Last week, we saw a lots of stuff that is most likely a once in a lifetime event. Two of the largest investment banks, Lehman Brothers & Merrill Lynch went bankrupt. The financial markets started to collapse and the government decided that it HAD TO do something about it or else …

So they went ahead and bailed out American International Group (AIG) with a $85 billion dollar loan to be paid back in 2 years. Today (23 Sept), AIG announced that it would have its “For Sale” list ready by next week. AIG plans to sell some of its assets (some business units and real estate) to generate funds to pay back the loan.

On 21st September, that too a Sunday, the last two biggies of the investment banking world, Goldman Sachs and Morgan Stanley were permitted to change their status to bank holding companies from their earlier investment banking companies! This would allow them to be far more strictly monitored by the US Fed (the US central bank, akin to India’s RBI) and the SEC (Securities & Exchange Commission, akin to India’s SEBI).

All this happened as the US Government announced plans to set up a fund of $700 billion to buy the ill fated securities that are causing the turmoil. The US government through the plan proposes to buy the stuff that no one right now wants and then work its way through that once the market stabilises. (By the way, Goldman Sachs & Morgan Stanley would NOT have been eligible to access this fund had they been investment banks only!)

As per the current plan, no one involved in creating the crises is going to be punished. The shocking part, some (? many) of the executives who were part of investment banks who created these products are likely to get “golden parachutes” when they quit (get thrown out?) of their jobs! (Golden Parachutes are large financial rewads given to employees who areprematurely terminated from their jobs, its part of their contract!)

This begs the question: Who is paying for all this mess?

Obviously, the answer is it’s the US taxpayer! With the US government having decided that some things are “too big to fail” and deciding to “support” the system, it clearly is now the responsibility of the common man on the street to pick up the tab.

The focus and concern to get out of the mess as soon as possible and get life to the way it is supposed to be! Not many are asking “Is this fair or is this right?” But there is hope yet as the US Congress debates the plan and there are increasing demands that those who created the problem need to be punished. (At least the French president, Mr. Sarkozy is demanding that!)

 

But I wonder, what about those is power, the legislators, the regulators etc who allowed this financial crises to grow under their noses? Will they ever be brought to book? Over the years, the US (intentionally) removed regulation after regulation in the guise of free markets, competition and de-regulation.

Now they have basically gone way back on their path and realised their foolishness and now want to regulate and repair the damage.

And while I sign off, here's the icing on the cake (sic!), the Goldman Sachs homepage proudly states "Goldman Sachs To Become The Fourth Largest Bank Holding Company". What they of course forgot to mention was that they had been brought to their kness and HAD TO do this to survive or else ... and the Morgan Stanley homepage proudly had a link to, "Morgan Stanley Announces Plan to Pursue Global Strategic Alliance with Mitsubishi UFJ Financial Group" without mentioning (of course!) that Mitsubishi UFJ got on board only because Morgan Stanley was giving away its shares at a fraction of their earlier prices and a few seats on its Board. Indeed, it IS more difficult to accept ones fall from grace and adulation than monetary losses.

Lastly (but not finally!), at no point did the US government say that it would NOT do more toflood the system with more money, taxpayer’s of course, but there isnot need to mention that is there?