORKING WITH ALL OF YOU." - Lehman Trader

"THANKING YOU ALL FOR SEVEN GREAT YEARS!PROUD OF OUR PEOPLE!" - Lehman Sales Coverage

"I WANT TO THANK ALL OF YOU FOR YOUR SUPPORT OVER THE YEARS. ITS BEEN GREAT WORKING WITH YOU. PLEASE STAY IN TOUCH." - Salesman at Lehman

"Wish I had been laid off. Would have at least gotten severance" - Friend at Lehman

"Prob won't play this season...don't have a job and I suck at life..." - Volleyball friend at Lehman

"This is the mail system at host njrelay8.lehman.com.
I'm sorry to have to inform you that your message could not be delivered to one or more recipients. It's attached below.
For further assistance, please send mail to postmaster.
If you do so, please include this problem report. You can delete your own text from the attached returned message." - Email response to volleyball friend if he was going to make it tonight

"Prob just sulk for a couple of days and get my resume together...then hit the job market w a million others. I'm prob not going to do volleyball anymore, will be moving home soon." - Volleyball friend at Lehman

Convo on why things are failing:

Dan: so what happened to make two mortgage giants and three of the biggest banks in the world fail in the matter of a week?
Ben: They are all immoral people and it caught up to them
Ben: They make bad deals for the fees, hoping those deals survive
Ben: All banks are houses of cards built on trust and confidence
Ben: If everyone stops doing business with the bank becacuse they are worried about the banks viability, they actually cause it to fail... Self fulfilling prophesy.
Ben: This is similar to how currency is no longer backed by gold and only backed by the trust in the system that everyone will assign a value to the currency.
Ben: Complicated enough?
Dan: That more or less makes sense. But wouldn't the big banks with the most trust and confidence be the last to fail? Have tons of smaller banks already failed?
Ben: 15 banks have failed. Size is important, but so is a strong balance sheet. A bank with out much morgage exposure and with lots of cash is viewed as strong.... No matter its size...
Ben: Of course a bank that does not use its cash will not make as much in terms of profitability, but it is stronger than one that lends more than it has.
Dan: Is it a problem that these big banks fail or will the smaller/still solvent ones just move in and fill up the market?
Ben: Our whole economy is built on lending.... So any bank failing will shrink the economy.
Ben: Banks make loans to businesses, for cars, for homes, for credit cards, for acquisitions, for anything pretty much. Its all connected and causes a huge unwind of the leverage in the system. If banks stop lending, I can't buy land, or borrow to build a house, and the construction company can't buy equipment, builder can't buy supplies, and equipment manufacturer can't buy raw materials to make construction equipment and the mining company can't buy equipment to build new mines to ship raw materials to equipment manufacturer for sale to construction company to build my house. The way our system works is that you borrow money, buy something, the seller deposits it back in the bank where it is lent again, thus $1 buys $10 worth of goods. If leverage is removed from the system, the economy shrinks substantially.
Ben: Thus, the fed will cut rates and lend the banks cheep money in order to keep the economy rolling and keep banks lending.
Dan: but the problem with permanently low interest rates is that then everyone wants to borrow and no one wants to save, so eventually the supply of money dries up and interest rates are pushed up again?
Ben: Exactly, and the value of our dollar drops... And people stop giving the gov money to lend out (people stop buying bonds bec rates are low and dollar is falling). House of cards, house of cards.

1 comment:

Anonymous said...

"I can't wait to open an account at Merrill of America Brothers and Bear Morgan Mutual" - Me

this is terribly funny! the rest is sad...