I watched the press conference with the John Thain and Kenneth Lewis (CEOs of Merrill Lynch and Bank of America, respectively) as well as the CNBC interview with Lewis. Mr. Lewis looked like the cat that ate the canary. He certainly gives the impression that this is the deal of a lifetime. Who knows? He may be right.
At this point, I have begun to make a few inferences. We'll see how accurate they turn out to be.
Let's see how things go tomorrow.
At this point, I have begun to make a few inferences. We'll see how accurate they turn out to be.
- Based on CNBC's reporting, it sounds like Merrill Lynch really cleaned up their act (and their books) in the last few months. They make it sound like Merrill might have even been able to survive this crisis without being sold. That's encouraging. Perhaps some of the other firms that are in less dire condition may be able to heal themselves, even if it takes some time for it to all work out.
- Either Lehman's position in the market must have been significantly different than that of Bear Stearns a few months ago, or the market is better equipped to deal with a failure of that magnitude. Both could be true as well. There was no cataclysmic market meltdown this morning. Contrast that with the speculation on what might have happened this spring if Bear Stearns had declared bankruptcy. This is also encouraging.
- Remember when people criticized the Fed for taking part in the rescue of Bear Stearns? Remember when people said that it would create moral hazard and make it difficult for the Fed to say no next time? Well, apparently the Fed is stronger than a lot of people gave them credit for. While I don't think Mr. Bernanke expected it to play out exactly this way (who would have?), I do applaud him for taking the action with Bear Stearns to prevent the first incident from being such a shock to the system. A lot of people wanted a sacrificial lamb. Mr. Bernanke may have been correct in thinking that a better candidate than Bear Stearns would come along.
- AIG's potential collapse sounds like it would have a greater impact than Lehman's. I think the Fed is right to hold the line. The announcement from the governor of New York will help. The growing pool of private equity might help too. And of course someone might ride to their rescue as well.
- Expect another year of write-downs, bankruptcies, and mergers. But I think that the end game has begun. By that, I do not mean that the danger is over or that things will get eaiser. When I say that the end game has begun, I mean that the deals will start happening at a quicker pace in the next 12 months than in the last 12 months and that each one will bring a bit of relief, however slight. The financial markets will probably not be over this until 2010, and even then they won't be at pre-crisis strength.
Let's see how things go tomorrow.
Didn't Bear Stearns do a lot of clearing/settlement stuff, with a lot of counterparties to many of its activities? And wasn't Lehman *not* doing those things? So wasn't letting Lehman sink somewhat easier--less systematic risk?
Don,
I had heard this in a couple of places but couldn't remember a reference. Hence my somewhat oblique reference to it in #2.
Yeah, I couldn't source it either...
The entire financial situation may be another WEAPONS OF MASS DESTRUCTION situation. I do not trust the present administration to tell the trust about anything. The best option, in my opinion, is to wait and see the results. The people that will be damaged appear to deserve it. The push of the present administration to get quick action has a very strong odor of rottenness.
It will come as no surprise that I disagree. This is the real deal, and waiting too long is simply not an option. The potential for damage goes out from Wall Street all the way to Main Street. About this, there is fairly broad, bipartisan agreement among economists even though we may disagree over the specifics of what, how, and when.