The financial pandemic...

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sumitsehrawat

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Source: http://www.telegraphindia.com/1080916/jsp/frontpage/story_9840996.jsp
Lehman goes bankrupt, Merrill in distress sale, Tata ally AIG seeks cash

Lehman for Layman


  • Lehman Brothers is a victim of housing loan crisis that erupted in the US a year ago.
  • The crisis arose because small banks had lent money to borrowers with dubious credit histories.
  • The small banks sold their loans (repackaging them as tradable securities) to investment banks like Lehman Brothers and Merrill Lynch.
  • When borrowers defaulted, the market for those securities collapsed like a house of cards.
  • Lehman also invested heavily property but the housing market collapsed adding to the losses.
  • In March 2008, the US government helped rescue Bear Stearns, another investment bank.
  • Last week, it bailed out two state-funded mortgage houses popularly known as Freddie Mac and Fannie Mae. But worried about the infuriating voters in an election year by using public funds, the US refused to absorb a part of Lehman losses.
  • With $613 billion (Rs 28 lakh crore) debt on Lehman books, this is the biggest bankruptcy ever.
India Impact

  • Lehman has been dumping stocks in several Indian companies, including NIIT, Fedders Lloyd, and Cranes Software. It still has small stakes in some companies.
  • IIM Calcutta has been a happy hunting ground for Lehman and Merrill Lynch. Such investment bankers are highest payers on the circuit.
  • The US financial services sector is bracing to shed 50000 jobs.
 
IT SErvices , Finance markets , Finance Jobs , Slowdown of Indian economy ( ADB expects growth to slow down to 7.4 % in 2008 and 7 % in 2009 for India ) are all part of it.

Well its kind of pay back time , We gained a lot because of the excessive consumption of US economy , now we are down becasue they are not in a state of consumption today!

My batchmates in Lehman Mumbai lost jobs ! So its not great ! :(
 
Source: http://timesofindia.indiatimes.com/India/IIMs_feel_US_meltdown_heat/articleshow/3491740.cms

BANGALORE: Even as Wall Street struggles to cope with the Lehman Brothers-Merrill Lynch double whammy, the aftershocks are reverberating across the Indian Institutes of Managements in India. For, they have been great hunting grounds for these banks.

Lehman Brothers has been recruiting from IIM-Ahmedabad since 1997 and in the past few years, been picking 12 people on an average every year.

In March 2008, Lehman Brothers recruited 10 students from IIM-A. Mihir Lal, co-ordinator, placement cell for class 2009 at IIM-A said, "It's too soon to say whether or how this will affect our placements. We'll know only in November when we have our lateral placements and then in February when we have our final placement."

In the summer placements of IIM, Bangalore, for class 2009, investment banking accounted for 68% in the internship profile of the students, while 17% opted for management consultancy. Lehman Brothers was the major recruiter, selecting 13 students, while JP Morgan and Macquarie took the second position by recruiting 11 students each.

Saurav Mukherjee, chairperson-placement of IIM-B, said the institute is not counting on Lehman for campus recruitment this year. However, "Since Merrill Lynch has been taken over by Bank of America, we are hopeful about it. We might write to Bank of America for placement," Mukherjee said, adding that none had so far withdrawn their summer placement offers.

The news of Lehman Brothers going bust has kicked fuelled apprehension among students at IIM Calcutta, especially because Lehman Brothers is considered one of the top recruiters there, both for pre-placement offers and final placements. This year, it has already made pre-placement offers to at least 10 students and the letters have just reached them.

"We're reading about the bank going bankrupt but yet to receive an official communique on this. However, if this comes true, these letters to our students will not stand. Naturally, it is a cause of concern. However, we're still hoping against hope," said Krishnan, representative, external relations cell.

Lehman Brothers, a Slot 0 recruiter (the first day of campus recruitment) at IIM-C, will not make it next March when final placements happen. "We have at least 15 other investment bankers who come calling, but the absence of Lehman Brothers will certainly be felt because it is invariably among those who make the highest offers," Krishnan added.

So, employees will probably have to kiss those lavish hikes and bonuses goodbye. Especially now that many companies are said to be reviewing bench strength and HR goodies like salsa classes. In more ways than one, the sweet music may be coming to a halt.

India front office and nearly 2,500 employees of its captive units will have to look for alternate employment. Search firms across India expect the ripple effect to be felt across sectors, with IT/ITES companies which depend heavily on the banking and financial services industry likely to be directly hit. According to market guesstimates, as many as 25,000 jobs could be lost in India. There are fears that IT majors may announce huge layoffs over the next few quarters.

Prospective employers, though, are loving it, especially the ones in sectors which have been complaining of a talent crunch. The so called A-minus companies can now dare to dream of hiring A-plus talent without having to pay the moon for them
 
Lehman Borthers Mumbai was a heavy recruiter at IITD ( At least 5 people from last 3-4 years ) , Day 2 company! :(:(
 
Frends

It started with the subprime Mortgage crisis and Bear Stern US 5th largest bank was the first victim and sold with 10 dollar per sahre to JP Morgan with the Federal govt. efforts. (Its shares were traded upto 160dollar per share)
than came the turn of freddie mae and fannie mac and they also melt down in this crunch,
Citigroup lost billions of dollars and shares felt up to US$15 and may be go down more,
Lehman Already filed bankrptcy, AIG is struggling and can be saved by the tresury's efforts (looks like so but who knows)
Goldman Sach announced loss of 70% in its latest quarter and could be a victim of subprime at later stage.
These big guns were running the whole world like was their for them but atlast they are gone, I think its not only the Subprime meltdown which brings the US economy to recession but the another reason which no one is talking about is war! War on Afghan and Iraq is the other reason for this.

Abhimanyu Phougat
 
Interesting read on Black Swans

Sept. 17 (Bloomberg) -- The cottage industry that Nassim Taleb created with his book ``The Black Swan: The Impact of the Highly Improbable'' has gone beyond global.

The options-trader-turned-author is concerned with rare, major events that humans argue were predictable in hindsight.
It's a kind of philosophical Murphy's Law for investors, and one increasingly hears folks from New York to Ulaanbaatar buzzing about black-swan events.

Taleb's 2007 book, named after a bird once thought not to exist, was itself a black swan -- an unexpected hit with great impact. It ranks much higher on Amazon.com's sales charts than Alan Greenspan's 2007 memoirs, ``The Age of Turbulence.''

That, too, gets into black-swan territory. Who would have expected a year ago that Taleb would be outselling the man dubbed ``Maestro'' in a gushing 2000 book by Bob Woodward?
Taleb's insight that we are all blind to rare events and fool ourselves into thinking we can predict risks and rewards proved more prescient. Former Federal Reserve Chairman Greenspan helped fuel the bubbles and set the weak regulatory stage for the U.S. financial crisis. Taleb shed light on why few saw it coming.
It gets you wondering what other unexpected, high-impact events are ahead.

Japan's Lead
Who would have predicted the great Bear Stearns Cos. would collapse? Or that Lehman Brothers Holdings Inc., founded in 1850, would be next? Or that the Fed would follow Japan's lead and shore up a cracking system with ultra-low interest rates? Or that the U.S. financial crisis -- featuring zombies such as Fannie Mae and Freddie Mac -- might be worse than Japan's?
Who would have thought five years ago that Russia would be calling the shots in 2008? Or that the wealth of Singapore, population 4.7 million, would be integral to keeping the $14 trillion U.S. economy afloat?
Would you have believed North Korea experts would be wondering if the son who got caught trying to visit Tokyo Disneyland with a forged Dominican Republic passport might replace Kim Jong Il? Or that South Korea would turn the tables on Wall Street with Lehman going hat-in-hand to Korea Development Bank for capital?
Perhaps the most disorienting change in the global order is the shift in power from West to East.
 
Contd...

Black Swans
Black-swan enthusiasts will point out that some of the above examples don't exactly fit Taleb's definition. Yet the power shift to Asia and the Middle East is occurring faster than seemed possible. It has markets considering how countries could use the phenomenon to their advantage.
So what do newly rich, often autocratic countries want and how can they get it?
Just think how surprised we'll all be when the United Arab Emirates, awash in petrodollars, undertakes an emergency takeover of Citigroup Inc., Morgan Stanley and Washington Mutual Inc.
Think of how New Yorkers will react when U.A.E. officials announce plans to move Wall Street to a man-made island in the Persian Gulf.
Julian Barnes laid out the plan in his 1998 novel ``England, England.'' It chronicled the creation of a U.K.-themed amusement park that Britons and tourists like better than the country itself. Given the U.S.'s crumbling airports, bridges and dodgy broadband speeds, financiers may like the new Wall Street more than the old one.

Using Power
What else haven't we thought of? Perhaps China will agree to increase purchases of U.S. Treasury bonds and not dump U.S.
agency debt in exchange for Taiwan. Maybe China wants to buy Australia, where the stock market is about 30 percent cheaper this year.
Russian tourists love visiting London. Oil-rich Russia may want to buy the city, and with the housing slump, it may get it on the cheap. Perhaps the Middle East will seek to buy every football team in the English Premier League.
Or after Singapore's sovereign wealth fund owns a piece of all major banks, it might be able to get them to shut their Hong Kong operations and relocate to new office buildings in the island-nation's own central business district.
Yes, this all sounds nuts, kind of like a woman running for prime minister in male-dominated Japan, as Yuriko Koike is. It sounds crazy, like China controlling the weather at the Olympics, or some scientists fearing an experiment at a laboratory near Geneva would destroy our planet.


White Is Black
Pure lunacy -- like a politician twice accused of sodomy being on the verge of leading Muslim-majority Malaysia. Or Japanese and American voters thinking old-school politicians Taro Aso, 67, and John McCain, 72, are the agents of change that their sputtering economies need.
I'm getting fanciful here for a reason. The rhythm of this column moves from the serious to the seemingly absurd because that's what has become of global markets.
Lots of bright people tried to call the bottom in markets.
The normal goalposts of analysis and financial models have proven useless. The more certainty with which so-called experts tell you what will happen, the faster you should run in the other direction.
These days, up really does seem to be down and white really does seem to be black, at least where swans and prognosticators'
eyes are concerned.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
 
AIG Bail Out Shows Fed's Favoritism, Patrikis, Willumstad and Revolving Doors
Source: http://www.innercitypress.com/fed1aig091708.html

NEW YORK, September 17 -- As the U.S. Federal Reserve bails out another Wall Street conglomerate, this time AIG, the Fed's favoritism is increasingly in question. Why AIG and Bear Stearns but not Lehman Brothers? On AIG, it's worth noting for example that former Federal Reserve Bank of New York chief counsel Ernest Patrikis went through the revolving door directly to a similar position at AIG, where he showed himself quite willing to call regulators, former colleagues, to get them to side with AIG on consumer protection and other issues.
When AIG was applying for approvals to buy American General, along with its already controversial subprime lending business, Patrikis and AIG convinced regulators to ignore applicable law about granting public hearings. Patrikis even called New York regulators and assured them AIG would meet with its critics, including Fair Finance Watch -- and in full disclosure Inner City Press -- after the deal was consummated. But AIG quickly returned to pure hardball, threatening to file complaints against its critics if they continued to oppose it.

citi1trio.jpg

Willumstad, at right, with others who created chaos: Weill and his Prince
Another AIG connection is Robert Willumstad, formerly Citigroup's number two official. Citigroup from its beginnings has always been a Fed favorite. The merger of Travelers Insurance and Citicorp, then illegal under the Glass Steagall Act, was secretly pre-approved by the Fed. The Fed's meetings about the deal, belatedly disclosed in a series of letters referring almost comically to the merger of "Red" and "Blue," arrived at a two year grace period during which Citigroup could lobby to repeal applicable law. The AIG bail out also puts off the reckoning for two years. Much further lobbying can be done in that time.
 
Man Utd :)!

Man Utd 'could have benefited from AIG collapse'
Source: http://afp.google.com/article/ALeqM5jeWVoUjAiuhDEzNgwTvdrCx3RPFg

LONDON (AFP) — Manchester United said it was "business as usual" Wednesday after its main sponsor was bailed out -- as experts said the club's global power could even have seen it profit from an AIG collapse. In a week of turmoil in financial markets, insurance giant American International Group was handed an unprecedented 85-billion-dollar rescue loan Tuesday by the US Federal Reserve in a bid to avoid a new global economic shock.

AIG's shirt sponsorship deal with the European and English Premier League champions is the biggest in world football -- a four-year contract worth 56.5 million pounds signed in April 2006. "It is business as usual for us," a spokesman for the Glazers, the American family which owns United, said Wednesday. "Manchester United is financially strong. We have not been adversely affected by the credit crunch." Indeed, the Red Devils' pulling power in the lucrative Asian and Middle Eastern markets is such that a knock-on disaster from AIG was never a realistic prospect. Had the insurance firm sunk, "I don't think they (United) would have been overly concerned about it," Drew Barrand, head of media with analysts Sport Industry Group, told AFP. "Because of the global commercial appeal that United have, you could interpret it that they wouldn't have minded if the deal had been terminated half-way through. "It would have allowed them to go into the market again and negotiate for a new deal that potentially could have earned them more.

 "Obviously they are looking to develop long-term relationships with their sponsorship partners. They have a very successful relationship with AIG and wouldn't want to rock the boat -- but it wouldn't necessarily have been a bad thing," Barrand added. "For most clubs the sponsorship market at the moment is quite difficult but Manchester United is such a stand-out brand they would at least be able to match the AIG deal." Barrand said it was not certain that AIG would maintain their contract with United, though the exposure it gives them and the likely punitive get-out clauses might deter them from pulling out.

 Shirt sponsorship in professional English football dates back to Liverpool's 1979 tie-up with Japanese electronics firm Hitachi and it is rare to see a jersey without a company logo on it. But when West Bromwich Albion faced West Ham United last Saturday, it was the first time since the Premier League started in 1992 that two opposing teams were forced to go without a shirt sponsor. While West Brom are still looking for a new deal, the Hammers have felt the effect of the global economic downturn as their shirt sponsor went bust last week. Holiday company XL Leisure Group were one year into a three-year deal worth 7.5 million pounds, though it is understood that the Hammers were owed only a small portion of that money. West Ham players wore a patch over the XL logo.

Sponsors bring in about 20 to 25 percent of a club's income, but while the likes of Manchester United and Chelsea can pull in up to 15 million pounds a year, the average for teams outside the superclub echelon is around one million pounds a year and the likes of West Brom may struggle to get even that much. Football clubs ideally want a long-term deal with a blue chip global brand that would help build the team's profile as well as its own, Barrand said. And exposure in the Asia market for firms is "absolutely key to them" when sponsoring a major Premier League club.

"There's a huge fan base over there and huge potential to increase it," said Barrand. While the fall of AIG could have earned the Red Devils even more money, the credit crunch may have an impact on middle-ranking clubs like West Ham. "Overall in terms of the (sponsorship) trend, they're all thinking it's hit the ceiling," Barrand said. "However, for the top four or five clubs, there appears to be no ceiling."
 
McCain divided over $85 billion bailout for AIG

Source: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/17/AR2008091700864.html

4 hours ago
GUSTAVUS, Ohio (AP) — Republican presidential candidate John McCain isn't saying whether he supports or rejects the government's $85 billion bailout plan for the giant insurer AIG.

McCain told ABC's "Good Morning America" on Wednesday that he didn't want to bail out American International Group Inc., the nation's largest corporate insurer. Yet he said millions of people whose finances were tied up in the company were in danger of having their lives destroyed. Before the bailout was announced, McCain had said flatly that he would not support a bailout of AIG or any other company.

 In his remarks to ABC, McCain blamed greed, excess and corruption for AIG's problems. He also said that Congress and federal regulators had paid no attention to the problem.
 
Anil this black swan is good one!

Different economists and analysts are divided on this that whether the govt. has done the right thing on bailing out AIG.
But one thing is sure that American taxpayers will sufer the pain and it will be a pain given by the Ben Bernanke.
However AIG have some profitable assets which company have to sell according to the deal with the fed, but thing now is how big this trouble is and now if Morgan Stanely and Gldman Sach come out with failure that will lead the Dow to bloodbath and Indian market i also suffering the pain and will suffer the Pain.'

Abhimanyu Phougat
 
positivelook said:
Anil this black swan is good one!

Different economists and analysts are divided on this that whether the govt. has done the right thing on bailing out AIG.
But one thing is sure that American taxpayers will sufer the pain and it will be a pain given by the Ben Bernanke.
However AIG have some profitable assets which company have to sell according to the deal with the fed, but thing now is how big this trouble is and now if Morgan Stanely and Gldman Sach come out with failure that will lead the Dow to bloodbath and Indian market i also suffering the pain and will suffer the Pain.'

Abhimanyu Phougat
Click to expand...

Thanks Abhi and others for reading the long article!


Well you are right that its confusing to day whether bail out of AIG is right or wrong , but any one having lil market knowledge at this time can say that we do need govt balance sheets to put a stop to the ongoing crisis.

Ofcourse it is tax payers money but imagine what could have happened if AIG was to collapse ? ( thought still there are remote chances of this happening , 24 months dwn the line , may be ? ).

It would have led to market collapse , wiping out of equity , Loss of around 1 lac jobs? :eek: And the percolating effects would have been devastating to say the least !

If we car efully think about lehman deabcle , it is not only that 25 k people lost their jobs , it is also that at least half of them lost all their life savings!! ( Big companies do haev the policies of paying incentrives to their employees through stocks and shares and lehman was on the same route). So the guy who would have been working for 5 years at lehman would have had majority of his savings as Lehman own shares and these companies also have the plicy in place that one cannot sell these shares within 5 years ! So i would say that there was loss of taxpayers savings as well.

As for the current financial crisis , i guess its time for govt to put their balance sheets , get that hit because no private equity can and/or will do this and without that its going to be still worse!

:)
 
Anil

yaaar u are right that if Govt. won't bail out AIG that will lead to disaster, but this market looks like it is driven by fear and and every one is sacred even George Bush have cancelled his trip for campaign for John Mccain because he have to attend a meeting in White House for this crisis.
I rekkon Banks are scare inthis market and so as the investors. This crisis is taking us back to 1929 when there was a big crisis.
Wall street is taking usto disaster and lets see whts the bottom line is cos no one have a idea whts the bottom line!
But one thing is clear any recovery will take time!

Abhimanyu Phougat
 
613 billion (Rs 28 lakh crore) debt on Lehman books, this is the biggest bankruptcy ever.

bhai Sumit, Anil and others:
where this biggggggg money disappeared???:confused:
Lehman have this much of Debt.. so they are supposed to pay to the investors.. but what happened to this money... where they lost it???

Is it like: Lehman are Doomed and 'Few' others became billionaire overnight?? :confused:
OR
IS it like: Lehman put whole lot of money in some factory and factory caught fire and Lehman were not insured!! hence net loss to all.. small investors and of course Lehmans!!!:eek:

P.S. Excuse me for being absolute dumb... :)
 
sunillathwal said:
613 billion (Rs 28 lakh crore) debt on Lehman books, this is the biggest bankruptcy ever.

bhai Sumit, Anil and others:
where this biggggggg money disappeared???:confused:
Lehman have this much of Debt.. so they are supposed to pay to the investors.. but what happened to this money... where they lost it???

Is it like: Lehman are Doomed and 'Few' others became billionaire overnight?? :confused:
OR
IS it like: Lehman put whole lot of money in some factory and factory caught fire and Lehman were not insured!! hence net loss to all.. small investors and of course Lehmans!!!:eek:

P.S. Excuse me for being absolute dumb... :)
Click to expand...


i think someone from jatland itself was in Lehmann Brothers NY.....or some other person who is in the thick of things....cud explain it in a better manner..
 
sunillathwal said:
613 billion (Rs 28 lakh crore) debt on Lehman books, this is the biggest bankruptcy ever.

bhai Sumit, Anil and others:
where this biggggggg money disappeared???:confused:
Lehman have this much of Debt.. so they are supposed to pay to the investors.. but what happened to this money... where they lost it???

Is it like: Lehman are Doomed and 'Few' others became billionaire overnight?? :confused:
OR
IS it like: Lehman put whole lot of money in some factory and factory caught fire and Lehman were not insured!! hence net loss to all.. small investors and of course Lehmans!!!:eek:

P.S. Excuse me for being absolute dumb... :)
Click to expand...


US Economy is totally credit based Economy and so is their life style.

For a layman, Lehman brothers just borrowed money from some financial institutes with interest and landed that to their clients at some higher interest rates. Now their clients are unable to payback the money and hence the Lehman Brothers. All their credit is now their debit ..... so bankrupt.

I hope i am right ....... Economist plz let me know :)
 
Got this article from a friend on lehman..

-------------------

Anatomy of a global credit crisis

How can a bank like Lehman go down so fast?
FINANCIALmarkets can be punishing and reversal of fortunes can be dramatic. More so, if an institution is overleveraged — when loan and investment books are much, much bigger than its capital. What compounds problems are strange accounting practice and high-risk nature of the loans and investments. There are also disclosure issues: Lehman, in its last conference call with investors, gave no clue that it was actually on the brink.
How did the crisis build up?
An investment bank uses its proprietary book (own money) to lend others and invest. It started with the subprime crisis. Banks like Lehman, buy mortgage loans from other banks, and then package them to sell bonds against the loan pool. Often they add cash to make the loan pool more attractive, so that the bonds can be sold at a higher price. Suppose mortgage was earning 6%, these bonds are sold at 4%. The difference is the spread which the investment bank earns. By selling these structured bonds, it raises money and frees capital. But when homebuyers started defaulting, these bonds lost their value. It all began like this, and then the virus spreads across markets.
But don’t investment banks play advisory role?
They do, but slowly over the years, their prop books have multiplied. Investment banks also organise big loans for their clients for funding acquisitions. At times, investment banks take positions, only to palm off the securities to other clients and banks. In a crisis, they may not get the opportunity to down-sell such positions. This adds to the panic.
Can’t central banks step in to stem the crisis?
Well, they can and they have, to an extent. It’s precisely to discourage banks and bond houses from selling securities to generate liquidity, Fed has relaxed the rules under which it lends to institutions against securities. Moreover, if there’s a financial chaos of this magnitude, banks refrain from lending each other, fearing that the money would get stuck. A liquidity window from the central bank thus comes handy.
How does the domino effect play out?
Suppose Lehman faces a redemption and has to repay another bank it has borrowed from. If it sells the mortgage-backed bonds, whose prices have fallen, it will not raise as much as was earlier expected. So, it sells some of the other good assets or bonds which
may have nothing to do
with mortgages. But since
the bank starts dumping
these assets, prices of these
bonds also dip. This is
when the crisis spreads
from subprime to prime.
How does it impact the balance-sheet?
Herein lies the strange accounting of bonds and derivatives like mortgage-backed securities. All banks are required to markto-market (MTM) their investments. So, if the price of an instrument falls, the difference between the price at which it was bought and the current market price has to be provided — meaning, it has to be deducted from the earnings. So, a drop in price leads to the MTM loss. But there’s a bigger problem which really has deepened the crisis. An MTM loss can be provided only if there’s a ‘market’. How do you provide when there is no market?
But aren’t these instruments traded? How can the market suddenly vanish?
Remember, it’s very different from checking the price of a stock from a stock exchange website. Many of the instruments are over-the-counter derivatives, which are struck on a one-toone basis between two parties. Suppose, a derivative is linked to variables like the yen-dollar rate, and may be prices of other actively-traded assets, say gold price and US Treasury bill. What the bank does is construct a model, feeds the available market price of these variables in the computer, to arrive at what the market price of the derivatives could or should be. This is an artificial model-generated price. This is called the mark-to-model against mark-to-market.
So, what’s wrong in that?
The trouble is when the bank actually goes out to sell the derivatives, it discovers that there are no takers. And, even if there are buyers, they are willing to pay just a fraction. In other words, there is a sea of difference between the price that is being offered in the market and the high artificially-generated price thrown up by the model. So, when the bank ends up selling the instrument or unwinding derivatives, the loss suffered is far in excess of the mark-to-model loss. Such extra losses on thousands of securities and multiple portfolios can wipe out the capital of the bank.
What is the nature of the instruments?
There are collateralised debt obligation (CDOs), credit default swaps (CDSs) and all kinds of derivatives. CDOs are asset (or loan)-backed securities, while CDSs are like a guarantee. Say Bank A lends to a corporate but is unwilling to take the full credit risk. So, Bank A enters into a CDS deal with Bank B; under this, Bank B promises to pay Bank A if the corporate defaults. The money that Bank B earns for this is the CDS premium, which is similar to an insurance premium. Now, if markets turn choppy, risks go up and so does the CDS premium. So, Bank B, which is earning a lower premium has to promote a mark-to-market loss against the CDS position.
How does one minimise such turmoil?
No easy answer to that. Maybe, some of the accounting norms need to be changed, so that the definition of MTM gets narrowed down. Besides, to stop banks from going overboard, capital requirement may have to be raised for derivatives position. But all this may be easier said than done.

------------------------

I still can't fathom though how $613 billion (Rs 28 lakh crore) loss was accumulated and no one cared about it. This is when companies like this apparently take the top brass from esteemed business schools and everyone's credit history is tracked through Social Security Number in US. I am sure, all these banks have huge investments outside US too which have added to the turmoil. If it continues like this..US economy will be way down in coming time and will impact lot of other countries too.
 
pnauhwar21 said:
Got this article from a friend on lehman..


when the
------------------------

I still can't fathom though how $613 billion (Rs 28 lakh crore) loss was accumulated and no one cared about it. This is when companies like this apparently take the top brass from esteemed business schools and everyone's credit history is tracked through Social Security Number in US. I am sure, all these banks have huge investments outside US too which have added to the turmoil. If it continues like this..US economy will be way down in coming time and will impact lot of other countries too.
Click to expand...

Mr. Nahuwar and ohers

U have put vry interesting Q and Ans here and u r saying still can't understand where this 613 billion gone, its not even 613 billion the figures i m putting here shows it is almost 1 trillion dollars. These figures are comparing top 25 US based firms and wht they worth in oct. 2007 and wht they worth now.

A I G -Then: $178.8 billion... Now: $5.46 billion. Down 96.95%
Bank of America -Then: $236.5 billion... Now: $123.4 billion. Down: 47.82%
Citigroup -Then: $236.7 billion... Now: $76.34 billion. Down 67.75%
Merrill Lynch - Then: $63.9 billion... Now: $30.2 billion. Down 52.74%
Fannie Mae - Then: $64.8 billion... Now: $0.45 billion. Down 99.3%
Morgan Stanley - Then: $73.1 billion... Now: $41.1 billion. Down 43.78%
Wachovia - Then: $98.3 billion... Now: $19.44 billion. Down 80.22%
JP Morgan Chase - Then: $161 billion... Now: $130.2 billion. Down 19.13%
Capital One Financial - Then: $29.9 billion... Now: $16.9 billion. Down 43.48%
Washington Mutual - Then: $31.1 billion... Now: $3.64 billion. Down 88.3%
Lehman Bros. - Then: $34.4 billion... Now: $0.80 billion. Down 97.6%
Goldman Sachs - Then: 97.7 billion... Now: $40.6 billion. Down 58.7%
Wells Fargo - Then: $124.1 billion... Now: $111.25 billion. Down 10.35%
National City - Then: $16.4 billion... Now: $2.8 billion. Down 83%
Fifth Third Bancorp - Then: $18.8 billion... Now: $7.9 billion. Down 57.6%
American Express - Then: $74.8 billion... Now: $37.5 billion. Down 49.87%
Freddie Mac - Then: $41.5 billion... Now: $0.16 billion. Down 58.7%
Suntrust Banks - Then: $27 billion... Now: $16.07 billion. Down 58.7%
BB&T - Then: $23.2 billion... Now: $18.4 billion. Down 20.69%
Marshall & Ilsley - Then: $11.6 billion... Now: $4.48 billion. Down 61.3%
Keycorp - Then: $13.2 billion... Now: $5.68 billion. Down 56.97%
Legg Mason— Then: $11.4 billion...Now: $4.96 billion. Down 56.49%
Comerica— Then: $8.3 billion...Now: $4.74 billion. Down 42.89%
Countrywide Financial: Then: $11.1 billion...Now: $0.00 billion. Down 100%
Bear Stearns— Then: $14.8 billion...Now: $ 0.00 billion. Down 100%

Now i will try to explain in Layman terms, the reason behind this is SubPrime Mortgage. What is Subprime Mortgage?
Ans: SubPrime Mortgage is a loan provide to those people who are are not financially well off or we can say its a Low Doc loan or we can say a loan provided to those who have lower income levels.
Now What happened atually was that These big Guns also lend money to each-other as well its like a playing with money and thts wht they did, and after that it all depends that who is much brave to lend to the defaulters as well, thats what happened exactly.
Freddie and Fennie u know wht they did, they even lended money on Internet, I mean they even approved the loans of the people online whom there representative never had any face-toface meeting. Now tell me my frends how can u lend someone just without having a meeting but they did. Result of this came that people started becoming defaulters and when people strted becoming defaulters than banks have the option of selling their houses in the market but house prices came down and buyers ran away frm the market and thts wht cause the problem to the banks that they are short of cash for their Daily routine and situation become disaster when people started panic, definitely when people panic for cash banks have no answers for cash and they strted with bankruptcy and takeovers.

What is Next?
Ans: Still US financials are in trouble and all those who have the cash will survive cos they need cash to ovecome from this. No doubt this crisis will end but no one knows when and Cash is the best bet to stay in the market.

Note: If anyone who is in US and have more than US$100000 in a single bank pls dont put that money in a single bank cos upto US100000 dollar u are covered by feds insurance.

Abhimanyu PHougat
 
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