Thursday, June 11, 2009
I will attempt to do a reflection of what happened since our last bull run and the events that occured during this period. For those you who have followed the events closely might find this boring, so just bear with me.
In the year end of 2008, the credit crunch, threatened to be Wall Street’s biggest crisis since the Great Depression. Hundreds of billions in mortgage-related investments soured and reputable investment banks crumbled.
Borrowings almost went to a stop due to liquidity worries affecting businesses of all sizes.
In response, the
The last credit crisis is the burst of the tech bubble of the late 1990’s. Sock market began a steep decline in 2000 and US went into recession the following year and interest rates were sharply in hope to limit the damage.
Due to the lower interest rates, houses became cheaper and demand for homes increased, sending prices up. It also gave homeowners the opportunities to refinance their loans.
Things turned sour when home buyers had to leverage themselves to the max to make a purchase. Defaults began to rise in 2006, but lending/borrowing did not slow. The highly intelligent institutions, Banks and other financial institutions, devised complex financial instruments to distribute and resell the mortgage-backed securities and to hedge against any risks.
“The First Bomb”
The first bomb was when2 hedge funds owned by the MIGHTY Bear Stearns collapse. Foreclosures, in fact, helped speed up the fall of housing prices, and default on mortgages increased.
In a very bold move, the Fed helped in “closing the deal” by selling Bear Sterns to JP Morgan at the initial price of USD $2/share. This amount I think/read/assume should be lower than the price of the Manhattan Office building, Bear Stearns owned.
“The Giants”
In August, stock prices of Fannie Mae and Freddie Mac went into a free fall and the
“It never rains but pours.” In Sept again, talks to salvage Lehman Bro broke down and the news of this investment giant’s collapse sent shockwaves throughout the globe, not only the financial systems. In the same time frame, Merrill Lynch another GIANT, sold itself to Bank of American to avoid bankruptcy. At this point, things became very clear. All hopes seemed lost.
In the same month, American Insurance Group, was thankfully bailed out by
Such companies which were supposed to be known for it’s capital management intelligence, failed in their own playing field.
-------------------------------------------------------------------------------------------------
Long story... to be continued.
Monday, June 1, 2009
President Obama will push General Motors into bankruptcy protection on Monday, making a risky bet that by temporarily nationalizing the onetime icon of American capitalism, he can save at least a diminished automaker that is competitive.
The company will also have to shed 21,000 union workers and close 12 to 20 factories, steps that most analysts thought could never be pushed through by a Democratic president allied with organized labor.
To assist in the restructuring, the automaker is expected to hire the consulting firm Alix Partners, which has worked on several major bankruptcies, including those for Enron and Kmart. One of the firm’s partners, Al Koch, is expected to manage the liquidation of corporate assets that G.M. will shed during its Chapter 11 restructuring, people with knowledge of the strategy said.
On Monday, Mr. Obama is expected to argue that any alternative to his plan would be worse, and that a liquidation of G.M. — the only other real option — would send the unemployment rate soaring over 10 percent and would radiate damage throughout the economy.
http://www.nytimes.com/2009/06/01/business/01auto.html?pagewanted=1