Global financial distress

[jjpb3]

A number of my friends have already been directly affected, and it looks as though the process is far from over. This can't be good for the airline industry, and for consumers in general.

On a more humorous note, though, a clip from the BBC, which accompanied the article linked, made me chuckle:

http://news.bbc.co.uk/1/hi/business/7617976.stm *

I wouldn't have thought BBC listeners would have fully understood the Philippine Stock Exchange Director's Taglish commentary, "When the markets around the world are making kalabog, cash is king..." I guess it's onomatopoeic enough.

About the only thing I see as positive is the coordinated response from monetary authorities. I hope this damps down soon.




*The clip may have been updated from the time I've seen it.

[StarG]

It is amazing to see financial giants which survived many very difficult eras can't get through this sub-prime crisis.

[Savage25]

I have a friend who started at Lehman in London on Thursday...lasted all of two days.

[up and away]

I have a friend who started at Lehman in London on Thursday...lasted all of two days.

@Savage25: Sorry for your friend- I hope he gets a new job soon. But it gives a whole new meaning to your avatar!


People say AIG is to sell ILFC!

[Kiwi]

I have a friend who started at Lehman in London on Thursday...lasted all of two days.

Wow that is bad luck.

Although we're a long way from NYC and LON there is some local fallout even here.

[SQ LPP]

The housing market here in Vancouver starts to drop. A bit scary.

[●ᴗ●]

I wonder, what's next after Lehman and AIG. The US government can't always bail out the finance companies in trouble, like they do with AIG. The scale of this crisis starts to get really scary.

[milehighj]

I have a friend who started at Lehman in London on Thursday...lasted all of two days.

Sorry for your friend...

I suppose the hypothetical worst case scenario would have been the Lehman employee who took his family on holiday to Galveston, TX, and flew XL Air...

[nickbot]

Sorry for your friend...

Also sorry for Savage25's friend and others hit by this situation but in reference to your hypothetical worst case scenario...

I suppose the hypothetical worst case scenario would have been the Lehman employee who took his family on holiday to Galveston, TX, and flew XL Air...

...cynically I think it's more likely that the Lehman employee would have spent a tiny fraction of his oversized bonus on taking his extended family from London to Sydney for the weekend on SQ in Suites, rather than being seen dead on XL

[flo]

sorry. I did not really manage to express myself all to clear ...this is why I leave the topic to those who can

[scooby5]

The basic principles of the system are not right and some people have seen this result coming for the past 10yrs or so. Ok, maybe not so extreme as to close Lehman and cause problems for Merrill, Citibank, AIG and the rest but at least advise that if it were to go wrong then it would do so in a big way.

Personally, i've lost quite a chunk of money as worldwide shares go down the toilet but thankfully am young enough to wait it out and hopefully come out the other side in a few years. I feel more sorry for the likes of my mum and dad who have just retired, watching years of work almost disappear as pensions explode into dust.

[jjpb3]

I disagree with the details of your views, flo, because I feel they fundamentally misunderstand how a market economy works, and because they contain a really nationalist tilt that is misplaced. For now, I'll focus on a couple of points:

Seriously, how can it be that those big investment, mortgage and insurance firms pay their CEOs ridiculously high amounts of money to run a firm in one year and has to file for bankruptcy the year after?

Do you really think that's what CEOs are paid for? So, if you were an investor, you would willingly (as people directly or indirectly buy stocks without having a gun pointed to their heads) pay someone 'ridiculously high amounts of money' to run a firm with the expectation that he or she would run a firm that produces dividends or capital gains one year, and then file for bankruptcy the next year? What is this, a theory of mass naivete?

But isn't it somehow a bit ironic: America always looking down on the old structures Europe still has (social policies, insurance models, cultural views, philosophy, ...), yet they are the ones who apparently suffer from a far too liberal systems to keep things in order because firms just cannibalize the market. Pride always went before a fall.

Why ironic? I think America has known that it has (for now) fundamentally chosen to trade off less social security against a more dynamic economy. The latter has the risk of cycles of booms and busts, for which certain macroeconomic policy instruments are available. I think it's only fair to acknowledge the healthy ongoing debate in the Americal polity about whether the tradeoff needs to be re-assessed. That's what elections highlight.

I take it you don't hear a similar debate in Europe when economic growth stalls? Why do you think Sarkozy decided to risk the reaction from unions and propose a more flexible labor market in France?

Actually, I think continental Europeans [as I've more often seen this portrayed as an Anglo-American choice vs. a Continental European choice] can be as guilty about looking down with pride at the alternative system when economic performance swings in their favor. I guess it's human, but I don't think it's fair to pin this tendency only on Americans.

Don't get me wrong, I agree with the direction of your critique -- the market correction isn't that surprising in hindsight -- but the points you made above are just, well, surprising.

[KeithMEL]

I think America has known that it has (for now) fundamentally chosen to trade off less social security against a more dynamic economy. The latter has the risk of cycles of booms and busts, for which certain macroeconomic policy instruments are available. I think it's only fair to acknowledge the healthy ongoing debate in the Americal polity about whether the tradeoff needs to be re-assessed. That's what elections highlight.

That's a v spot on analysis.

I don't know how one can justify trading off social security and be just as comfortable with enormous bailouts for big business funded by taxpayers. I am neither a socialist nor a neoliberal fundamentalist, but it just seems to be a glaring irony.

There has to be trade offs and I do see wealth creation as something to aspire to and a dynamic, modern and flexible economy as the best way to faciliate this. But there has to be also has to be a balance and a strong safety net to place in check the excesses of the market economy.

I am pleased to observe ongoing healthy debates about economic management both at home when we're v exposed to the global financial turmoil as well as currently being in the midst of industrial relations legislative reforms, as well as in countries like the US (most prominently), France etc. I can only hope that a middle ground approach that balances both priorities is reached, taking into account of course unique local/regional circumstances.

[dcflyer]

I wonder, what's next after Lehman and AIG. The US government can't always bail out the finance companies in trouble, like they do with AIG. The scale of this crisis starts to get really scary.

Sorry, but how is providing a bridge loan at 11% interest and taking 80% of the shares and the entire assets of the company as collateral a bailout?

[milehighj]

Sorry, but how is providing a bridge loan at 11% interest and taking 80% of the shares and the entire assets of the company as collateral a bailout?

Suffice to say, equity holders in AIG didn't warrant being "bailed out". They got stuffed as they rightly deserved.

The employees, for the most part, get to keep their jobs. The enterprise and counterparties live to fight another day.

Seems like a reasonable solution to a bad problem.