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.