I spent the weekend at the California Bankruptcy Forum annual conference, which was held in Indian Wells near Palm Springs. Nothing like golfing in 115 degree weather. Wilbur Ross was the luncheon speaker. He certainly has a commanding presence. He is investing big time in the morgage and loan servicing business. He thinks it will take another year to work out of the present mess. His statements were relatively conventional wisdom. He shared the following anecdote. His son, a Wall Street investment banker, was golfing at his club on Long Island, and his caddy asked him for some advice. Apparently the caddy owned ten condos in Arizona and wanted to know whether he should walk away from the mortgages. Ross' son asked some questions of the location of the properties, etc., and the caddy had no clue. That is is the crisis in Ross' eyes -- people with no clue getting loans from people with no clue and then making investments with no clue.
Raghu writes: >> It is important to understand that the financial world has changed >> since the days of Drexel. Bear, Lehman and others have played the Fed >> like a fiddle, because they have very deliberately and consciously >> made themselves too big to fail, and then stripped their own companies >> of assets by paying themselves fat bonuses. (Drexel, unlike Bear, was >> not involved in a complex web of credit default swaps that had the >> potential of causing cascading failures.) >> >> I think you are way overestimating the stability of the financial system. I came of age as a bankruptcy lawyer in the early 90s. Great time to be a bankruptcy lawyer. The financial markets had taken a double hit: (1) the tax reform of 1986, which effectively pulled the rug on a lot of tax-sheltering investments, and (2) the indictment of Milken and fall of Drexel, which effectively pulled the rug on the junk bond market. It took about 5 years for the consequences to work their way though the system. And that's my point. The United States has the institutions -- bankers, investors, lawyers, courts -- to deal with these problems. The assets were reallocated and the market, after significant pain for a lot of people, went on its merry way. I see no reason why the present is any different. Arguably, and very ironically, Bear Stearns is what we call "bankruptcy proof," meaning a chapter 11 filing would not stay the exercise or rights and remedies against Bear Stearns, because the investment banks passed legislation that exempts most securities transactions from the bankruptcy stay. However, if there was a cascade of defaults, the financial institutions, by which I mean the investment bankers, lawyers, courts, etc., have the ability and flexibility to ultimately resolve the problems. There will be lots of litigation. Lots of people will lose lots of money. But the assets will get reallocated and the market will go on its merry way. David Shemano _______________________________________________ pen-l mailing list pen-l@lists.csuchico.edu https://lists.csuchico.edu/mailman/listinfo/pen-l
