Archive for 2009

  • One Year Ago Today
    , September 15th, 2009 at 12:21 pm

    Me one year ago today:
    The Fed’s Suez Crisis
    Something that struck me about Lehman’s demise is how little power the Federal Reserve really has. Don’t get me wrong, the Fed is darn powerful, but it’s not all-knowing and all-seeing, despite what some folks think. The Fed is powerful because people think it’s powerful.
    Analysts hang on every word in a statement or testimony, but in the case of Lehman Brothers (LEH), the Fed really couldn’t do much. Wall Street basically stood up to the Fed and the central bank was exposed. Since Bear was the first, the Fed can open its mouth and get its way. But the Fed can’t make the weaker argument the stronger, and that’s what was needed with Lehman.
    I’d say the Lehman story was a combination of too much debt—at one time they were leverage 40-to-1, they didn’t know what they owned, and they refused to listen to any criticism. To top it off, they had horrible luck too. That’s not a good combination.
    With Level 3 assets (these are basically assets that can’t be priced easily so we have to trust Lehman for the price), Lehman once claim they their Level 3 stuff was up 9%, even though the market was down by 10%. When people called them on it, Lehman got mad and blamed the shorts. That’s just arrogance. Then they spent something like $22 billion on Archstone? I mean, what the hell? Talk about the wrong price, the wrong industry at the wrong time. Aside from that, it was a great deal!
    Einhirn and other shorts said they didn’t know what their stuff was worth and they were undercapitalized. Fuld & Co. just refused to listen. I don’t think they’re crooks at all, they sincerely believed in what they were doing. Until the end, the company was offering assurance to investors.
    With Bear and Lehman we often heard about counterparty risk. Well, that theory got shot down with Lehman. I’m going to go on the idea that the reason there wasn’t a deal for Lehman is that no one wanted one. If someone wanted, it would have happened. Novel thinking I know. But it tells us that the Street is hardly concerned about counterparty risk. JPM was concerned about with Bear because it was mostly their risk.
    I heard Hank Paulson talk about bringing stability to the markets. Yeah, right. That’s basically like the flea giving orders to the dog. The Fed and the Treasury do not have this thing contained. If the housing market recovers, then the problem goes away. It’s as simple as that.

  • Boo Hoo Column of the Day
    , September 15th, 2009 at 12:17 pm

    The following is from Jane Pedreira, a former senior Veep at Lehman:

    I was robbed first by Ben Bernanke, the Federal Reserve chairman, and Henry Paulson, the former Treasury secretary, who refused to support a sale of the company, and later by the bankruptcy judge who approved the sale of Lehman to Barclays for peanuts.
    I am still unable to pay all of my bills. I know the public at large doesn’t have sympathy for Wall Street employees, but did I deserve to be robbed because of the mistakes of others?

    Oh brother.
    (Via: Carney)

  • Bernanke: Recession Probably Over
    , September 15th, 2009 at 12:00 pm

    From the AP:

    Federal Reserve Chairman Ben Bernanke said Tuesday that the worst U.S. recession since the 1930s is probably over.
    Mr. Bernanke said the economy likely is growing now, but it won’t be sufficient to prevent the unemployment rate, now at a 26-year high of 9.7 per cent, from rising.
    “The recession is very likely over at this point,” Mr. Bernanke said in responding to questions at the Brookings Institution.
    The Fed chief also said he is confident Congress will enact a revamp of the nation’s financial rule book to prevent a future crisis from happening.
    “I feel quite confident that a comprehensive reform will be forthcoming,” Mr. Bernanke said. It has been “too big a calamity” over the past year, with the near meltdown of the U.S. financial system, for Congress not to take action, he added.

  • Quote of the Day
    , September 15th, 2009 at 11:39 am

    From Arnold Kling:

    All of the main elements of the financial crisis were policy-driven, because of self-defeating housing policy and bank capital policy.

  • How Much Natural Gas to Buy the S&P 500
    , September 14th, 2009 at 9:13 pm

    The price of natural gas recently hit a seven-year low. As bad as it’s been, natural gas has actually outperformed the S&P 500 for many several years.
    Here’s a look at how many hundreds of cubic meters of natural gas it would take to buy the S&P 500:
    image853.png

  • The Best Stocks Post Lehman
    , September 14th, 2009 at 7:45 pm

    Bespoke lists the best performing stock S&P 500 stocks since Lehman went under:
    6a00d8349edae969e20120a56ee5f8970b-800wi.png
    There are no financials.

  • “We Will Not Go Back To the Days of Reckless Behavior and Unchecked Excess”
    , September 14th, 2009 at 2:37 pm

    The president speaks on Wall Street:
    Thank you all for being here and for your warm welcome. It’s a privilege to be in historic Federal Hall. It was here more than two centuries ago that our first Congress served and our first President was inaugurated. It was here, in the early days of our Republic, that Hamilton and Jefferson debated how best to administer a young economy and to ensure that our nation rewarded the talents and drive of its people. Two centuries later, we still grapple with these questions — questions made more acute in moments of crisis.
    It was one year ago that we experienced just such a crisis. As investors and pension-holders watched with dread and dismay, and after a series of emergency meetings often conducted in the dead of the night, several of the world’s largest and oldest financial institutions had fallen, either bankrupt, bought, or bailed out: Lehman Brothers, Merrill Lynch, AIG, Washington Mutual, Wachovia. A week before this began, Fannie Mae and Freddie Mac had been taken over by the government. Other large firms teetered on the brink of insolvency. Credit markets froze as banks refused to lend not only to families and businesses but to one another. Five trillion dollars of Americans’ household wealth evaporated in the span of just three months.

    (more…)

  • Roubini on Lehman, Global Financial Crisis
    , September 14th, 2009 at 12:39 pm

  • Non Tarp Banks Are Doing Better
    , September 14th, 2009 at 12:29 pm

    Paul R. La Monica finds that stocks that didn’t take TARP money have done better than the ones that did.

    I’ve dug up, with the help of research available on TARP tracker Bailoutsleuth.com, at least 54 publicly traded banks that explicitly refused to take part in TARP. And it’s worth pointing out that several of them are decent-sized.
    Hudson City Bancorp (HCBK) and People’s United Financial (PBCT) are both in the S&P 500. Commerce Bancshares (CBSH), BOK Financial (BOKF) and NY Community Bancorp (NYB) are among the 50 largest banks in the country as ranked by assets, according to figures from the Federal Reserve.
    That’s interesting considering many big-bank executives argued that they only took TARP funds because they were strong-armed into do it and thought not taking the cash would make them look weak and unworthy of government support. That justification sounds pretty bogus now.
    Consider this: Shares of the 54 banks that didn’t want a bailout are, on average, down just 16% since last September. That’s compared to a 30% drop for the KBW Bank Index and 36% plunge for the S&P Regional Bank Index.

    That’s not all. The non-TARPers are expected to see a 17% jump in profits this year, plus their dividend yield now stands at 3.3%.

  • Eli Lilly Announces Reorg
    , September 14th, 2009 at 9:49 am

    Eli Lilly (LLY) announced a major reorganization effort today. In an effort to cut costs, the company will organize itself into five different business units. Lilly will also pare back thousands of jobs.
    Lilly said that its goal is to cut cost by $1 billion a year and to have 35,000 employees by the end of 2011. That’s a reduction of about 5,500 from today.
    I’m not terribly impressed when companies announced cost-cutting initiatives. Shouldn’t they be trying to cut costs all the time? Too often, these announcements are just to put out good sounding press releases. The stock is up a little today so it might be working.
    While Lilly’s earnings have been good, last quarter was troubling since it came below the first-quarter’s earnings. The next earnings report may show an earnings drop over the past year. The good news is that the company reiterated its 2009’s EPS guidance of $4.20 to $4.30. Still, Lilly’s performance of late has not won my confidence.