Déjà Frikkin' Vu

Another day, another bloodbath...

The Dow shed 450 points in the second largest sell-off this year. Considering that the largest occurred only two days ago, this is beginning to feel like a gang-bang! Once again it was financial stocks that got battered, in particular Morgan Stanley and Goldman Sachs, the last two independent investment banks left standing. MS dropped 28% from its Tuesday close and GS dropped 19%, leading some observers (ok, only me) to wonder - if their stocks took such a battering the day after they announced results in which they beat analysts' consensus estimates, what else is there left to say?

The fierce, and relentless, pounding has started to make dents in the MS edifice at least. It has started preliminary merger talks with Wachovia. Perhaps MS CEO John Mack wants to ahead of the game, a la Merrill Lynch, but I sure hope he knows what he's doing. Now that the market has sniffed MS blood in the water, if he has started something he cannot finish and these talks go nowhere, things could get very ugly for MS indeed.

Wise Man Say... 08.04

This too shall pass.

    - King Solomon

 

Update (9.29.08): Will it?

Hold the Horses?

Just as we thought that the end of the world was upon us, comes news that it might have been temporarily postponed. After doing nothing to save Lehman Brothers from bankruptcy over the weekend, the Fed finally blinked and has decided to extend a 'bridge loan' of $85 billion to AIG, which otherwise would have filed bankruptcy on Wednesday (it had apparently already engaged the same bankruptcy lawyers as Lehman to handle their paperwork. If only Weil Gotshal & Manges were a public company. Now, there's a growth stock for you!). Under the terms of the deal, in return for the lifeline, the US government will get an 80% stake in the company. The line of credit is available for two years, will accrue interest at 3M LIBOR + 850 and will be repaid by the sale of AIG's assets.  The loan is collateralized by all the assets of AIG and the US government has right to veto the payment of dividends to common and preferred shareholders.  This basically means that shareholders of AIG will be 'severely diluted' (read wiped-out).

It also means that AIG will eventually be liquidated, likely sooner rather than later, just not at the fire sale prices that would have been the result of a bankruptcy. Considering that AIG has over $1 trillion in assets (again, with the 't'!), a bankruptcy slash fire sale would have made the Lehman situation look like a Thanksgiving sale at Macy's. Plus, with the agencies downgrading AIG by two (Moody's, Fitch) to three notches (S&P), it would be required to post an additional $13.3 billion of collateral, money it simply did not have.

In sum, AIG "could not be allowed to fail."

In other news, Barclays PLC has agreed to buy the US investment bank of Lehman Brothers for $2 billion and about 9,000 employees of the investment bank will join Barclays. Not included in the sale are any of "Lehman’s real estate, real-estate-backed securities, derivatives positions or over-the-counter trades." So, Barclays is basically buying the 'good' parts of Lehman and is getting almost exactly the same deal it wanted when it was negotiating a sale of Lehman over the weekend but Dick Fuld had put the kibosh on those plans.

But because Lehman, the holding company, is under bankruptcy protection, Barclays can pick and choose the parts of the company it wants and leave the rest to be liquidated by the bankruptcy court. So Lehman's filing bankruptcy got Barclays the deal Lehman wouldn't do to save itself.

Oh, the irony.

R.I.P - Richard Wright

Richard Wright, one of the founding members of Pink Floyd along with Roger Waters, Nick Mason and Syd Barrett has gone to the Dark Side of the Moon.

And I am not frightened of dying, any time will do, I
Dont mind. why should I be frightened of dying?
Theres no reason for it, youve gotta go sometime.

- Richard Wright, The Great Gig in the Sky

R.I.P - David Foster Wallace

David Foster Wallace - novelist, philosopher, journalist, humorist and one of the best wordsmiths to put pen to paper died on September 12, apparently having committed suicide by hanging himself.

In his fiction, Wallace was considered the heir of Thomas Pynchon and Don DeLillo and in his essays and observational pieces, he could be a combination of Malcolm Gladwell and Chuck Klosterman. He could write with equal felicity about tennis, porn or food. He was published in the New York Times Magazine, the New Yorker and in Playboy. His breakthrough novel, Infinite Jest was named one of Time magazine's 100 Best English Language Novels.

I first learnt of Wallace from a 2004 Gourmet magazine article about the ethical complexities of boiling alive lobsters for food. I remember thinking at the time, 'this is an odd article for a food magazine.' But that was the subversive genius of Wallace - he could write a philosophical screed on the "whole animal cruelty and eating issue" in a food magazine. I'm sure that when Gourmet commissioned him to write the article, they were expecting a standard issue travelogue , not a footnoted, annotated essay, which as Slate writer Troy Patterson puts it, "ranks as a must-read for anyone even thinking of having dinner."

Since we all think of having dinner at some point, here is the article. Hopefully, it will make us think also of David Foster Wallace.

Godspeed, and farewell.