Behold a Pale Horse

Wow! What else can you say but, Wow! I thought that the Thursday-Sunday stretch this summer that gobbled up Bear Stearns was breathtaking, I thought the disappearance of Fannie Mae and Freddie Mac were once in a lifetime events but this... this is a whole new order of magnitude. 

Two of the world's largest investment banks ceased to exist this weekend. And they weren't the 95-pound weaklings that Bear was either. They were behemoths. Lehman Brothers had 26,000 employees worldwide. Merrill Lynch had over 60,000. Between them they probably managed over a trillion dollars  worth of assets (yes, that's trillion with a 't').

Unlike the Fed, which did not see fit to save the 3rd and 4th largest investment banks in the world, the markets decided that that the failures of Lehman and Merrill were sufficiently cataclysmic events to shed 505 points - the largest single-day drop in the Dow Jones index since September 17, 2001, the day the markets re-opened after 9/11.

Merrill, of course made out much better than Lehman and it's pre-emptive sale to Bank of America for $50 billion (or about $30/ share) is a huge premium to where it's stock closed today ($17.06/ share). And then there is Merrill's crown jewel, it's fabled "Thundering Herd" of brokers, 17,000 strong, who will likely get absorbed into B of A. But that still leaves another 40-45,000 Merrill employees, a lot of whom (some say as much - or, at least! - half) could end up getting laid off. Not to mention the thousands of B of A employees who will get laid off through no fault of theirs - because they were actually good at their jobs.

And as for Lehman? Well, Lehman doesn't have an All-Blacks of a brokerage team to offer, only $40 billion is toxic real estate debt, and so for the 26,000 Lehman employees, this is the end of the road.

As bad as things got today, they have the potential to get much worse. AIG, the largest insurer in the world as little as a year ago, is on the verge of collapse, an event that would be an even bigger shock to the system (if such a thing is even possible anymore), if for nothing else than the fact that it is part of the Dow Jones index. Its stock price closed at less than $5/ share today, down from $65/ share a year ago, and rumors are that the Fed has asked Goldman Sachs and JPMorgan Chase to lend $70 billion(!) to the insurer. Even if GS and JPM had that kind of money laying around, which they don't; or even if they could syndicate this debt, which they likely can't - is it really going to help at this stage? Or is this like sticking a finger in the dyke and hoping that the dam holds?

Then there is Washington Mutual,  whose stock is trading at less than $3.32/ share and whom S&P and Moody's downgraded to junk status. WaMu looks like it is ripe for failure as well and oh, by the way - it only has $180 billion of exposure to mortgages and related loans.

And finally, consider this: The brokerage subsidiaries of Lehman Brothers were not included in the bankruptcy filings today and remain open for business for the time being. So, the liquidation of Lehman hasn't even started and the already the markets are down 500 points.

So, if you see four horsemen riding about, be afraid. Be very afraid.

Wise Man Say... 08.03

There are 10 kinds of people in the world. Those who understand binary and those who don't.

- Anon

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Wise Man Say... 08.02

The Best Biryani in New York

Omigod! I think I may just have eaten the best biryani there is in New York City! Sangam is that proverbial hole-in-the-wall restaurant (it only seats six) that serves fantastic food from a limited menu. For most such places, the hype usually overshadows the food, but for Sangam, believe the hype, man (or at least get there fast, before the hype does overshadow the food). 

As for the hype, here's what you need to know. I actually found and ate every last grain of rice of the biryani that we got on our last visit, literally - including a few that had fallen off my plate and on the table (much to the disgust of my date). I gnawed at the lamb bones. I even ate the frikkin' raita! I thought of my Mom.

In addition to the biryani (of which there are lamb, chicken and vegetarian variants), Sangam makes a Nargisi roll to die for. My only grouch is that they use ground chicken instead of lamb or beef. And for dessert, there is phirni, which, no exaggeration, will take you back to Birhana Road in Kanpur.

They have some vegetarian dooh-dahs - samosas, veggie rolls and the like - which are probably quite good too (I have no idea, 'cause I didn't try them - see no reason to).

Here's the kicker - Two people can eat there for under 30 bucks! The biryanis go for $7 - $9 depending on what you get, the rolls are $8 for a pair and the phirni is $3. And... on weekends they're open till 2 in the morning!

Someone please wake me - this has got to be a dream.

Apparently Ishrat Ansari, one of the co-owners started the restaurant because his wife made the biryani for some friends, word spread and soon they were deluged with requests for more. I say, good call Ishrat.

 

Sangam, 190 Bleecker St., New York, NY 10012. Ph: 212.228.4648. Open 1PM - 11PM M-T; 1PM - 2AM F-S.

READY! AIM! ........... fire

Given the financial turmoil that Wall Street and most of it's players are in, massive layoffs amongst the heavy hitters of the financial world was to be expected. Everyone on the Street knew that they were coming and in their own way, perhaps even prepared for it. However, the layoffs in this cycle have been different than in those of crises past.

In 1987 after the stock market crash, in 1998 in the aftermath of the LTCM and Russian default crisis and in 2001 after the bursting of the dot com bubble and 9/11, there was a huge amount of bloodletting on the streets of Downtown New York. But it was done en masse, publicly and in one fell swoop. Merill Lynch laid off close to 20,000 employees in 2001, over 10,000 in the fourth quarter alone, undone by the double whammy of the bursting of the tech bubble and Sept. 11.

However, the layoffs in this cycle are markedly different. They are almost being done on the down low, the corporate equivalent of the 3 AM knock on the door. The New York Times in an article called them 'stealth layoffs' and that 'the first clue that someone is gone can be e-mail messages that are returned to senders from a former colleague’s inactivated corporate address.' People who have worked at their companies for a decade or more have been, and are being, shown the door. And in the face of all the 'different opportunities being pursued' and 'different directions being gone in' and the amount of 'time being spent with the family' all around us, almost no public acknowledgement is been made of the people leaving.

Although Wall Street has announced the elimination of about 65,000 jobs in 2008, this time the layoffs have been spread out over weeks and months. As a result of this death by a thousand cuts system of layoffs there is an atmosphere of 'fear, paranoia and anger' amongst employees as they wonder who will be next or when the bells will toll for them. The constant and ever present of losing their jobs, of not knowing in the morning if they will be unemployed by the evening and most of all, not knowing when it will stop is taking its own heavy toll. One banker interviewed by the New York Times pretty much hit the nail on the head when he said that before the layoffs there was a sense of loyalty with the bank, a sense of pride, "that they got my back." But he said that that idea of loyalty had gone from most banks.

Most Wall Street financial institutions have extensive orientation programs for new employees and one of the things stressed is how the institution takes care of its own, even talking about its 'alumni networks' and the excellent business relations it has with its former employees. When new people join the firm, they introduced with great pomp and pride at the weekly meetings but when they leave (voluntarily or otherwise), absolutely no mention is made of it. It's as if the person never even existed.

Call me naive but the realization that an organization could be so mercenary in kicking to the curb employees it felt that it didn't need anymore was kind of shocking. And how is it that most of the financial institutions on Wall Street are behaving the same way in how they deal with layoffs? Like some sort of fashion fad, everyone seems to have gotten the same idea at the same time. I wonder how that works - do CEOs of major investment banks get together and develop a common firing strategy for the year? Bizarre.

And sad.