Another one bites the dust

[SiM]

Well it was a bit of a surprise because Lehman are such a big, old bank. Its was very profitable (until this year) too, so I am still surprised why no one rescued it. I guess most banks are worried about themselves now so didn't even consider it. We did the most trades on the LSE and TSE - iirc ~15% of the LSE volume... so it has hit the LSE quite bad... the stock had been heading downwards for a while, people were upset about that. People were quiet on the trading floor last week, wasn't as loud and lively as it usually is because everyone was worried about their job, their bonus and the share value.

It will make a bad short term difference, we were too connected. The investors will lose confidence in the banks and the markets.

AIG might go bankrupt next, but the fed will probably help them out more because they are an insurance company...

EDIT: this is a good article for anyone interested

[M0nkeyb0Y]

Sorry to hear that - good luck SiM

[shadowmaster]

AIG might go bankrupt next, but the fed will probably help them out more because they are an insurance company...

EDIT: this is a good article for anyone interested

I read about AIG yesterday but as you say I expect the Fed to bail them out. Anyhow I hope they don't go down as they sponsor Man Utd and we need all the money we can get.

[Lucio]

I'm puzzled, why are people surprised that the banking system is capable of failing? As far as I understand it, the entire system is based on completely variable values and there's very little in the market system as a whole that has a real, fixed worth.


Makes you wonder whether we should finally grow beyond it and move onto some form of energy based currency that values things based on their actual use...

[sleepyhead]

My friend just called me; he works for JPMorgan Chase (or whatever their merger name is). His office shut off external comms for 2 and a half hours to sort out the account with Lehman as well as change payment priorites with two other banks (that are either declaring bankruptcy or close to). The managers were in on Sunday to sort all of this out, and his friend who works for Lehman in the States went to Italy for holiday on the Friday so that would have ruined his entire holiday trip.

EDIT:
Really sorry to hear about this SiM.

[menthel]

SiM, sorry to hear it mate. Hopefully now though some of the people who keep going on about a recession etc being good for us will at least see that the effects will reach us all in negative ways.

Sorry mate!

[M0nkeyb0Y]

SiM, sorry to hear it mate. Hopefully now though some of the people who keep going on about a recession etc being good for us will at least see that the effects will reach us all in negative ways.

Sorry mate!

Have a read of this from the Devil's Kitchen - hammer, nail, head

[TheAnimus]

The answer there is that it might make a difference, or not, and it might be for the better or for the worse, but you can't tell from that exposition of the problem.

This been the internet, someone has explained it much better:

http://www.youtube.com/watch?v=mhlc7peGlGg

this is just a wounderful example of how complicated statistics can be when people make assumptions about independance.

[SiM]

Monte Hall is a classic question for first year probability students. To summarise it is always better to change because of the conditional probabilities:
a) 2/3 of the time you chose wrong door and then you will definitely win if you change after the other wrong door is picked out
b) 1/3 of the time you will pick the right door first time and then switch to the wrong door
so by changing you win 2/3s of the time rather than not changing which only gives you 1/3 chance of winning

[santa claus]

Sorry 'bout the job SiM Hope all's well by Christmas.

[funke_munke]

I'm puzzled, why are people surprised that the banking system is capable of failing? As far as I understand it, the entire system is based on completely variable values and there's very little in the market system as a whole that has a real, fixed worth.


Makes you wonder whether we should finally grow beyond it and move onto some form of energy based currency that values things based on their actual use...

Thank God someone said it.

Why should the Fed care? Just a smaller amount of banks for it to control the flow of money through .


Good luck getting a job though SiM, your situation sucks big time!

[SiM]

Looks like the US business/10,000 employees has been saved by Barclays...
http://www.ft.com/cms/s/0/5c9dcc26-8...077b07658.html

Hopefully they can work something out for Europe too... Quote from press release:

In addition to the agreed transaction, Barclays Capital intends to immediately commence
discussions with the relevant international regulatory authorities to acquire Lehman Brothers’
similar operations outside North America, although there can be no assurances such international
operations will be acquired.

[M0nkeyb0Y]

For anyone looking for clarrification on this I just got forwarded this succinct email at work (n.b. I am not the author):

30 Second Idiot's Guide to "What happened at Bear Stearns & Lehmans" (Ex-Lehman author)

It's complicated, but here's the 30-second version of what happened
with Bear Stearns and Lehman:
People went to traditional banks and mortgage brokers and bought
mortgages. All of these mortgages carry different amounts (e.g.
$100,000 mortgage vs. a $500,000 mortgage) and different risk levels.
The ones that are more likely to default have a higher interest rate,
so the bank stands to gain more money...but at a greater risk of the
home owner defaulting on the mortgage.
The problem with this is it is very difficult to balance your risk-
reward ratio. So they created an investment vehicle called a mortgage-
backed security (MBS). This is referred to as a "derivative" because
it is based off of the mortgage. The way it works is the banks
chopped up all these different mortgages into different securities
that were worth different amounts and different risk levels. They
then sold these to other banks and investments firms. The firms who
bought these MBS then received a payment based off of the mortgages.
For the banks selling MBS, it helped them pool risk and generate
capital, and for the firms who bought the MBS, it provided a source of
cash flow with what was thought to be a very safe, secure underlying
commodity: real estate.
Since real estate was so "safe," these banks used huge amounts of
leverage (borrowed money to buy the securities) because they didn't
think they were that risky. Some firms, like Lehman, were leveraged
30:1, meaning that for every $30 they borrowed, they had $1 of
underlying assets. That would be like you making $1000 a year but
taking out a loan of $30,000.
While all this is going on, people are buying up adjustable interest
rate mortgages (ARMs). They offer a cheap introductory rate, but then
skyrocket. So all of a sudden, all these people discovered they
couldn't make their monthly payments. The default rate shot through
the roof. The firms that had purchased MBS did so based on certain
calculations of default. In other words, X number of people could
default on their mortgages, but they could still make a profit and
have a positive cash-flow. However, when the default rate shot up,
this threw all of their calculations off.
Now the firms faced a real problem. They had HUGE amounts of debt on
their balance sheets, and the assets that were supposed to balance
that debt were becoming worth less and less because of the rising
default rate and the drop in housing prices. These are the "write-
downs" that you hear about. The firms had to pay interest on that
debt, but they did not have the corresponding cash flow to be able to
pay the debt. Lehman, for example, had $5.4B of debt obligations last
quarter, but only had $2.3B in income.
When you can't pay your debt obligations, that's called being
insolvent. Many people think that bankruptcy is caused by having more
liabilities than assets, but that's not true. It's caused when you
can't make good on your debts, so the repo man comes and claims your
assets in order to make up for it. When that happens, you have to
file for bankruptcy in order to make sure that people get paid in the
correct order because otherwise different creditors are going to be
suing you to make sure they get what you owe them.
So that's where we are now with Lehman. They couldn't pay their
debts, so they had to file for bankruptcy.
Make sense?

[MadduckUK]

http://www.theregister.co.uk/2008/09/16/cnn_broadcast/

[SiM]

hahaha that is hilarious
There were loads of cameras outside our building yesterday and on monday too, but I didn't decide to snog someone there

[CaseyV9]

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