Things I Do Understand

In the previous post I mentioned things about this current mess that I do not understand, but I do understand what looting looks like:

Up to 10,000 staff at the New York office of the bankrupt investment bank Lehman Brothers will share a bonus pool set aside for them that is worth $2.5bn (£1.4bn), Barclays Bank, which is buying the business, confirmed last night.

The revelation sparked fury among the workers’ former colleagues, Lehman’s 5,000 staff based in London, who currently have no idea how long they will go on receiving even their basic salaries, let alone any bonus payments. It also prompted a renewed backlash over the compensation culture in global finance, with critics claiming that many bankers receive pay and rewards that bore no relation to the job they had done.

***

Many of Lehman’s UK staff are particularly angry about the US payouts because it has emerged that in the days running up to the bankruptcy, some $8bn in cash was transferred out of the account of the bank’s European business into accounts at the New York head office.

I also understand what this means:

Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.

That possibility is still deemed to be quite low. But the ultimate financial question – until recently, unthinkable – is now being asked. Yes siree, the mighty US government could default. That’s how much the world has changed.

And it ain’t good. Right now, the market is down close to 200, which I interpret meaning that people are either completely unimpressed with the bailout and that those in the know realize things are going to get much, much worse, and probably sooner before later, or that they are painting the tape to jam the 700 billion (more like several trillion, probably) bailout through.

Is it too conspiratorial to think that they are just trying to keep the shitpile going until January and then blame it on someone else?

This is rather scary, particularly since I really am not sure what is going on. My gut tells me is that the Fed and the geniuses on Wall Street have been lying about the financial health of the country for a long long time, and that instead of just a head cold, the country has a metastatic cancer that has spread through out the entire body. I really think this is going to get much, much worse in the short term. I simply do not see how this gets better without a complete collapse of the housing market and starting from scratch with transparency. How can the market function in a healthy manner when no one has the first idea what they are buying and selling?

On Friday, we had Chinese for lunch, and I opened my fortune cookie up so that the message was backwards and I saw the ad on the back of the paper, rather than the fortune on the front. The ad said “Learn Chinese.” Maybe that was the real fortune, after all.

Again, this is all new ground for me, and all I can do is watch how people react to certain events to draw conclusions, since I do not have intimate knowledge of this sector. Am I wrong? Please tell me I am.

*** Update ***

If we do not know how much the bad assets we are going to buy in this bailout are worth, how do we know how much to pay for them? I am so damned confused right now.






40 replies
  1. 1
    bartkid says:

    >“Learn Chinese.” Maybe that was the real fortune, after all.

    I recommend learning Japanese.
    It will help you read the packaging on the Ramen noodles, which will be the only food a lot of Americans will be able to afford.

    >Is it too conspiratorial to think ….
    It is never conspiratorial enough to think exactly that.

  2. 2
    Jon H says:

    Lehman’s the one we “let fail”, though, right?

    I suppose the bonus thing is just Barclays’ way of keeping the ‘talent’ from leaving their new acquisition.

    I’d feel more strongly if the it were AIG, or some company which had received a big bunch of funding.

  3. 3
    SDM says:

    In Soviet America, Chinese have YOU for lunch!

  4. 4
    SGEW says:

    Am I wrong? Please tell me I am.

    Fine: you’re wrong.

    It may be much, much worse.

  5. 5
    drag0n says:

    is my math wrong or is 750 billion around 2500 bux for every man, woman and child in the united states?

  6. 6
    Dave says:

    I think it (hopefully) means that we start talking not only about transparency, but about what we spend our tax dollars on. I don’t see how Iraq keeps going at $10 bln. a month. And what about defense spending in general? This may be the impetus needed to finally do an audit and account for the hundreds of billions of dollars lost in that morass of corruption and waste each year.

  7. 7
    El Cid says:

    It’s hard to tell what’s the worst about this “rescue plan”, but maybe top of the list is that it is anything but a “rescue”.

    It’s a temporary money injection for Wall Street to party with a few more months.

    And then, whether it’s under McPalin or Obama, they’re going to come back and tell us that if we don’t hand them another $3 trillion by that week, everyone on Earth will die.

  8. 8
    Buckethead says:

    “Is it too conspiratorial to think that they are just trying to keep the shitpile going until January and then blame it on someone else?”

    No, I think it’s pretty obvious now that that’s what they’re doing. And we’re footing the bill.

  9. 9
    Delia says:

    Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.

    That possibility is still deemed to be quite low. But the ultimate financial question – until recently, unthinkable – is now being asked. Yes siree, the mighty US government could default. That’s how much the world has changed

    Don’t worry, John. As I posted sometime late last night on the very long thread, Sunday morning I was listening to NPR’s Weekend Edition, and some Very Serious Expert (I think he was from the Brookings Institute) was happily explaining how this humungous bailout was going to work out very well indeed. The NPR reporter did have the sense to ask him how the government was going to pay back all this money, and the Very Serious Expert condescended to explain to her that the Federal Government had means of paying not open to us ordinary folk — like borrowing from foreign governments and printing money.

    The NPR reporter didn’t get around to asking him what could possibly go wrong with this cunning plan.

  10. 10
    srv says:

    Since we (stupidly) won’t let the Chinese bail us out and take over these companies, is there anything stopping China from demanding full audit authority in any company that does business there?

  11. 11
    jake says:

    Is it too conspiratorial to think that they are just trying to keep the shitpile going until January and then blame it on someone else?

    Think? You should know that by now.

  12. 12
    The Moar You Know says:

    The only thing you need to understand – IT’S RAPE TIEM!

    Bend over, America. Bush and his boys have a hell of a finale planned, and your ass is the star of the show.

  13. 13
    OriGuy says:

    The NPR reporter didn’t get around to asking him what could possibly go wrong with this cunning plan

    The expert’s name wasn’t Baldrick, was it?

    Harry Potter is on the case.

  14. 14
    Jim Pharo says:

    It’s slowly starting to dawn on you that this might not be about sub-prime mortgages or financial sector meltdowns at all. Welcome to the light, friend.

    I worked in corporate America for some time, and now consult there. Corporate America is a hollow shell of a once successful economy. There is simply no there there any more.

    We will soon be a nation of people who buy and sell each other’s junk at flea markets, and some agriculture and minimal healthcare.

    It’s not that we’ll all be speaking Chinese. It’s that we’ll all be making our OWN shoes.

  15. 15
    Napoleon says:

    Very Serious Expert (I think he was from the Brookings Institute)

    He was – I nearly picked up the radio and tossed it in the tolet when he said that. He was Micheal O’Hanlen stupid. He repeated what is becoming the line among the fluffs for this plan “hey, the US may make money out of this.” I swear if I was Obama and happen to win in the fall I would be tempted to send a note to Brookings telling them to tell everyone over there not to even bother applying for a job in his administration since they are all terminally stupid.

    Based on what John says above maybe today is the day I should sell all my treasuries in my IRA I bought on the day of Lehman’s bankrupty when I sold all my money market upon learning that money market funds may have been investing in stuff like swaps and Lehman paper. To bad Fidelity doesn’t have a “put it in a hole in my back yard” option because I would be tempted to take it.

  16. 16
    NonyNony says:

    I think it (hopefully) means that we start talking not only about transparency, but about what we spend our tax dollars on. I don’t see how Iraq keeps going at $10 bln. a month.

    Well, see, that $10 bln. a month that’s going to Iraq actually isn’t our tax dollars. Because it comes via deficit spending. Lots of deficit spending, actually. So if you’re young enough it will come out of future tax dollars that you haven’t paid yet. But more likely it will come from taxes that your children, your grandchildren, your great-grandchildren, and so on will be paying for years to come.

    And don’t worry – I’m fairly certain that no matter how bad the deficit looks in the next few years, there will be plenty of money to borrow for wars. There always seems to be. I imagine a war with China won’t be in the works in the near future, though, because I’m pretty sure they won’t want to foot the bill for our invasion force.

  17. 17
    Glenn says:

    I only know one thing…If BV$H’s crowd is involved u cannot believe anything they say. Ask u self this where was Paulson and Cox and the rest of these Wall street geniuses the last 2 yrs.? They knew damn well where this was headed and did nada. Now it’s a crisis and of course they know exactly waht to do..Rape and plunder which is the only thing any of these clowns are good at.

  18. 18
    The Moar You Know says:

    My gut tells me is that the Fed and the geniuses on Wall Street have been lying about the financial health of the country for a long long time, and that instead of just a head cold, the country has a metastatic cancer that has spread through out the entire body.

    You really need to read up on credit default swaps, even Wikipedia would be helpful.

    But you are wrong, John. Not in the sense that “things are not so bad” but in the sense that “oh, you think this is just cancer, LOL, if you only knew”. It’s cancer and AIDS and heart failure all rolled into one. The dollar amounts involved could bankrupt the world for years.

  19. 19
    Krusher King says:

    It’s a temporary money injection for Wall Street to party with a few more months.

    El Cid

    That’s right. It’s a $700 billion downpayment, is what it is.

  20. 20
    saucy sauce says:

    It’s unfortunate that the financial system was ever set up to allow the big players to accrue this much power, but it was. Reforms should happen to prevent that from recurring, but the big boys do have systemic influence and that needs to be recognized and realistically dealt with, horrible though it may be. This is our chance to cut off the metastasis, so to speak.

    I do wonder how much of this bailout has anything to do with the Fed, though–it seems like it’s being driven much more by Treasury. I would not conflate the Fed, the SEC, and the Treasury Bush Administration people. The Fed is truly apolitical, unlike the other two, and my impression is that they have been honest through this entire crisis. I hope that Dodd’s restrictions and reformations pass muster, but the doomsayers are right in that some sort of action needs to take place unless we want another Great Depression starting soon.

    The new plan won’t ultimately work without serious regulatory reforms–and Goldman Sachs and Morgan Stanley ceding their investment bank status makes that immensely easier–but we need definitely need a new plan, and we need it pronto. The bailout makes me nervous for the long term, but this may be one instance in which that truly should be subordinated to immediate needs.

  21. 21
    Scott H says:

    Default by the US Government has been in discussion for some time.

    Who cares what happens to the country in which one was born if one lives in 80th floor Dubai de luxe far from and high above the consequences?

    At this point, I am not going to be satisfied with anything less than massive asset forfeiture from these people.

  22. 22
    les says:

    If we do not know how much the bad assets we are going to buy in this bailout are worth, how do we know how much to pay for them? I am so damned confused right now.

    We pay whatever the particular bushbuddy says he needs. Duh.

  23. 23
    Mary says:

    Your second link gets a 404 message. Did they decide to take down the story?

  24. 24
    Tsulagi says:

    Is it too conspiratorial to think that they are just trying to keep the shitpile going until January and then blame it on someone else?

    Nope. SOP for Decider/Commander Guy after the magic he brings. See Iraq and broader GSAVE.

    You know, we have Mt. Rushmore to honor great presidents. We ought to have a Mt. Alfred E. Neuman so history and future voters don’t forget the really special fuckups and tards.

    The ad said “Learn Chinese.”

    That’s funny. God is talking to you.

  25. 25
    Darkness says:

    Many of Lehman’s UK staff are particularly angry about the US payouts because it has emerged that in the days running up to the bankruptcy, some $8bn in cash was transferred out of the account of the bank’s European business into accounts at the New York head office.

    Bwa ha ha ha ha. Ah, welcome to our world. So much for honor among thieves.

    Is it too conspiratorial to think that they are just trying to keep the shitpile going until January and then blame it on someone else?

    Are you kidding? With a straight face they are blaming this on Carter(!) as opposed to Gramm (commodities dereg) or Gingrich (shareholder defanging) or any of a dozen other legislator that are modern enough to actually be involved. If Limbaugh told them to, they’d blame it on microscopic Martian lifeforms invading 10 million years ago. Anything to prevent the people at fault from taking any blame.

  26. 26
    tBone says:

    The only thing you need to understand – IT’S RAPE TIEM!

    Bend over, America. Bush and his boys have a hell of a finale planned, and your ass is the star of the show.

    Don’t be so overdramatic. Democratic leaders will make sure there are provisions in the final bailout bill to protect us.

    For instance, after delivering a brutal dry ass-fucking, the rapists will be required to pat us on the head and say “Thank you.”

  27. 27
    SGEW says:

    . . . the rapists will be required to pat us on the head and say “Thank you.”

    And then we’ll have to pay for the rape kits.

  28. 28
    Tax Analyst says:

    Is it too conspiratorial to think that they are just trying to keep the shitpile going until January and then blame it on someone else?

    This is rather scary, particularly since I really am not sure what is going on. My gut tells me is that the Fed and the geniuses on Wall Street have been lying about the financial health of the country for a long long time, and that instead of just a head cold, the country has a metastatic cancer that has spread through out the entire body. I really think this is going to get much, much worse in the short term. I simply do not see how this gets better without a complete collapse of the housing market and starting from scratch with transparency. How can the market function in a healthy manner when no one has the first idea what they are buying and selling?

    This all sounds just about right, John. It would be hard to believe that FED, Treasury and Wall Street didn’t see at least a good part of this breakdown coming at least a year or two ago (if not longer). “Running out the clock” is how this administration has tried to handle just about all of it’s failures that are sure to have devastating long-term effects. The housing market went totally ape-shit and the resulting price of buying a home became flatly ridiculous a couple years before the meltdown finally hit…When my step-mother died in May, 2001 my father’s house was appraised at $315K. When he passed away in November, 2005 the appraisal was $690,000, which was nuts for a nice, but not especially luxurious home in North Hollywood, CA. I had been wondering just exactly HOW this was all being kept afloat. I knew about the sub-primes being made, but I didn’t know all that junk was being bundled and packaged and then palmed off as high-grade investment instruments. Anybody that did know about that should have been able to predict the meltdown…it really shouldn’t have been rocket science to see how that was going to end up. I’m wondering just how much misrepresentation went on in the sale of these packaged mortgage loans.

    I believe the housing market still has a bit…maybe even a lot, of correcting to do and that’s not gonna be fun for those who are upside down and need to sell, but I think it has to happen if we desire any real financial health and stability. And there absolutely need to be tighter loan criteria used in approving home loans. 100% loans and all the other gimmicky instruments that pushed the housing market bubble need to go away. When working people can ACTUALLY AFFORD the loans they sign for…and I’m talking about having payments that take no more than perhaps 35% of their monthly income, then things will begin to work again. But a lot of current homeowners are gonna end up taking it in their shorts before that can happen.

    I think we’re in for a long haul either way, but I’d rather try and get our house in order by taking the right steps. There is no way in hell that pushing through this $700 billion bailout and creating a “Finance Czar” could be the “right way” to accomplish this, and I would say that no matter WHO the Treasury Secrety or President was office at the time.

  29. 29
    jake says:

    I keep seeing this would cost every man, woman and child in the US 25K. But children (and some men and women) don’t have to pay taxes. Does anyone have that break down?

  30. 30
    Tax Analyst says:

    . . . the rapists will be required to pat us on the head and say “Thank you.”

    All of them, or just the last one?

  31. 31
    tBone says:

    And then we’ll have to pay for the rape kits.

    As it should be. Free market capitalism is built on personal responsibility.

    All of them, or just the last one?

    Still under negotiation. Even if it’s just the last one, it’ll still be an improvement on Paulson’s original proposal (which required the rapists to slap us on the head and shout “Squeal like a pig!”).

  32. 32
    Stuck in the Fun House says:

    This is rather scary, particularly since I really am not sure what is going on. My gut tells me is that the Fed and the geniuses on Wall Street have been lying about the financial health of the country for a long long time, and that instead of just a head cold, the country has a metastatic cancer that has spread through out the entire body

    My sentiments exactly. And the only way to limit and control the info concerning the degree of malfeasance and ineptitude the public learns about, is to buy the whole mess, lock stock and barrel. It’s seems like a panic move for anti-government wingnuts to propose something like this, absent some driving need for some form of self protection,

    ( or GWB has turned me into a raging conspiracy buff. Who the fuck knows anymore, what the hell is going on.)

  33. 33
    Original Lee says:

    As a proud owner of a copy of the Robert Maxwell jokebook, I can attest that our friends in the UK know they are well and truly screwed yet again.

    Adding insult to injury is the recent Senate panel report on how certain financial institutions have been helping their foreign clients dodge paying dividend taxes(approximately $100B annually). Hmmm, ya think shmaybe those dividend taxes could help pay for something like a financial market bailout or something, wouldn’t ya?

  34. 34
    Walker says:

    I keep seeing this would cost every man, woman and child in the US 25K. But children (and some men and women) don’t have to pay taxes. Does anyone have that break down?

    Actually, the number you are seeing is 2.5k if you include children. Bad, but not jaw dropping.

    The real number to consider is households that make more than 30k. That’s the real tax base. If you limit yourself to that, I have seen the number at 31k.
    That is sobering.

  35. 35
    Tsulagi says:

    Bend over, America. Bush and his boys have a hell of a finale planned, and your ass is the star of the show.

    Then get ready for President Palin. She has a plan for Washington.

  36. 36

    […] Lehman still handing out bonuses (bonii?) […]

  37. 37
    TenguPhule says:

    At this point, I am not going to be satisfied with anything less than massive asset forfeiture from these people.

    You are easily pleased.

    I will not settle for less then stripping of US citizenship, followed by firing squads, followed by desecration of the bodies, followed by dumping the liquid remains as shark fodder, because these scum do not deserve to be buried on US soil and their clans need to be branded with the red hot iron of shame for the next ten thousand years.

  38. 38
    oof says:

    Team,
    Let’s not kid ourselves. We’ve all been living way beyond our means and way beyond our production for approximately a generation and a half. Our current market debts are 324% of our annual GDP. During the great depression they were 240%. Buy a gun, buy some gold, and make sure your family members know that you love them. It’s time to pay Charlie.

    The only saving grace may be that China understands if it tries to collect all at once, while the satisfaction of watching America implode would be especially gratifying, the dissolution of its largest export market would not. If China can figure out the financial equivalent of a Star Wars program and strike first, we will have no counter. Otherwise, with its cache of natural resources, a populace used to living within their means and a manufacturing economy that actually makes goods, and cheaply, it can just wait us out. It probably won’t be more than a few decades and the Communists have been known to trade space for time. See: Go, German offensive into Russia.

    The war for North Korea wasn’t a stalemate, we lost it. Time to figure out what kind of terms we can get.

  39. 39
    Grumpy Code Monkey says:

    Is it too conspiratorial to think that they are just trying to keep the shitpile going until January and then blame it on someone else?

    I’ve been claiming this since the early days of the primaries. The intelligent Republicans have been watching the shitpile grow since 2003 and decided early on that they didn’t want to touch it with a barge pole (hence why McCain/Palin is the ticket). The problem is it wasn’t supposed to fall over until February or March when they were all well clear of it and could blame it all on the Democrats.

  40. 40

    Now that the Senate has passed the 700 billon bailout has Wall
    Streets destiny been sealed?

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