Page 2 of 2 Silences say it all
By Julian Delasantellis
At about 11am, Reuters reports that Barclays Bank wants to take a lead role in
the rescue package, but by early afternoon that prospect is going down in
flames. At 4pm, Bloomberg reports that Bank of America has pulled out of any
rescue deal , and that Lehman has retained bankruptcy counsel - presumably,
it's not going to use one of those $49.99 web legal sites advertised on US
tabloid TV. In the old days, now would be about the time that those working on
newspapers with printing presses would be filling their racks with movable type
that spelt out Lehman's obituary.
In late afternoon, the Wall Street Journal reports that Bank of America, rather
than bidding for Lehman, will purchase Merrill Lynch, which used to proclaim
proudly in its advertisements that it was "bullish on America", for about $40
billion. After Lehman met its fate with Madame Guillotine, Merrill was expected
next loaded into the tumbrel and brought to its fate at Place de la Revolution;
maybe now it was getting a higher number.
Is this some sort of bizarre evolutionary adaptation to the changed
circumstances, in that the much bigger BofA/Merrill amalgamation can now taunt
Paulson along the lines of "oh, so I'm wasn't too big to fail last week? How
about now?" Meanwhile, the Lehman-related news is slowing, and that can't be
good news regarding any possible upcoming deal.
At 6pm New York Time, the Australian stock market opens relatively firm, but
Dow Jones futures open on the Chicago Mercantile Exchange's GLOBEX system down
300. That could have been worse; then again, the market still has 22 long hours
to go before Monday's close.
At 7pm, CNBC and Fox Business go live with early coverage of the ever-more
frightful weekend meltdown. CNBC has a camera outside Lehman headquarters on
Seventh Avenue, showing ice-cream vendors, fairly normal and expected for a
warm, humid summer evening, and Lehman employees carrying their personal
possessions out of the building under the watchful eyes of NYPD patrol cars,
At about 8:30pm, the Wall Street Journal reports that the Bank of
America/Merrill Lynch buyout , thought impossible just this morning, was now a
$50 billion done deal. With the essential nationalization of Fannie and Freddie
last weekend, along with this weekend's entertainment, the architecture of
American finance under the credit crisis is changing just about as fast as that
of 1945 Berlin under Russian Field Marshal Zhukov's howitzers. Specifically, is
this the end of that uniquely American archetype, the buccaneering, cocky
Before Bear Stearns in March, these institutions didn't even have access to the
Federal Reserve's Discount Window - they haughtily said they didn't need it.
Its six months of access to the window didn't save Lehman; now, the only real
specimens of the breed are JP Morgan and Goldman Sachs. On CNBC, Nouriel
Roubini of RGE Monitor says that even these two August names won't be able to
survive independently all that long.
The vagaries and wild fluctuations of daily loanbook management, where banks go
into the interbank repo market to fund their loan portfolio, just can't be
relied on as a reliable funding source as much as normal average Americans
coming in every day to deposit a paycheck into their checking account and then
going about living their lives. When the bank repo funding system is under
stress from the high tech bank runs that have felled both Bear and Lehman in
six months, it's not even close.
At about 9:30pm, Bloomberg reports that, with Merrill now safe in BofA's bosom,
the AIG insurance company, at this time presumed to be the next moving duck
rolling into range in the shooting gallery, will eschew funding from private
equity to borrow from the Federal Reserve. Oh, is the Fed now lending to
insurance companies? How about Detroit auto companies? How about my neighbor's
daughter's lemonade stand; with the relatively cool summer we've had around
here her balance sheet must certainly be hurting.
Is it that now not only that nobody's too big to fail, but, also, nobody's now
too far removed from the Fed's original or chartered mission to borrow from the
Discount Window? Paulson can, with a somewhat straight face, say that no
taxpayer money is being put at risk here; the extra liquidity inherent in all
this extra Fed lending will cause inflation only many years hence. Besides,
what pundit wants to talk about growth in the money supply when everybody's
screaming about Sarah Palin's lipstick?
10:15pm: CNBC reports that a crowd is gathering outside Lehman headquarters;
with all the police and camera crews about, they think that some celebrity is
about to emerge from the building. "Look, is that Jim J Bullock? "" Nahh, just
some investment banker about to jump off the Brooklyn Bridge."
At 10:55pm, John Harwood reports for the New York Times that both presidential
candidates Barack Obama and John McCain will comment on the weekend's
developments on Monday. Obama, of course, will use these events to emphasize
the need for change. McCain might say that his running mate, Sarah Palin, can
well handle Wall Street, what with her experience changing five sets of dirty
nappies. He may have a point there.
What happens next? Well, the US dollar's two-month rally against the euro is
stopped dead in its tracks; the market thinks that, at its regularly scheduled
Federal Open Market Committee meeting on Tuesday, and perhaps before, Bernanke
will break down, abandon the fight against inflation and cut the Federal Funds
rate below 2%.
Will the "nobody's too big to fail" policy hold, at least for the upcoming
42-day silly season until the presidential election? If the Dow Jones Average
is down a thousand points or more when the next supplicant pounds on Paulson's
door, the Treasury secretary will go deaf from the screams to get back in the
game, the loudest of these, of course, coming from John McCain.
For me, the greatest wisdom of the weekend was not proffered by some banker or
financier, but by the girl walking by the NY Fed in her "Asexuals Party
Like 1970s patrons of San Francisco bath houses who partied long and hard when
freed from the restrictive mores of the past, the bankers and financiers of
Western finance capital partied long and hard in the new, liberated
deregulatory atmosphere of the early years of this decade. Whereas the bath
house aficionados were promiscuous and profligate with body parts, the bankers
were similarly reckless in using the monies under their charge with abandon,
without regard to previously accepted banking rules of propriety and prudence.
The results are just about the same. The bath houses, and many of their
patrons, aren't around any more - just like a lot of the most freewheeling
financiers. The asexuals are partying hardest because they're still alive, just
like the banks that never much partook of the subprime/structured finance orgy.
After 1am New York time, Lehman announced its bankruptcy. An old Roman saying
had it that one should "say nothing but good of the dead", so there's nothing
left to say.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at email@example.com.