A panel discussion with Princeton economists, who will review recent events on Wall Street and assess their implications for the economy and public policy.
Slides presented by Hyun Shin – Crisis on Wall Street
Slides presented by Markus Brunnermeier – Thoughts on a New Financial Architecture
Slides presented by Harrison Hong – How We Got Here and Some Lessons?
Slides presented by Paul Krugman – Notes on the bailout
When volatility is high, equity is low, and the dilution effect is soaring short term financing is harder to get and the roll over ends. Margins erode the capital base and equity shrinks and if Brokers and Dealers cannot get a capital infusion they are forced to sell assets at fire sale prices. This loss spiral will eventually drive them into bankruptcy.Let’s take a look how much Broker/Dealers assets are financed in the overnight repomarket?
Without doubt, US broker-dealers’ efforts to diversify their funding sources have not gone far enough, with most of the large groups still largely reliant on repo, a type of cheap financing which contributed to the fall of Lehman.
During the past few weeks I have carried out a rigorous and methodical analysis of the financial industry. The following spreadsheet contains the analysis of the most venerable banks, insurance companies; financial services companies that make up the U.S. financial system. Among others, the spreadsheet covers 779 U.S. financial institutions.
Financial Institutions Spreadsheet
Before investing in any bank for the long-term right now, you need to understand banks’s capital adequacy. A financial institution can be placed into a regulatory category ranging from well capitalized to critically undercapitalize. Classification in the undercapitalized categories can have a material effect on the bank’s operations. For instance, the minimum regulatory capital requirement for a bank to be considered well capitalized would be if it maintained a minimum Total, Tier 1, and Leverage of 10%, 6%, and 5% respectively. Federal institutions require banks to maintain a minimum level of equity-capital. If a bank increases its level of risk, it should increase its equity as well in order to absorb unanticipated losses and protect depositors. The major capital adequacy ratio is the Capital Ratio.
For each size category, the sum of equity held by banks with average assets greater than zero is divided by average assets.
If the Capital Ratio increases over time, it means that the bank is taking less risk, and conversely if it decreases, more risk. Federal banking agencies set minimum capital requirements in several categories such as Total Risk Adjusted Capital, Tier 1 Capital, and Tier 1 Leverage Ratios. It should be noted that Federal regulators could raise the minimum requirements.
For observations of typical Capital Ratios, between 8 to 10 percent is considered good; and greater than or equal to 10% is very good. Less than or equal to 8%, we 7.5% is considered OK. However Federal Banking agencies permit lower than 5.5%, but I suggest, in this case, reviewing the Regulatory capital section of the Annual Report / 10K to investigate further what they have to say. For historical 10K & 10Q go to ADVFN USA.
Nico
Mr. Buffett poses with Nico
A single conversion with Mr. Warren Buffett can be better than ten years of study.
Possessed of an encyclopedic knowledge of the corporate
world. A razor sharp business man, a genuine leader,
gifted at bringing out the very best in others. An awesome
ability to illuminate the most complex economics concept
to colleagues, students, and the person on the street.
The kind of person who can wear myriad hats but doesn’t sweat.
But underneath the elegant surface, was an adventurous spirit.
Transcription of the interview at the Ben Graham Centre for Value Investing
Lehman has officially filed for bankruptcy protection, becoming the second major Wall Street firm to disintegrate under the weight of the deepening credit crunch.
In the bankruptcy filed, Lehman listed Citigroup among its biggest unsecured creditors, with about $138 billion in bonds as of July 2. The Bank of New York Mellon Corp. was listed as holding about $17 billion in debt. As of May 31, Lehman had assets of $639 billion and debt of $613 billion.
- Based on the Largest Unsecured Claims (Page 7), Lehman has surpassed WorldCom as the largest U.S. bankruptcy ever.
- Lehman had about $639 billion in assets, while WorldCom had about $107 billion when it filed for bankruptcy protection in 2002.
The following document is the filed for Chapter 11 protection in the U.S. Bankruptcy Court in the Southern District of New York.
Also, the affidavit of Ian T. Lowitt explaining Lehman’s trouble.
Affidavit Explaining Lehmans’ troubled
Filing for Chapter 11 protection allows Lehman to restructure while creditor claims are held at bay. The company most likely chose to file under Chapter 11, rather than a Chapter 7 liquidation, so it could retain more control over the selling off of assets
Rafael Nicolas Fermin Cota
I think Jim Rogers is worth listening to. He’s been very successful investor, having co-founded the Quantum Hedge Fund with George Soros.
And The Hits Just Keep On Comin’
