This week marks the one-year anniversary of the Lehman bankruptcy. The media struggles to say something meaningful about it. Here at The Daily Reckoning we will not even attempt meaningfulness. We’ll be satisfied with a few snide remarks.
What is most remarkable about the world a year after Lehman fell it is that so little seems to have changed. Even the papers have noticed.
“A year after Lehman, little change on Wall Street,” says the headline on today’s International Herald Tribune. “Backed by huge US government guarantees, the biggest banks have re-structured only around the edges. Employment [on Wall Street] has fallen just 8% since last September.”
“Obama to push banking overhaul,” says another headline at the Telegraph. Yes, the pols will try to convince the world that they have regulated risk out of the market. Perhaps they will limit salaries…or insist on more disclosure…or require that the capitalists hold onto more of their capital. Then, they will stand before voters and say they have made the world safe for democratic capitalism. Don’t believe it; their bailouts have made it more dangerous.
We don’t know whether this was what Nobel prize-winning economist Joseph Stiglitz had in mind. But he has come to the same conclusion:
“Stiglitz says banking problems are now bigger than pre-Lehman,” says the Bloomberg report.
Yes, Wall Street has a good gig going. The whole industry now benefits from the hedge fund formula – ‘heads I win, tails somebody else loses.’ When the hedge funds play the game, it’s their clients who lose money. But the way Wall Street banks play it, the big loser is the US government directly, and US taxpayers and bondholders indirectly.
When the going is good, the bankers make millions in profits – which they take home as salary and bonuses. An analyst at JPMorgan estimates that American and European banks will pay their 141,000 investment banking employees $77 billion in 2011…or about $543,000 per employee. Since they pay out so much of what they earn, they lack the capital to survive a crisis. But when they’re threatened with extinction, the feds step in to bail them out. No wonder they have no fear of a meltdown…
Wall Street was quiet on Friday. The Dow was down just 22 points.
The most exciting news was that gold closed at $1,006. But if gold buyers were afraid of inflation they neglected to mention it to the folks over in the bond market. The US 10-year Treasury note yielded all of 3.34% on Friday. Which is to say, fear of inflation is probably NOT what is driving up gold. But we’ll come back to that tomorrow. We’ve been doing a lot of thinking about gold…stay tuned.
Meanwhile, The Financial Times says world equity markets have rallied 65% since their lows in March. There is no longer any sign of panic. Or fear. People seem to think the crisis of over. This has reinforced their illusions. They desperately want to believe that their financial authorities have the matter under control. So long as things seem to be stabilizing – or actually getting better – they figure they can relax.
continue to read:
http://dailyreckoning.com/the-world-after-the-fall-of-lehman/
The World After the Fall of Lehman
By Bill Bonner
09/14/09 London, England
This week marks the one-year anniversary of the Lehman bankruptcy. The media struggles to say something meaningful about it. Here at The Daily Reckoning we will not even attempt meaningfulness. We’ll be satisfied with a few snide remarks.
What is most remarkable about the world a year after Lehman fell it is that so little seems to have changed. Even the papers have noticed.
“A year after Lehman, little change on Wall Street,” says the headline on today’s International Herald Tribune. “Backed by huge US government guarantees, the biggest banks have re-structured only around the edges. Employment [on Wall Street] has fallen just 8% since last September.”
“Obama to push banking overhaul,” says another headline at the Telegraph. Yes, the pols will try to convince the world that they have regulated risk out of the market. Perhaps they will limit salaries…or insist on more disclosure…or require that the capitalists hold onto more of their capital. Then, they will stand before voters and say they have made the world safe for democratic capitalism. Don’t believe it; their bailouts have made it more dangerous.
We don’t know whether this was what Nobel prize-winning economist Joseph Stiglitz had in mind. But he has come to the same conclusion:
“Stiglitz says banking problems are now bigger than pre-Lehman,” says the Bloomberg report.
Yes, Wall Street has a good gig going. The whole industry now benefits from the hedge fund formula – ‘heads I win, tails somebody else loses.’ When the hedge funds play the game, it’s their clients who lose money. But the way Wall Street banks play it, the big loser is the US government directly, and US taxpayers and bondholders indirectly.
When the going is good, the bankers make millions in profits – which they take home as salary and bonuses. An analyst at JPMorgan estimates that American and European banks will pay their 141,000 investment banking employees $77 billion in 2011…or about $543,000 per employee. Since they pay out so much of what they earn, they lack the capital to survive a crisis. But when they’re threatened with extinction, the feds step in to bail them out. No wonder they have no fear of a meltdown…
Wall Street was quiet on Friday. The Dow was down just 22 points.
The most exciting news was that gold closed at $1,006. But if gold buyers were afraid of inflation they neglected to mention it to the folks over in the bond market. The US 10-year Treasury note yielded all of 3.34% on Friday. Which is to say, fear of inflation is probably NOT what is driving up gold. But we’ll come back to that tomorrow. We’ve been doing a lot of thinking about gold…stay tuned.
Meanwhile, The Financial Times says world equity markets have rallied 65% since their lows in March. There is no longer any sign of panic. Or fear. People seem to think the crisis of over. This has reinforced their illusions. They desperately want to believe that their financial authorities have the matter under control. So long as things seem to be stabilizing – or actually getting better – they figure they can relax.
continue to read:
http://dailyreckoning.com/the-world-after-the-fall-of-lehman/