Thursday 5 February 2009
Thursday 29 January 2009
John Thain - This is not 2006
Now I normally get anrgy about stuff, but John Thain has really pissed me off.
Who is this John Thain fella? Well, he's not Danish, he's the former (that God for that!) head of Merrill Lynch.
Why has he got under my skin? Well, his company, Merrill Lynch, LOST $15bn in 2008. It had been bought - essentially saved from bankruptcy - by Bank Of America. Bank of America then needed government to cover the losses that Merrill had made. Just before the deal went through in January, John Thain decided to give Merrill employees a $4bn bonus a month earlier than normal. A $4bn bonus for losing $15bn! And where did this bonus money come from, well the US taxpayer.
So to recap he used taxpayers money to pay some very well off bankers a bonus after they had lost loads of money and helped bring the world economy into recession....Wow! if he really is that stupid I could be a CEO in my sleep.
Thankfully he is now being investigated for this crime, and a supoena has been issued by the New York Attorney General.
Here is the internal memo that he sent recently regarding his actions, also note how comments have been banned as everyone was slagging him off.
Who is this John Thain fella? Well, he's not Danish, he's the former (that God for that!) head of Merrill Lynch.
Why has he got under my skin? Well, his company, Merrill Lynch, LOST $15bn in 2008. It had been bought - essentially saved from bankruptcy - by Bank Of America. Bank of America then needed government to cover the losses that Merrill had made. Just before the deal went through in January, John Thain decided to give Merrill employees a $4bn bonus a month earlier than normal. A $4bn bonus for losing $15bn! And where did this bonus money come from, well the US taxpayer.
So to recap he used taxpayers money to pay some very well off bankers a bonus after they had lost loads of money and helped bring the world economy into recession....Wow! if he really is that stupid I could be a CEO in my sleep.
Thankfully he is now being investigated for this crime, and a supoena has been issued by the New York Attorney General.
Here is the internal memo that he sent recently regarding his actions, also note how comments have been banned as everyone was slagging him off.
Tuesday 13 January 2009
2008 - The Year of the Rat (Banker)
2008....wow, what a year, the whole world has been turned upside down, the US has gone all socialist, my generation experienced something called negative growth, saving has become the new spending, Gordon became a superhero, economics became sexy, Keynesian economics apparently works, America elected a black president. So here we go, there is a lot to get through:
Nationalisation of Northern Rock: On 17th February the UK government finally bit the bullet and nationalised Northern Rock. This was the first time a bank had been nationalised since the 1970s and it was an indicator of things to come.
Bear Stearns rescued: Bear Stearns was one of the largest investment banks in the world and it had been founded in 1923. The news that it was about to collapse came on 15th March (I remember it well, as I quit my job that day!), and over the weekend JP Morgan bought it with the help of a loan from the Federal Reserve Bank of New York. It collapsed as it had got its fingers too deep into the subprime mortgage pie.
UK house prices fall: House prices dropped this year, the average house dropped 15.9% and about 10% in London. They have dropped as firstly they were too expensive. Secondly people no longer expect house prices to keep on going up, surprisingly what goes up must come down. Thirdly because of the lack of credit available fewer lenders are giving out mortgages (Northern Rock, Bradford & Bingley etc.) those that are, are requiring larger deposits. The forth reason, which be more prominent next year it that people will lose their jobs, therefore will not be able to pay their mortgage, and will have sell their home, possibly at a loss (negative equity). This graph................ shows that house prices are nearly priced correctly, however as in 1990 they will go below this line for a period. AND we keep getting figures how this is the worst recession for 30 years, therefore house prices have much further to drop, especially in London. The only saviour for London's property market will be euro and dollar rich buyers, who will benefit from the weak pound.
Oil hits $146 then plummets: Oil hit a peak of $146 per barrel. The graph below illustrates the rise and fall.........
The rise had a considerable impact on inflation. Further it managed to change people's behaviour, people drove fewer miles and more efficiently, I know I did! It has also left a scar in minds of consumers, especially in the US where drivers are finally downsizing from SUVs to smaller cars, with the Mini selling well. This has harmed the US car manufactures, Ford, GM and Chrysler.
If the rise in oil prices was inflationary, the fall has been deflationary. Oil is currently below $40 per barrel. The reasons it fell: it was too expensive, the world economy is contracting so fewer trucks/ships taking fewer goods travel from A to B meaning a reduction in demand, and the speculators (mainly hedge funds) are out of the market again reducing demand, however supply has hardly fallen. All resulting in a lower oil price.
Oh no...Inflation...Actually HELP! Deflation: Inflation hit a record 5.2% in September and since then has fallen to 4.1%. Why has rate of inflation dropped so fast? Well as mentioned above, oil prices has dropped markedly. The price of petrol affects nearly every single product, the cheaper it is to transport a good the cheaper that good is. Food prices also dropped from a peak reducing the rise in inflation.
The fear of deflation has led to interest rates approaching 0%, making monetary policy impotent (interest rates can't drop below 0%) meaning that other policies are needed, such as quantitative easing (modern version of printing money, this article does the best job of explaining it). Deflation is a perceived problem for 2009, thus the action now. However this action comes with its risks, such as causing excessive inflation.
Lehman Bros collapses: BOOM! BANG! When Lehman collapsed I was in Italy, lying on beach with hardly another soul in sight. Several days later, totally unaware of what was happening in the world, I read the FT at Pisa airport I could believe my eyes. On September 14th Lehman collapsed and Merrill Lynch was taken over by Bank of America. The collapse of Lehman is often cited as the biggest policy mistake of the 2008, why? Because it crushed the myth that the investment banks were "too big to fail". This led to loss in confidence in other banks as it became apparent that no bank was too big to fail. Banks no longer trusted each other, so the LIBOR rate (the rate at which banks lend to each other) sky rocketed, and if the banks did not want to lend to each other why would they lend to you and me. The result was an exacerbation of the credit crunch. At this point in time we were facing a Financial Armageddon.
Later the Japanese bank Nomura and Barclays would cherry pick some bits of the business from the scrap heap.
Iceland melted away in the Atlantic: The hedge fund that was Iceland succumbed to the mountain of debt that its banks owed. At the end of the second quarter 2008, Iceland's external debt was about EUR50billion. Compare this with Iceland's 2007 GDP of EUR8.5 billion. That's how big that mountain of debt, and the reason it crumbled was that the cost of refinancing the debt had gone up ( reason = credit crunch). This caused depositors to panic resulting in a run on the bank (everyone wanted their money out of the banks).
Bail me out blud! Bailouts: here, there, and everywhere. The lesson from 2008 is if you are going to screw up make its done on a massive scale.
I have to admit that I plagerised outrageously :) (from the telegraph's review of 2008...cant find the link now)
More to come...next time regarding the shift in ideology.
Weekly babe coming soon..... :D
Nationalisation of Northern Rock: On 17th February the UK government finally bit the bullet and nationalised Northern Rock. This was the first time a bank had been nationalised since the 1970s and it was an indicator of things to come.
Bear Stearns rescued: Bear Stearns was one of the largest investment banks in the world and it had been founded in 1923. The news that it was about to collapse came on 15th March (I remember it well, as I quit my job that day!), and over the weekend JP Morgan bought it with the help of a loan from the Federal Reserve Bank of New York. It collapsed as it had got its fingers too deep into the subprime mortgage pie.
UK house prices fall: House prices dropped this year, the average house dropped 15.9% and about 10% in London. They have dropped as firstly they were too expensive. Secondly people no longer expect house prices to keep on going up, surprisingly what goes up must come down. Thirdly because of the lack of credit available fewer lenders are giving out mortgages (Northern Rock, Bradford & Bingley etc.) those that are, are requiring larger deposits. The forth reason, which be more prominent next year it that people will lose their jobs, therefore will not be able to pay their mortgage, and will have sell their home, possibly at a loss (negative equity). This graph................ shows that house prices are nearly priced correctly, however as in 1990 they will go below this line for a period. AND we keep getting figures how this is the worst recession for 30 years, therefore house prices have much further to drop, especially in London. The only saviour for London's property market will be euro and dollar rich buyers, who will benefit from the weak pound.
Oil hits $146 then plummets: Oil hit a peak of $146 per barrel. The graph below illustrates the rise and fall.........
The rise had a considerable impact on inflation. Further it managed to change people's behaviour, people drove fewer miles and more efficiently, I know I did! It has also left a scar in minds of consumers, especially in the US where drivers are finally downsizing from SUVs to smaller cars, with the Mini selling well. This has harmed the US car manufactures, Ford, GM and Chrysler.
If the rise in oil prices was inflationary, the fall has been deflationary. Oil is currently below $40 per barrel. The reasons it fell: it was too expensive, the world economy is contracting so fewer trucks/ships taking fewer goods travel from A to B meaning a reduction in demand, and the speculators (mainly hedge funds) are out of the market again reducing demand, however supply has hardly fallen. All resulting in a lower oil price.
Oh no...Inflation...Actually HELP! Deflation: Inflation hit a record 5.2% in September and since then has fallen to 4.1%. Why has rate of inflation dropped so fast? Well as mentioned above, oil prices has dropped markedly. The price of petrol affects nearly every single product, the cheaper it is to transport a good the cheaper that good is. Food prices also dropped from a peak reducing the rise in inflation.
The fear of deflation has led to interest rates approaching 0%, making monetary policy impotent (interest rates can't drop below 0%) meaning that other policies are needed, such as quantitative easing (modern version of printing money, this article does the best job of explaining it). Deflation is a perceived problem for 2009, thus the action now. However this action comes with its risks, such as causing excessive inflation.
Lehman Bros collapses: BOOM! BANG! When Lehman collapsed I was in Italy, lying on beach with hardly another soul in sight. Several days later, totally unaware of what was happening in the world, I read the FT at Pisa airport I could believe my eyes. On September 14th Lehman collapsed and Merrill Lynch was taken over by Bank of America. The collapse of Lehman is often cited as the biggest policy mistake of the 2008, why? Because it crushed the myth that the investment banks were "too big to fail". This led to loss in confidence in other banks as it became apparent that no bank was too big to fail. Banks no longer trusted each other, so the LIBOR rate (the rate at which banks lend to each other) sky rocketed, and if the banks did not want to lend to each other why would they lend to you and me. The result was an exacerbation of the credit crunch. At this point in time we were facing a Financial Armageddon.
Later the Japanese bank Nomura and Barclays would cherry pick some bits of the business from the scrap heap.
Iceland melted away in the Atlantic: The hedge fund that was Iceland succumbed to the mountain of debt that its banks owed. At the end of the second quarter 2008, Iceland's external debt was about EUR50billion. Compare this with Iceland's 2007 GDP of EUR8.5 billion. That's how big that mountain of debt, and the reason it crumbled was that the cost of refinancing the debt had gone up ( reason = credit crunch). This caused depositors to panic resulting in a run on the bank (everyone wanted their money out of the banks).
Bail me out blud! Bailouts: here, there, and everywhere. The lesson from 2008 is if you are going to screw up make its done on a massive scale.
I have to admit that I plagerised outrageously :) (from the telegraph's review of 2008...cant find the link now)
More to come...next time regarding the shift in ideology.
Weekly babe coming soon..... :D
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