back to article Wall Street shudders under Lehman collapse

America's financial institutions were sent reeling Monday, after the country's fourth-largest investment bank, Lehman Brothers Holdings, filed for bankruptcy . When takeover talks by Barclays Plc and Bank of America were abandoned yesterday, the 158-year-old bank collapsed under the subprime mortgage crisis it helped to shape …

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  1. Tim Robson
    Stop

    Mortgages

    Damn, there goes any hope of my buying a house in the next few years. Oh well, guess this means I'm stuck renting for a while.

  2. Anonymous Coward
    Thumb Down

    Que Sera, Sera

    They gambled, and lost... my sympathy for bankers doesnt extend particularly far.

  3. Anonymous Coward
    Flame

    I'm alright Jack ..

    An old established firm gets destroyed and thousands of people loose their job, not to mention the losses of private and institutional investors. And you can bet that the clever bastards who engineered this incredibly cynical money making scheme will still walk away with their pockets bulging.

    This whole sub-prime fiasco is down to pure, unadulterated GREED. Off with their heads!

  4. Anonymous Coward
    Thumb Down

    Surprised? This is global capitalism at work

    Has been stated in a lot of places, but it's worth repeating. The root of the problem is that capitalism as become a game too easy for the powerful to play. The game is as follows: you and I can play. If I win, I collect the benefits. If I lose, you (the public) will have to shell out some cash to compensate for my losses.

    The real question that has to be made is: where are all the profits? These same people that have gone bankrupt have previously enjoyed a time with record breaking profits and growth rates. Where is all that?

    I hope that this does not happen in Europe. Politicians, were they not corrupted by the money given to political campaigns, should call the managers of financial institutions to be held responsible of their acts.

    I absolutely refuse to give even one cent of my money to compensate any losses incurred by those greedy monkeys. My tax money should go to help the unemployed live decently

    ......until the greedy prepare the next bubble.

  5. Anonymous Coward
    Stop

    Stop it now

    Before the vultures land, gloating about Lehman bringing it all on themselves, consider that there are 5000 people in the UK without jobs today. Consider the good that Lehman Bros. did in the industry as well. Today's industry wouldn't have survived without venture capitalists and Lehman were one of the first to underwrite the first internet companies, sparking the market.

    Granted, they've made money, but no-one does things in this world for free - it's called capitalism for a reason. If you don't like it, move to Russia

  6. Angus
    Coat

    @AC Stop it now

    Heh how is moving to Russia going to help if I dont like capitalism? Some very rich, uber capitalists living there.

  7. Paul Murphy
    Coat

    House overpriced too much for too long

    The housing market has been the subject of many people trying to extract ever more money from it.

    @Mortgages - Tim Robson - look forward to the time when you _can_ get a mortgage and how much it'll be for, the most likely scenario is that house prices will be returning to realistic levels, and dropping to the levels of the 1990's:

    http://www.housepricecrash.co.uk/graphs/generated/homepage.png

    Who knows - maybe lower.

    Hopefully the estate agents will have got a dose of reality as well and will now behave themselves when valuing a property (well it's worth hoping for at least) and the banks have hopefully learnt their lessons and will be more careful about how and who they lend to.

    For those people with houses at the moment look forward to some disappointment in seeing your houses' value dropping. Maybe concentrating on making it your home rather than an investment opportunity would be a better use of time and effort.

    I suspect that the rental market will be rather more popular than it has been for some time, with house purchases being rather more of a special event than current generations have got used to.

    Anyway - I'm off to teach cheer-up lessons for the Samaritans.

    ttfn

  8. Ben
    Boffin

    Capitalism, or just a "brokers pyramid scheme"?

    Hoards of NINJAs (NoInvestmentsNoJoborAssets) who haven't got a hope in hell of being able to repay massive mortgages, being conned into thinking they can, produces an (initially profitable and *potentially* huge) stream of income on which huge profits can be made.

    These contracts are then consolodated and resold to institutions around the world, making the handful of people who promoted and backed them (i.e. dishonestly rated them as AAA+ and bought them on behalf of the institutional investors for commission) *stupendously* rich.

    The collapse of the pyramid (as the poor saps at the bottom aren't coming in fast enough to keep the whole game moving) pulls down the insitutions around it and bankrupts the people who fell for the impossible dream while the winners walk away scot free.

    It looks entirely criminal from where I'm sitting, and it's hardly a shock given how many commentators have been warning about *exactly* this inevitable consequence over the last ten years. Heads should roll, and in the past (South Sea Bubble etc.) they did.

    This is a kind of "grand theft" which really makes a mockery of the law and its inability to act against globalised commercial entities.

  9. Anonymous Coward
    Flame

    Average salary....

    ....at Lehman was around $330,000 according to BBC/Newsnight. Jesus H Christ, must be some earners there! Hard to be sympathetic IMHO.

    Plus they paid out $6 Billion in bonuses last year (!) and also walked away from a Korean bank offering $26 a share in a rescue package just four weeks ago....

    Still cannot understand why no-one lifts a finger to help struggling manufacturers but when banks are threatened it's all hands to the pump.

    We need to get back to actually making things in the UK economy that other people want to buy.

  10. Anonymous Coward
    Flame

    Did someone fire up the Twat-O-Tron early?

    @The bloke who thinks he can choose where his taxes are spend - Wake up and smell the reality.

    @The "greedy bankers" people - People are greedy, it's human nature. Banks and private enterprises exist to make a profit. It's up to the government and their regulatory bodies to restrict those profits in favour of good business practice and what's good for the economy. Tony and Gordo wanted the nation to have the feelgood factor of a 'booming' economy so they let the banks cause this problem.

    @The "stuff them, it won't bother me" brigade - With the current scale of the lay offs the national economy is seriously under threat. House prices fall, service industry jobs in the capital disappear and the treasury has to cut public services to plug the huge shortfall in taxes. The ripples will spread out until everyone, including provincial network admins, feel the pinch.

  11. Anonymous Coward
    Thumb Up

    @AC

    Exactly, getting fed up with idiots stating "tough that bankers won't get their 100K bonuses, boo hoo". What about the cleaners, canteen staff and the put upon office clerks? They were not making 100K bonuses were they? What about pension funds and other tied up investments? Now all the majors have a problem unravelleing the exposure held against Lehman's, this isn't all about barrow-boy bankers and their loses, this affects everyone to a greater or lesser extent. Grow up cretins!

  12. Anonymous Coward
    Anonymous Coward

    @AC - "Stop it now"

    Ah yes, clearly we're all closet Stalinists just because we're not shedding tears over the demise of a predatory capitalist company whose actions have helped bring about the current economic problems...

    Frankly, I feel sorry for anyone who loses their job, but someone earning the kind of salary normally associated with an investment bank (particularly if they're landing hefty bonuses as well) should be better able to cope with unexpected short-term redundancy than most - unless they've been spending it all on booze and high living...

  13. Chris

    @AC

    "consider that there are 5000 people in the UK without jobs today."

    5000 people who for the most part got enormous bonuses, the biggest in the financial industry in the last couple of years, and even while the sub-prime collapse was already in progress.

    "Lehman were one of the first to underwrite the first internet companies, sparking the market."

    In other words, they underwrote the last financial bubble. Well thankfully they wont be around to pump up the next one.

  14. Anonymous Coward
    Anonymous Coward

    @stop it now

    You mean they helped to create not just this financial bubble but the previous one too? Why should anybody be proud of that?

  15. chris
    Coat

    hahahahahhahahahahahaha @AC 23:26

    So we've got Lehman Bros to thank for Doubleclick, Phorm, every other advertising / malware peddler turning the inernet into an ad-infested cesspool? Wicked.

    Granted, they've gone out of business, but it's capitalism. Sauce for the goose is sauce for the gander, it's just in this case the gander has fucked off with a stash of golden eggs that he stole from the goose. Nevertheless he wants our sympathy because he once gave an egg to a callow chicken, in return for a year's supply of omlettes. Naw, mate.

    Choose your window! Who's next?

  16. Jon Kale
    Stop

    @Anonymous Coward - "If you don't like it, move to Russia"

    I think you're mistaking El Reg for Have Your Say. For your information, spEak You’re bRanes can be found at http://ifyoulikeitsomuchwhydontyougolivethere.com; I suggest you take yourself there to find out the general consensus amongst right-thinking people about half-thought-out ramblings such as your own...

    Have a nice day

  17. David Dylan
    Joke

    Stockmarket owl... (Yes, a LOLcat)

    http://mine.icanhascheezburger.com/view.aspx?ciid=2016281

  18. Anonymous Coward
    Alert

    How on earth...

    How on earth did they manage to go $613bn into the red?

    This is a truely astronomical figure. To put it into perspective, this amount of money is equavalent to around two thirds of the UK 2007-2008 budget. Yes you could run Britain for 8 months on what these idiots have managed to loose.

    How long didi it take for them to rack up these losses and where has all this money gone.

    Someone somewhere has got to be $613bn up. It can not have vanished into thin air.

    The truely scary thing is that as these muppets are asset and fund managers so this money is most likely someone elses. They will have taken the returns from good investments that should have gone to investors and used them to shore up bad bad investments until finally the pot runs dry. You can be sure that the brokers got their commisions though and the idiots responsible for this will walk away with pockets stuffed with cash

  19. Anonymous Coward
    Anonymous Coward

    This is a good thing

    "I absolutely refuse to give even one cent of my money to compensate any losses incurred by those greedy monkeys. My tax money should go to help the unemployed live decently"

    Where do you think this money has been "lost" to?

    It's gone to relieving the debt burden of millions of families who could least afford it.

  20. Pete
    Coat

    How about ..

    Seizing the assets of everyone on the board, every damn last penny, house, car, holiday villa, and pay those 5000 people some severance (we can throw them a cardboard box to live in). This will send out a nice little message to these maggots, that feeding off us has consequences.

    I really hate the fact that the management always walks away unscathed by any thing that happens the company and they usually walk away with millions. Just one day I’d love to see someone held accountable ... but that's a dream I have.

    Mines the one with the millions in the pocket.

  21. micheal
    Joke

    similar to

    people made shedloads as a names at lloyds, but soon as I had a loss year, the UK gov had to refund it all.

    As someone said, all the ones who enjoyed years of mega profits n bonuses should have to pay the redundancies, same as when my business folded the bank took all my personal assets to pay themselves off, leaving my 2 staff with nothing.

  22. Red Bren

    @AC - "It's called capitalism for a reason"

    "There are 5000 people in the UK without jobs today" - I'd say there are a lot more than that, and it's thanks to free market short-termism and risk taking.

    "Consider the good that Lehman Bros. did in the industry..." - The so called "good" that Lehman and others may have done was driven by greed, not altruism. They took a gamble on the dot com bubble and won that time, but many others didn't. This time they lost, but it won't be the senior management that will have to face the consequences.

    I don't like unfettered capitalism because it always ends in misery. And I don't like unfettered communism because it removes the incentive to better yourself. Perhaps some kind of regulated free market with a social safety net is required? If only I could think of a snappy name for it...

  23. W

    Tough.

    My folks once owned a small local petrol station, garage, and grocery store. There came a point when they were buying petrol and shop stock at wholesale prices that were above the retail prices of the supermarkets. So they ended up closing the business and embarking on the rocky process of seeking out new employment.

    No-one was talking about putting together a "package of measures" so my family could remain immune from market forces for a period of time.

    These financial institutions are responsible for getting us into this mess. Yes, there are some innocent victims, as well as the mercenary financial gits, but life goes on. See above.

  24. Pascal Monett Silver badge

    Move to Russia

    Bollocks. The banking system is riddled with the kind of mentality that allowed this sub-prime fiasco to happen in the first place. Moving won't help.

    The only thing to do is make financial managers of all walks understand that you cannot indefinitely make money out of thin air.

    There are enough examples already to make that a basic point in financial studies.

    1) The Internet bubble (Y2K people, not that long ago) showed that pretty websites and free deliveries did not a business case make. That mistake cost billions to idiotic investors (hey, it's financial Darwinism, right ?), so they went on to

    2) Enron and playing both sides of a virtual issue against each other under the guise of "insurance". Throw in a large chunk of "creative accounting" and you end up with hundreds of thousands of 401K plans shot to hell, and people old enough for retirement having to go on (or get back to) working. That is a lot less fun, especially since this time the victims didn't actually have anything to do with the problem.

    And now we have

    3) Banks, the very staple of the economy, those who guarantee the concept of money in the eye of Joe Public, who start going for virtual gains as well. The sub-prime crisis is nothing but an Enron-style Internet bubble - lets put this down as an insurance problem and get people to subscribe - something no banker worth his Armani suit should have underwritten.

    The whole economy is permeated through and through by the mentality of "let's invent some insurance for this and we'll be rich", forgetting that insurance deals can be called upon to be realized. The insurer does not always walk away with the pot.

    It is high time we removed "insurance" from financial deals and left it with insurers. Banks should be banks, end of story.

  25. Anonymous Coward
    Anonymous Coward

    The welcome return of moral hazard

    It seems Money people felt that Lehman would get bailed out by the other banks or the US gov ... but quite rightly the consequences of the banks actions are coming home to roost. If a government stepped in again then the whole point of moral hazard would be moot. Now at least the other banks might realize they do not have a blank cheque from the tax payer.

    Not sure I have much sympathy for people who choose to work in the worlds biggest casino markets though!

    Sure it will have an impact on the Real Economy but food will still be bought and the lights will not go out.

    The capitalist approach of continual profit and growth just cannot always work .. there is always some form of downturn/correction. I just pity those people retiring at the wrong point in the economic cycle!

  26. Pete
    Paris Hilton

    Share the wealth

    Firstly - $70bn from the US Treasury? What a farce - those self-obsessed prats shelled out $711bn dollars on weapons and combat alone - (let's call this "defense".

    Perhaps Homeland Security should focus more on the people at home and the political terrorists who are letting this happen around them.

    Paris, because if I whispered the right words in her ear could help by giving some of her $1bn inheritance...

  27. Moss Icely Spaceport
    Dead Vulture

    It never ceases to amaze me...

    ...how so many 'clever' high-paid people will fall for the old "Get Rich Quick" scheme that Sub Prime was.

    Idiots, one and all.

  28. Anonymous Coward
    Anonymous Coward

    Boom bust

    That is what Lehmans was really.

    They were bubble engineers, and they made their money based on greed and over-valuation.

    If Lehmans was actually useful in the grand scheme of things, we should see a slight market rally to a position just below the dip of yesterday (Nikkei withstanding), and that should reflect the value that Lehman's departure has now made available in the banking sector.

    Renting: it is going to go through the roof, people are going to be charging an arm and a leg to rent a shoebox, if people cannot get mortgages which not many will be able, then they will now be watching their deposit money shrink out of existence, and making it much harder to return to a market based on money lending for land. Things are set to get much grimmer. Landlords are rubbing their hands in glee at the prospect of leveraging that market.

    We have the strikes coming as well, the Teachers will do it, and some other puiblic workers. The amusing thing about the teachers is their strike action is far more damaging then some little brats not gettting to recite a ditty about 1066, looking into the Magna Carta, or not learning about differential calculus. No, it is more about the parents who have to take time off work, whilst the creche service is down.

    Maybe it is time the UK had its war of independence (again); the banks have moved out, the pound is in free fall, the basic skills required for a modern day society are lacking in the populace, and people are leaving this place in droves. The stirkes will be the first move, and as the economy weakens further, even less money will be available for public services, hell they may even be the ones who start this.

    Labour needs to go and they should do the honorable thing and call for a general election now; they cannot turn this round, they lack the foresight, fortitude and ability to do this.

    Never in the field of human governance have so few, done so badly, for so many.

  29. Anonymous Coward
    Thumb Up

    @there goes any hope of my buying a house in the next few years

    Eh? Rates are almost certain to drop after this debacle, and prices are freefalling too. So if ever there was a good opportunity to buy a house, it's now. :)

  30. Anonymous Coward
    Anonymous Coward

    @Stop it now

    "Consider the good that Lehman Bros. did in the industry as well" - do you mean that Lehman behaved like a charity with the tech industry, pouring money into it without getting a return? Why did in that case did not went bankrupt? It's the game. When they win, be it in the tech industry or with mortgages, they collect the benefits. When they lose, you and I cover it with our own wealth.

    Oh, after all, what's up with having ten more years or so of debt, compared to having those Lehman, Merryl, etc, enrich with more money....

    What's forgotten from this system is the meaning of risk. If you risk, you lose. What they have managed to do is to create a system where if they lose, you (the public) lose, but all their collected benefits stay with them.

    Oh yes, the "go to Russia" rethoric is over. They're working to make it as bad, or even worse, than when they were communists.

  31. Joe K
    Paris Hilton

    Everybody panic!

    Didn't our housing market follow the same path until recently?

    Flog as many mortgages as possible, everywhere and anyhow, and worry about the impact later.

    The amount of "For sale" signs i see around is growing rapidly, and the estate agent windows that were previously full of houses are now full of rented accomodation. Meanwhile the stories of record reposessions grow as people initial interest-free periods begin to run out.

    We're going the same way, Northern Rock was just a pre-warning tremor.

    /paris, cos even she wouldn't flog her house to a gypsy

  32. James
    Flame

    Strategic resources

    Perhaps financial companies and markets should come under the auspices of a national security and national strategic resources law. Any action that could cause national instability would meet with severe punishment for the directors of said organisations. This could include unlimited jail sentences, confiscation of all personal assets perhaps. The wages of greed.

    The "Crash" is hardly a victimless crime - and it is a crime - it is not just vagaries of a market - the financial markets are not like the weather - they are controlled and manipulated by people.

    5000 people in the UK have just lost their jobs - it is highly likely that many more will. They are victims, does anyone know what the knock-on effect to the families will be?

    It is time to make the punishment fit the crime in financial circles - if the company loses 5000 jobs then the directors must pay the 5000 salaries for a specific period of time (otherwise it's the state that pays - i.e. you and me as some of the few remaining tax payers). If they can't pay then put them in jail and throw away the key. Harsh? The directors of most financial organisation do not appear to give a monkeys about their employees or customers - why should we have any concern for them.

  33. Chris

    @AC Stop it now

    The point is - whatever Lehman Bros may have done IN THE PAST, they, and the other outfits, with their 'innovative wealth creation schemes' have torn the arse out of the global economy.

    Recent years have seen far too many 'new financial products' that exist simply to create obscene profits for an ever increasing tribe of middle-men, each taking their slice of the pie (the only real 'growth' in the financial sector). Well the pie just ran out!

    Seed money for new technology is one thing. Dubious things such as derivatives, sub-prime lending and playing the futures market are something altogether different!

    Buying up debts based on selling loans to those with a poor credit record is hardly the wisest of investments, is it?

    And speculating in oil/gas futures to force up energy prices, with the resulting world-wide economic issues is actually destructive.

    I think some of these geniuses saw 'Wall Street' as kids and confused Gordon Geko's mantra 'Greed is Good' with reality...

  34. Anonymous Coward
    Coat

    The End

    This is bad...

    ...you see, there is this executive order that you can read on YouTube, and it says that in the event of a big crisis (read into that what you will) that the President and the Department of Homeland Security shall take over and make sure the day to day running of the US continues; you know, running Congress and the Senate and that sort of thing.

    If the US economy hits another Great Depression (and it might) then Palin will be taking over.

    She will push the big button on Russia because she thinks God will love her for it, and there will be MAD.

    You won't need to wait for the LHC to pick up speed in Spring folks...

    We're all doomed!

    <Ahem>

    I'll get my radiation proof coat...

  35. Anonymous Coward
    Boffin

    @AC Monday 15th September 2008 23:22 GMT

    "I absolutely refuse to give even one cent of my money to compensate any losses incurred by those greedy monkeys."

    You already did - Northern Rock.

  36. Anonymous Coward
    Anonymous Coward

    The real critical issue.

    How is it pronounced?

    For years I believed it to be somewhere between "Lemon" and "Layman" but in the news they're saying "Lee man". Does anyone actually know?

    @Mortgages

    I asked about a mortgage the other day and with a very average salary and the usual regular job changes on my record they were offering a similar amount to before the crunch.

    @Stop it now.

    Yes, they did bring it on themselves. It's true that the lower level staff are the ones who will suffer though. The people responsible for the reckless gambling there will have had millions in bonuses in previous years and really, who needs a job when you've got a mill in the bank? Those wankers should be lined up and shot. Instead they'll pop off to the country clubs for a couple of years practising their swing until the next bull market when one of their buddies will get them a job doing the same at which point they'll gamble like idiots and trash another famous name. Capitalism carries risk for reward, these people took no risks themselves, the risk was other peoples.

    Russia is now a very pure capitalist society, so you might want to avoid that one, can I suggest Venezuela?

  37. Anonymous Coward
    Anonymous Coward

    @ac 2322

    I think you're getting capitalism and bastardism mixed up. There isn't anything wrong with capitalism per se, there are many capitalist companies who are ethical and behave in a responsible manner - The CoOpertivebank springs to mind. There are however far too many bastards hedging bets to profit out of the misery of others, these people are scum.

  38. Andrew Moore
    Coat

    The real story...

    A hunt is on for two individuals; one a former employee and the other described as a "coloured gentleman", who have been implicated in the collapse which allegedly involved a wager to the value of one dollar.

    The Lehman Brothers, Randolph and Mortimer, are currently unavailable for comment.

  39. Anonymous Coward
    Pirate

    Awww the poor bankers in London

    I have very little sympathy for the banking sector, and as for the 5k who lost there jobs I suppose they can sell there v expensive cars and maybe sell there half a million pound houses and downgrade to something a little more cost efficient. The only knock on effect thats going to have any impact is that the wine bar round the corner that sells a glass of chardonay for £5, will see a downturn in sales.

    Theres no more job security working for a banking institution as there is working for ASDA (Walmart), the only real downsize is that someone who was on a ASDA salary could adapt to unemployment benefit and be able to find employment for around the same salary as they previously had a lot easier than a Banker in the City of London.

    People live to there means, and the skill is adapting when that changes.

  40. Anonymous Coward
    Stop

    @AC - Stop it now

    I completely agree. Its all too easy to say stuff like "they brought this on themselves" blah blah blah... but we do have to spare a thought for those without a job today.

    This is getting outta hand real quick. The damage being done by this sub-prime mortgage crisis is going off the scale. It's about time the fuckers who engineered this were rounded up and some jail time was handed out.

    Oh that's right, we can't round them up... 'cos they're all laughing their asses off in the Maldives or somewhere, while the little guy gets shafted... again!

  41. Anonymous Coward
    Boffin

    There will be more

    If we go above the current "trader vision" of the market and look at it from the whole market perspective it looks pretty much like a game theory problem. These have a very nasty habit to become less and less stable as the timing parameters become smaller and smaller. Essentially, in mathematical terms, if we represent the market as a set of differential equations, they become what is known as "stiff". If a "stiff" problem continues to be approached through normal computational methods the solution will no longer converge.

    Here however comes the really interesting bit as the market it is a cascaded problem where solutions to local problems are fed back into the "big" one. So while the market itself becomes more and more jittery and less stable, the players themselves can find local short term maximums and gain more and more money. In fact, a large portion of the notion of realtime trading actually from a mathematical perspective is based exactly on this - riding the instability waves.

    However, as you increase the stiffness of the problem there will be points where the waves will no longer be waves. It will simply go out of bounds. The market will collapse. We are probably not far off from there.

    The only way of backing out of this is to introduce gradually increasing delays in trading and mandatory holding periods and to make banks as a whole (not traders themselves) and exchanges provide mandatory control over the trade players which looks into the market (or the group of traders operated from a bank) as a game theory problem and kills trades that are likely to destabilise it.

    Unfortunately, banks are way off from this. To some extent this is deliberate as the fraud known as realtime trading brings in quite a lot of bacon and who cares that one day it will all go apeshit. This is also the reason why banks will fight tooth and nail any attempt to introduce stability this way. You do not kill the goose that lays golden eggs and who cares that the next few will not be golden and be 2/3rd of Plutonium critical mass.

  42. Ian Michael Gumby Silver badge
    Coat

    Lehman wasn't 152 years old..

    This was pointed out by someone else, but American Express bought and then later spun off Lehman Brothers.

  43. Anonymous Coward
    Stop

    Sieze them

    The underlying cause of this whole sorry state of affairs is human greed. Plain and simple.

    It's happened before and it'll happen again but for now those responsible NEED to face a summary firing squad and their assets, all of them, siezed to help us, the World, out of this mess.

    This should send a clear message that while it's okay to be a Capitalist and make money, rip the arse out of it and we'll fucking shoot you.

    Remember kids, "fun's fun but to hell with carry-on."

  44. ian

    The Chinese are the winners

    When FNMA (Fanny Mae) almost went titsup, the govt. stepped in because FNMA bonds are how the Chinese recycle dollars back into the USian economy. If the Chinese were to sell the bonds they hold (or cease to buy entirely) the US economy would crash. So Bush had to move right quick.

    Lehman Bros. either weren't too big to fail (i.e. no socialism for them), or Bush has made yet another wise decision.

    In the meantime, will the City become the Village?

  45. John Chadwick

    Who'd of thought it...

    That Estate Agents (Realtors) would bring down Bankers. Still if you put your trust in the devil, you get burned. Now we know which is the bigger wunch of unprincipled greedy bar stewards.

    We can but hope that when they re-invested their ill gotten gains, they were advised by Lehman.

    I'd laugh, if the repercussions were not so serious.

  46. BatCat
    Boffin

    The first law of econodynamics is: Conservation of Wealth

    Wealth cannot be created or destroyed, only changed in form.

    Think about it...

  47. b
    Alert

    should have mentioned..

    whilst the subject of "insurance" has been raised, there MAY be a problem in this market, as well (..and some people think it could be VERY bad):

    http://en.wikipedia.org/wiki/Credit_default_swap

  48. Luther Blissett

    Who knows

    That Lehmans are a shareholder of the Fed? Things must be bad when it has to sacrifice one of its own.

    On the evidence of commentards, the nu insect overlards are quite safe. Hardly anyone knows what Glass Steagall was, and if they do, what the rest of the heist was (and is).

  49. Anonymous Coward
    Anonymous Coward

    @BatCat

    Having thought about it (probably longer than you did, I despise people who instruct other people to think about things, it's fantastically pompous), you're wrong.

    Wealth can be created and destroyed.

    I can burn a 20 and it's gone, I can trash a TV and it's worthless.

    I write computer software and from nothing comes something having value (after extensive debugging)..

  50. Anonymous Coward
    Anonymous Coward

    What happened is...

    Many people were willing to pay more and more for something that wasn't worth it... property. They were living beyond their means, taking out loans on their property, remortgaging it to pay off credit cards. The price kept rising and the people kept spending.

    The repayment people made on their debt was a nice earner for banks who bet that in the worst case the debt could be recovered by selling the property.

    Then one day it became clear that property isn't really worth as much as everyone thought and millions of people have huge amounts of debt they can't afford to pay.

    The banks lost their bet and the people lost their homes (and here's the plus side: they also lost their debt).

    Cause of the problem: people were willing to pay an inflated price for something and banks were willing to lend them the money because they thought people would continue to pay too much for the forseeable future.

  51. b
    Stop

    my thoughts :)

    in the zeitgeist movie, the 3rd part of 3, they state that the federal reserve is a cesspitt of greedy reformed masons and illuminati and that they engineered the 30's crash and ww1 and other stuff, thru pumping and dumping. but that's a WHOLE another debate! ;)

    relax the credit, people get carried away, move in and pick over the bones, take what's you want. (apparently some 6,000 banks were schnaffled up after the 30's depression).

    don't know enough about that to offer an opinion, tho it should NOT be ignored or not looked not or talked about, imo.

    in britains case "boom & bust brown" (as i like to call him), since 1997, (just after this latest uber pump of all pumps started), decided to keep house prices and the community charge OUT of the RPI calculations. bascially IF you ignored house prices and the ever increasing community charge, inflation was "fine"!

    ...no need to put up interest rates! (money stays cheap, the party continues).

    IF (hindsight is soooo clear), these two indicators HAD been included, then interest rates would have HAD to be put up, 98/99/2000-ish to put a brake on the runaway madess of property prices..and we MIGHT not have balooned to these ridiculous valuations of these piles of bricks wood and glass, just so's "new labour" can keep the swing voter (middle class undeciders) happy. pathetic.

    i thought that a correction was due around that time. i sold a property in 2003, CONVINCED it was all about to go (ahem) "tits up". now it looks as tho things might even fall back to that level anyway.

    finance IS strategic, it CANNOT be left to the market. markets are bear pits of greed. individuals pensions and nest eggs are the priorities NOT the "common wealth" (ironic phrase!). i worked at the stock exchange pre big bang and LIFFE when it was in the guardian royal exchange buildings, next to the BOE, in 88-90, i've seen and smelt this greed first hand.

    f*ck bailing out banks, let them collapse. the head pig at northern rock was just some wide-boy gambler, yet we bailed him out. i fancy buying a ferarri and a nice house..if it all goes "titsup" for me, do you lot mind if the government bails me out?!

    we have a VASTLY over inflated opinion of our worth, imo and this WELL overdue correction will help us return to reality..

    cheers,

    bill

    p.s. stuff and nonsense: http://www.eupeople.net/forum

  52. Jodo Kast
    Alert

    "the good that Lehman Bros. did in the industry"

    Funniest comment I've heard in a long time! LOL

  53. Anonymous Coward
    Unhappy

    Repossession isn't the end of your debt...

    @AC:

    "The banks lost their bet and the people lost their homes (and here's the plus side: they also lost their debt)."

    Just because you are repossessed doesn't mean your debt is cancelled. I had my home repossessed in the last bout of insanity in the early 90s. 4 years later the mortgage bastards wrote saying "btw you still owe us £50K coz we sold your flat for half its market value and you are still liable for the rest"

    When I informed them that I had fuck all ability to pay or any assets or they threatened bankruptcy so I called their bluff and told them to do it. However, having come close to bankruptcy already i know that I could declare personal bankruptcy faster than they could do it to me so I told them "come on if you think you're hard enough!". I never heard from them again.

  54. BatCat
    Thumb Up

    @JonB - you didn't think about it did you...

    You can reduce the value of a TV by trashing it, but the organisation you bought it from still has the money you paid for it.

    Unless you value your time as worthless then writing software isn't creating something of value from nothing. And, when you get paid for it, that bit of wealth must have been taken from someone else - like customers of the organisation you're writing software for perhaps.

    Even burning a bank note doesn't remove wealth from the system, it just means that little bit can't be exchanged for anything else, it's stuck as a pile of ash.

    All we do by earning and spending money is move it around a system. Sometimes people or organisations manage to build up a stockpile, but eventually the equilibrium has to be restored. Or, as seems more likely the case, the pendulum swings in another direction.

    Lehman's and others thought that the housing market was creating wealth from nothing and could therefore carry on ad-infinitum - this little adjustment has shown how wrong they were. Like others have said, it's like thinking that pyramid scams create wealth from nothing, they don't, it has to come from somewhere.

    BTW, it was an *invite* not an instruction. Why did you assume it was an instruction? Judging others by your own standards maybe?

  55. Solomon Grundy

    Wealth Creation

    Actually, you're talking about money/standardized articles of trade being made and destroyed. If you burn a 20 you have had no impact on wealth - you've just burned an article of trade.

    The only way to actually create wealth is through the use/exploitation of natural resources and agriculture. Anything else isn't creation - it's shuffling.

  56. Anonymous Coward
    Thumb Up

    @batcat (2)

    "BTW, it was an *invite* not an instruction."

    Plus it was deliciously amusing, especially as (slightly inebriated I admit) I read it and thought "hand on, you're thinking about energy", fired up the tw*t-tron but then read the title.

    Good sum up in the rebuttal, but you missed the doozy that stumps most people - namely that there isn't fixed wealth in the world, the world's economy doesn't balance out to zero and that money is just a concept (point out it's a "promise to pay the bearer on demand" and ask them "but what does that mean" in a deep and meaningful voice)

    *Then* you can tell them to think about it - works everytime, despite my cluelessness :-)

    (AC due to anyone who may recognise the debate...)

  57. Anonymous Coward
    Paris Hilton

    "Someone somewhere has got to be $613bn up. It can not have vanished into thin air".

    Actually- that's exactly what has happened- the value of the debts exceeded the value of their holdings, because the holdings turned out to be over-valued. That supposed value evaporated, due to problems with supply of capital into the market that those holdings were based on.

    Whether this over-valuation was due to incompetence, criminality, or a simple change in the market will no doubt come out in the future but I'm betting 1/3rd on the first and 2/3rds on the second.

    Also: The comments page here reveal a great many people in need of a refresher on Adam Smith's works- start with Wealth of Nations and follow that with Theory of Moral Sentiment.

    A precis of the best bits- the Market is the arbiter of all, value is subjective and wealth isn't a a pizza (If I have too much of it, it doesn't mean you have to feed your family with a greasy Domino's box). Contrary to BatCat and his first law of econodynamics, the great thing about wealth is it *can* be created- otherwise we'd all still be living in caves (Let's skip Bin Laden- his domicilliary arrangements are not best explained by the invisible hand).

    Lehman's (Laymans? Lemons? Layermans? How do you say it?) did a service to the world by providing liquidity, pushing cash to places it was needed. Yes, they made a profit, but thar ye go- tis the nature of the beast, Ishmael. There's an irony in that liquidity was probably what did them in (as with virtually all failed businesses), but the function of banks is indispensible.

    Or more accurately- Banks are only dispensible if you think North Korea is a paradise.

    And finally, from poster above: "I don't like unfettered capitalism because it always ends in misery... Perhaps some kind of regulated free market with a social safety net is required?"

    The point of capitalism is it's unfettered- capitalism= freedom. The unrestricted movement of money, the creation of individual wealth, the right to own your own assets are hallmarks of freedom and capitalism both. Intervention in markets is the problem from which ills spring. In the cases of corporate fraud and failure like Enron/Worldcom/Barings etc, the intervention is from criminal management. In the case of the privatised Railway, it's from inept government. Build that better mousetrap and require a bit of gouda to enjoy it's pleasures, and the mice will come, or if they can't afford the price of entry, they'll save until they can, or get a better job in cheese futures or whatever. It's when a well-meaning (or stupid) politician proposes subsidies for rodents on restricted dairy intakes to help them onto the mousetrap ladder that things usually start going wrong.

    Paris like Mice.

  58. Anonymous Coward
    Anonymous Coward

    @Ian

    Fanny Mae / Freddie Mac were / are absolutely central to the interests normal US citizens. They go titsup and US becomes homeless. Not only is this politically undesireable but you really would have to be a real nut job to not bail them out if you are in government. Especially as they are far too big (and risky) to be bought by anyone else.

    AIG had no suitors and is also fairly central to US citizenry in that it provides or underwrites such a big chunk or insurances and warranties (imaging not being able to drive your car or have your faulty consumer goods repaired free) and so warranted a safety net.

    Lehman was (1) likely to be bought by Barclays, a foreign bank and (2) really taking the piss by refusing an offer of $26 per share (IIRC) that was roughly $26 more per share than it knew it would be worth in a few days. So no wonder the US Governement refused to help. Why waste US tax dollars to make a UK company and a bunch of unreasonable arrogant SOBs rich?

  59. BatCat
    Thumb Up

    @Solomon Grundy - drilling for money?

    Even extracting natural resources isn't creating wealth. The products derived from the raw materials are ultimately exchanged for someone else's wealth when they buy them. Commodities are just another vehicle for moving wealth round the system.

    I still maintain there *is* a fixed amount of wealth in the system - otherwise, why don't governments just print more money? Printing more money reduces a currency's value, the equilibrium is restored.

    It's just not possible to become more wealthy without it being at someone else's expense.

    In answer to the "Someone somewhere has got to be $613bn up. It can not have vanished into thin air" question - the fact is, the $613bn didn't exist in the first place, it was based on a massive over-valuation delusion. So nobody is up $613bn, but nobody has really lost $613bn either.

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