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As widespread as the financial turmoil may turn out to be, I confidently forecast that the downturn in hubris in the City and on Wall Street will be as short-lived as ever...

I have a job interview with a differently-named part of ML next week - should I cancel?

Bizarrely, I don't think I would be selected anyway as I am short on the experience spec, but maybe a lack of experience might help, given what those "experienced" folk of ML have done?

Of course Greenspan and King have screwed up on int rates and allowed this property bubble, when Greenspan was so keen to limit "irrational exuberance" on shares. How many times have I and others said it? Well, we do indeed lack experience and I might as well give ML a miss next week.

For a number of years there has been very little control on borrowing.
Gordon Brown's wonder economy existed because of borrowing, it was manufactured money not money made from manufacture.
It was not only Greenspan but Governments that shared the blame.
We used to be quite happy if a business traded and held it own, if it grew 1% we were over the moon.
20% growth a recipe for disaster.

regards

It doesn't get any better does it!

Many of the figures stated for US banks and brokers are huge and many in the UK will say how will this affect us?

The answer is simple much of the extra liquidity flowing into the UK over the past few years has come from the States. After 9/11 US interest rates were cut and a lot of money came over here from the US looking for better returns either on investments as cash or by means of buying up UK financial institutions.

Much of the money that was borrowed by Northern Rock and the like to fund mortgage lending came from the US. Many of the debt finance houses for sub prime debtors such as Ocean Finance (ultimately a subsidiary of the huge American Financial giant AIG) are funded by American companies.

Many of them will need to return that capital to the States and soon!

Expect a further tightening of the finances in the UK over the next few months.

Can the RSS feed on ´óÏó´«Ã½ blogs post the full text of articles not just the first two lines, like it used to?

Merrill will be ok in the long run.

OK their stars won't get Ferrari buying bonuses this year but they will find a way to earn money out of the malaise in 2008.

Don't cry too many tears over them they can look after theirselves.

Robert I do not doubt that this is somewhat of a crisis, and it is good to see that you have, for once, exercised some balance by demonstrating that there is a positive side to this. The fact is that there will be winners and losers, but even the numbers being talked about represent just one year's profits for some banks and have to be taken in to context. Just at this moment, that is what financial reporters are failing to do. I rather thought an asteriod would hail the end of the world, not the sub-prime market !

Merrill will be all right don't worry about them.

No new Ferrari's for their dealers this year and the property prices in London might steady a bit but other than that it won't have any long terms effect.

Hi Robert! Former Merrill boss gets $161.5m says it all. Standards in banking & finance went right out the window in five years, about the time central bank supervision was stripped out of the market, then the new generation of managers came in with no experience and no principles. The result - grotesque incompetence.

Central bank supervision has never received its due. It did management's job for them, it picked up the slips and the errors, it headed off a hundred such crises.

So Finance Ministers meeting in Paris looking for ways out, it's a no brainer. Learn a lesson from history. Legislate the Patroit Act, re-open the inspectorates and implement the audits. We've been in the dark too long and we still are. Best practice will claw the way back and you'll get see how much has been burned.

I think your point about overstating losses is something which has actually been missed from a lot of reporting on this subject. Many of these "losses" will be paper losses due to having to mark investments to market. However, the lack of a secondary market means it is quite probable that they have overstated the loss on them. When the markets return to normal they will be able to price their paper more accurately and will therefore make paper "gains"

This whole CDO mess is imploding. Today AMBAC is down >50%, MBIA down > 25%. What betting Moody's downgrades them?

we have heard nothing but disaster on the sub prime matter, but at last we are hearing the otherside,as usually there are two sides in the game losers AND winners.
so who else is smelling of roses?

we have heard nothing but disaster on the sub prime matter, but at last we are hearing the otherside,as usually there are two sides in the game losers AND winners.
so who else is smelling of roses?

We learn something new every day.

For example that 'financial innovation' means ofloading poor grade investments by creating a totally new index and by sleigh-of-hand C grade 'magically' becomes AAA in the new index.

Also, loaning to NINJA's in the expectation that property inflation will do the rest.

I expect some of you can think of some other fine examples of 'financial innovation'.

We learn something new every day.

For example that 'financial innovation' means offloading poor grade investments by creating a totally new index and by sleigh-of-hand C grade 'magically' becomes AAA in the new index.

Also, loaning to NINJA's in the expectation that property inflation will do the rest.

I expect some of you can think of some other fine examples of 'financial innovation'.

First there were packs of us like dogs controlled and kept in line by the biggest and strongest, follwed by tribes, religion, lords and land owners, slavery, common enemies all steps along the path to enlightenment and freedom. What Then!
Well how about consumerisum and debt, were sold it by endless advertising and once sold we are caught and kept in line.
These companies are a main cog in this system and will survive because they have to.
Our system is not perfect but its not bad as long as we still have a vote that means something.
The problem may be the new big dogs (new world powers) may not want a vote that counts.

It's serious stuff. Losing $10bn isn't chump change. Why are foreign investors supporting these banks, each time they stump up the cash and then more bad news comes. Why wade in now, surely we are a long way from the bottom of the market.

Robert, could you look into the issues with the so-called monoline credit insurers please? If they are facing financial difficulties, then a lot of AAA-rated debt is suddenly going to become toxic, meaning the write-offs from the likes of Merrill Lynch and Citigroups will continue, indeed worsen.

You lose I win ,I win you lose.
This more ,or less describes the financial service industry encompassed by the likes of Merrill. The Merrills of this world profit disproportionately from the gains on the way up care of whatever the latest new scheme may be that manages to circumvent client interests ,but they are well sheltered from sharing in the losses that accrue on the way down. Indeed the higher you are in management the larger the payoff you are going to get when your failure hits the proverbial fan.

Until that changes expect more of the same.

Personally I would not invest in shares and particularly financial shares anymore than I would open my window and throw bank notes to anyone who cared to pick them up.
I will however trade everyday and profit from all of the extremely poor share transactions that pass these days for investment.

To actually invest in a way that takes a part of the business I would only deal with the Buffets/Berkshires of this world. For the most part the rest could not spell integrity nevermind execute it managerially.

Is it true that Merrill will be paying out £5 billion in bonuses in the next few months? If this is the case they deserve to fall.

The really big question is how many of our illustrious UK banks are still not telling us the truth about the level of their losses.

Some of our banks have lent huge sums to private equity companies who have spent it acquiring existing companies and not creating anything new. Hence our ability to trade our way out of this situation is severely restricted.

Although a free marketeer by nature I'm rapidly coming to the conclusion that private equity companies need to be legislated out of existence. Strategically they add nothing to the UK economy.

Iain,

Ofcourse ML will be paying out bonuses. Every competitor does, so if ML doesn't, all the good people will leave and in that case they will definitely fall.
Also, the problems within ML are limited to credit and fixed income. Other divisions, like Equity/FX posted record profits. Not rewarding anyone because of the actions of a handful of people sounds unfair to me.

None of this is really surprising to those who have watched the bubble develop in the debt markets over the last several years. What is a lot more surprising is that the "wise" old souls making up the Merrill board of Directors felt that it was appropriate to pay the departing boss, who "led" the company into this mess, a $150m bonus when he was sacked. There is something grossly wrong somewhere in this equation!

It is obvious from TV news reporting that many commentators have no idea how unreal much of the money involved in these so-called 'losses' really is. The division of the BOE's loans by the number of UK taxpayers to give so many thousand pounds 'cost' each is a case in point.
As many on this blog know, the billions lent to Rock were merely created for the purpose and will eventually be un-created.
Doesn't this creation of money cause inflation? Not if its prime purpose is to inject 'liquidity' to compensate for the effective loss of money when the lending system freezes up.
So the costs, risks, and problems associated with this crisis are a lot less than headlines would have us believe. Indeed, you could say the whole thing shows how resiliant the system (ie including the BOE) is in compensating for the idiocies of other parts of it.
My only complain about this, is that instead of the money-creation being done by central government and helping to pay for our services, it is has been privatised and the financial wizards are the main ones who gain from it.
Is it time we decided to give the money-creation back to to governments?

What is wrong with these finacial experts, so called wizareds? They seem to be wizareds in filling their pockets and to hell to the rest of the economy. They are wizards in putting smoke screen around their activities and portray a wouderful illusion to the rest of us. It happen in the eighties and it is happening now. What is wrong with our economists and finacial experts? It is time they should be held accountable to their mischives.