And then there were two

And then there were two, two great institutions of Wall Street, Morgan Stanley and Goldman Sachs, calmly reiterating: “We have always been here. We will always be here. Your money is in good hands.” Too bad if your money was in Merrill Lynch, Lehman Brothers, or Bear Stearns.

I went to Columbia, and some of my friends graduated to become investment bankers at Merrill Lynch and Lehman Brothers. They are the people you saw on MSNBC, leaving the offices of their former employers with panicked expressions on their faces.

My roommate has/had a trust fund at Merrill Lynch. He’s a laid-back guy with a great sense of humor, except for yesterday, when he couldn’t do anything except drink bourbon and compulsively check the falling Dow Jones Industrial Average on his iPhone.

Bank of America, based out of Charlotte, bought Merrill Lynch for $29 a share, which caused its Standard and Poor’s credit rating to drop from AA to AA-minus. Wachovia, the other major banking institution in my home state of North Carolina, lost 24.95% of its value yesterday. That’s where I keep my money.

And now the Federal Reserve is allowing banks to provide liquid assets to their affiliates in the tri-party repo market. That means they can loan money to themselves from your savings account for high-risk, short-term investments, which is exactly as bad as it sounds.

I’m sorry for my friends. I’m sorry for the people who feel like killing themselves because they money they worked so hard to earn has evaporated. But 95% of America doesn’t care, because 95% of America has nothing to lose but their underpaying jobs.

We are facing a choice as a nation, a choice between people and money, between what is right and what is profitable. If the Republicans don’t even take care of their own, how can we expect them to help the rest of us?

4 replies »

  1. Actually, one doesn’t lose money in bank failures unless their deposits exceed the FDIC limits. As for the stock market, it is wise to note that the stock market has had an average 9% per annum average upward drift for the past century and a half, and a buy and hold strategy would be the course of prudence. Lehman’s failure will not cost customers money as the customers accounts are in segregated funds.

    Good companies always have value, and and will outperform any other investment. As for a 401K, one always has the option of putting their money in the money markets, which will not put principal at risk.

    As someone who trades for a living, it’s still my opinion that the general public has absolutely no business in the markets at all.

    Here’s an interesting link regarding Lehman’s political contributions. Interesting that Obama is in second place.


  2. If you’re a day trader or whatever, you must agree that we are in the midst of a major, major self-correction, and it’s affecting the standard of living of all Americans. We all buy gas. We all buy food. The taxpayers have been forced to buy into companies that were known to be failing, like Bear Stearns and AIG. So the general public does have business in the markets, whether they like it or not.

  3. Whether the market correction in equities has affected the standard of living of all Americans remains to be seen. As for food and gas, those markets are well off their high, and trending lower. If you own bonds, bills or notes, you should be pretty happy right now.

    A major correction is a good thing, as it will bring prices back to reality. Things cannot go up forever, with a greater fool waiting in line to pay a higher price. What would be better is for the government allow those big businesses to go bust. We’d be better off in the long run to let them fail, especially in looking at the market reaction after the massive injections of liquidity into the system by the central banks. The system has to wring out the irrationality and excesses, although many are surprised by the violence of such moves.

    Perhaps I should have phrased it better…..The general public has no business owning stocks, commodities, or any other investment that has a risk component.

    As for day trading….to much friction, slippage, the bid-ask spread, and other factors to make it worthwhile for the general public. Trading successfully is the toughest job on the planet. Probably <1% of day traders make money for 20 years or longer, and they all are members of exchanges.