Home > Human Rights, Money, Organisations, USA > AIG, Lehman Bros and Mogan Stanley …

AIG, Lehman Bros and Mogan Stanley …

September 16, 2008 Leave a comment Go to comments

It seems that the bigger you are the better – with AIG – you are dealing with a critical part of the world financial infrastructure.

AIG has over 70 million customers in over 100 countries with 116,000 employees (2007) with assets in excess of a trillion dollars – that is impressive – but that is not the key to the reason why they must survive – the company insures bank loans worldwide, as well as risks on all sorts of hard and soft assets,  it insures deals and investments across the globe – would have a far greater impact on financial markets than Lehman’s collapse.

If the company were to fail, many banks and investment funds in the US and worldwide world would lose their insurance cover at a time when defaults on payments are likely to rise.

The bail out of some USD$85 billion dollars – which will take control of 80% of the share holding into the Public ownership, is not a small purchase, however the Federal Reserve has initiated the buy out and will take control of 80% of the company, will also most likely remove its management, in a similar fashion to the way it took control of mortgage giants Fannie Mae and Freddie Mac which were crippled by the US housing crisis.

Due to the market slump, AIG was badly affected by the collapse of the US housing market, owing to the underwriting payments it was forced to make when customers defaulted on their loans.

I wonder if they will change their thinking, I wonder if they will continue to pay bonuses – now of course with Public money… could they be so stupid ?

Lehman Brothers

It has been released that Barclays Bank (UK) has said that it had reached a deal to buy Lehman’s US investment banking and capital markets businesses.  This well timed purchase will cost Barclays some USD$250 million – but still has to be approved by the US Bankruptcy court. If approved this will make Barclays the third biggest investment bank in the US. 

Barclays have also confirmed that subject to approval they will also purchase Lehman’s New York headquarters, as well as its two data centres in New Jersey for $1.5bn.

Morgan Stanley

Morgan Stanley confounded critics last night by releasing a forecast-beating third-quarter results designed to fiercely combat suggestions that its independence may be in jeopardy, the investment bank, which had been due to unveil its results later today, reported a profit of USD$1.43bn for the three months to August – 2.8pc down on the same period last year, but beating analysts’ expectations by 69pc.

Chairman and chief executive John Mack stressed that the results had been achieved “despite unprecedented market conditions” and said that the bank had continued to reduce its legacy positions and carefully manage its risk, capital and liquidity.  Shares in Morgan Stanley, rose almost 9pc in extended trading after Wall Street had closed for the day.

Worldwide Fallout

The Bank of England and the Bank of Japan have also injected almost USD$40 billion and almost USD$25 billion respectively into the money markets.  The Australian Reserve bank has injected over AUD$4 billion into the local market – the reason for this response in these and other markets is to alleviate and hopefully lessen the inter bank rate – that rate at which Banks lend money to each other – this money release is something that they has been happening worldwide on a on-going basis since the start of this total loss of confidence – called the credit crunch.

Some observations – if you think about the money side – much of the money that has been printed in the last 10 years has ended up in the pockets of the top 5% and it is now that money that is being destroyed – but what about those investors who aren’t the top 5% – what about the normal Mr & Mrs America who were relying on these investments perhaps for their retirement?

Australia – Babcock & Brown & MacQuarie

The downgrading of Babcock and Brown by S&P as there is talk of the possibility that B&B may default.

This whole business model relying on cheap debt is no longer viable – difficulties surround the MacQuarie Business model as well.  The era of these types of business models is no longer sustainable.

Conclusion:

This whole mess has dealt an irrevocable blow to the old boys club – all of the banks and institutions KNOW that their own books are in a mess so they rightly assume everyone else’s is as well – which means that nobody can or will deal.  Confidence and trust is what we are dealing with here – and only time can see this grow back.

 

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