Comments on: Opinion: What’s wrong with investment firms? http://www.longhop.net/opinion-wrong-investment-firms/ Mon, 20 Oct 2008 08:06:59 +0200 http://wordpress.org/?v=2.9.2 hourly 1 By: Longhopper http://www.longhop.net/opinion-wrong-investment-firms/comment-page-1/#comment-583 Longhopper Mon, 22 Sep 2008 22:50:19 +0000 http://www.longhop.net/?p=105#comment-583 That's the whole problem. Finance industry thrives on speculations and those who are good at speculating. High interest mortgage lending, when there is no recourse is certainly a liability. In an ideal world, it would be better to have a regulation allowing banks only to borrow against liquid assets as security instead of allowing derivatives and other 'toxic' instruments based on sub-prime lending. Of course, that would be too stringent on financial firms, but if we had it that way, there would be far more stability in the system. That’s the whole problem. Finance industry thrives on speculations and those who are good at speculating. High interest mortgage lending, when there is no recourse is certainly a liability. In an ideal world, it would be better to have a regulation allowing banks only to borrow against liquid assets as security instead of allowing derivatives and other ‘toxic’ instruments based on sub-prime lending. Of course, that would be too stringent on financial firms, but if we had it that way, there would be far more stability in the system.

]]> By: Will - ArenaFlowers.com http://www.longhop.net/opinion-wrong-investment-firms/comment-page-1/#comment-579 Will - ArenaFlowers.com Mon, 22 Sep 2008 08:15:33 +0000 http://www.longhop.net/?p=105#comment-579 Here was an interesting comment back from nath when I sent him your post: One of our senior strategy dudes did presentation recently on Asia (he is Vietnamese). Leaving aside the lower leverage* in Asia he pointed out that you would never get a similar situation there. Basically you couldn’t just default and walk away because this crazy situation of there being non-recourse wouldn’t be allowed to happen. In the US for first home mortgages are non-recourse, which means that once people get into the situation of negative equity they just walk away. Also there has been a mis-selling of mortgage of the most egregious type. That nationwide advert of hooking customers on attractive rates etc. The reason it is all fallen apart though ultimately comes down to the extreme leverage through the system, from the consumer upwards. And unrecognised by anyone at the time, ultimately backing that extreme leverage were US mortgages. Yes, those very instruments that are non-recourse. D’oh! And ref the chapter 11 point: They (banks) can do chapter 11 but unlike with other entities they cannot trade as a going concern. I.e. rules are much harsher for banks. Ch.11 for non-banks is basically a free ride…up to 6mths moratorium on debt which gives chance to restructure and come out back end a stronger viable entity. I don’t know the precise rules for banks but suffice to say that isn’t an option. Here was an interesting comment back from nath when I sent him your post:

One of our senior strategy dudes did presentation recently on Asia (he is Vietnamese). Leaving aside the lower leverage* in Asia he pointed out that you would never get a similar situation there. Basically you couldn’t just default and walk away because this crazy situation of there being non-recourse wouldn’t be allowed to happen. In the US for first home mortgages are non-recourse, which means that once people get into the situation of negative equity they just walk away. Also there has been a mis-selling of mortgage of the most egregious type. That nationwide advert of hooking customers on attractive rates etc.

The reason it is all fallen apart though ultimately comes down to the extreme leverage through the system, from the consumer upwards. And unrecognised by anyone at the time, ultimately backing that extreme leverage were US mortgages. Yes, those very instruments that are non-recourse. D’oh!

And ref the chapter 11 point:
They (banks) can do chapter 11 but unlike with other entities they cannot trade as a going concern. I.e. rules are much harsher for banks. Ch.11 for non-banks is basically a free ride…up to 6mths moratorium on debt which gives chance to restructure and come out back end a stronger viable entity. I don’t know the precise rules for banks but suffice to say that isn’t an option.

]]> By: Longhopper http://www.longhop.net/opinion-wrong-investment-firms/comment-page-1/#comment-577 Longhopper Mon, 22 Sep 2008 06:24:28 +0000 http://www.longhop.net/?p=105#comment-577 Hello Will, I thought Lehman did file for chapter 11 as I read about that in the newspapers. Investment banking does sound interesting to discuss. The Mr. India and Mr. America thing was even more funny on TV as they had illustrations. And the best part is it wasn't Mr. India or Mr. America, it was Mr. Sharma (An Indian surname) vs. Mr. Smith. :D Hello Will,

I thought Lehman did file for chapter 11 as I read about that in the newspapers. Investment banking does sound interesting to discuss.

The Mr. India and Mr. America thing was even more funny on TV as they had illustrations. And the best part is it wasn’t Mr. India or Mr. America, it was Mr. Sharma (An Indian surname) vs. Mr. Smith.

:D

]]> By: Will - ArenaFlowers.com http://www.longhop.net/opinion-wrong-investment-firms/comment-page-1/#comment-573 Will - ArenaFlowers.com Sun, 21 Sep 2008 18:48:24 +0000 http://www.longhop.net/?p=105#comment-573 Hey Adarsh...interesting post. Let's go for a beer and talk this over as I think you're missing a few points. eg banks can't file for chapter 11, which is why all the uk lehman's people got sacked on the spot rather than, as in a chapter 11 situation, continuing to work as the business resolved chapter 11. Let's discuss over a beer. I think you'll find it interesting, as nothing is as simple as it seems. Heroes and villains - definitely not.. Maybe I'll set up a drink with us and one of my friends who's a fund manager and has a few billion under management. He's extremely bright and I think you'd find his insights fascinating. PS This line cracked me up: "Mr. India cannot afford a house because, Mr. America had defaulted on his mortgage payments”. :) Hey Adarsh…interesting post. Let’s go for a beer and talk this over as I think you’re missing a few points. eg banks can’t file for chapter 11, which is why all the uk lehman’s people got sacked on the spot rather than, as in a chapter 11 situation, continuing to work as the business resolved chapter 11.

Let’s discuss over a beer. I think you’ll find it interesting, as nothing is as simple as it seems. Heroes and villains – definitely not.. Maybe I’ll set up a drink with us and one of my friends who’s a fund manager and has a few billion under management. He’s extremely bright and I think you’d find his insights fascinating.

PS This line cracked me up: “Mr. India cannot afford a house because, Mr. America had defaulted on his mortgage payments”.
:)

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