Wednesday, September 17, 2008

Poof! $4 Trillion Dollars.

All told when you look at the surviving financial giants on Wall Street, there's been an incredible level of value destruction. Consider that in the last year, Citigroup's market cap has dropped from $236.7 b to $97.8 b and Bank of America from $236.5 b to 150.2 b, the numbers are staggering - totaling $4 trillion dollars (TechCrunch)- and that doesn't even include what US taxpayers will ultimately be on the hook for!

We've felt some of the effects ourselves with our primary credit financing firm closing its service in China given that most of this venture was funded by hedge funds (which is a big part of all the headaches we've had to deal with in recent months in order to meet the requirements of our US/Canadian clients). As a side note, it seems bizarre to me that we aren't able to find a service that will take "risk" of receivables that are fully insured against bad credit, for a price that we (or more accurately our clients) willing to pay of close to 36% per annum!

With the US government taking on full responsibility for AIG despite the fact that 70% of AIG's business was foreign, I tend to agree with Paul Kedrosky who asks where the President and Congress are in all of this? With the level of risk and potential costs that may ultimately exceed even the Iraq War, don't they have a responsibility to "get out in front of growing voter anger and confusion before it's too late"?

PS For those who are interested, here's a fairly accurate sounding prediction of how investment banks will ultimately look like after this debacle (Information Arbitrage). The one thing I probably disagree with is the question of whether or not Bank of America and Merrill will make a good fit. I suspect that this had as much to do with their wide reaching brokerage services as it did their investment bank / trading groups.

Update: Funny and sad - particularly in light of the US Treasury's intervention - "The strength to be there" (via Paul Kedrosky):

1 comment:

Anonymous said...

I'm in Shenzhen! Do you want to hang out sometime? ~Serena