Monday, September 15, 2008

The great dying of American banking icons

These are sobering times. Major American banking icon Lehman Brothers filed for bankruptcy protection and is heading towards disintegration after it failed to find a buyer. Lehman, sinking under US$613 billion in debts, survived the railroad bankruptcies in the 1800s and Great Depression in the 1930s.

And just over this Sunday, we read that in one of Wall Street’s most dramatic history, Merrill Lynch, agreed to sell itself to the Bank of America for US$50 billion to prevent a financial collapse. The great Merrill Lynch? Surely not.

Now, American International Group (AIG) is hanging by its lifeline, as it seeks US$40 billion from the US Federal Reserve to stave off a quick death.

News from Bloomberg says New York State governor David Paterson would allow AIG to borrow $20 billion from subsidiaries to bolster its capital. Shares in A.I.G. tumbled more than 50 percent on Monday (Sept 15), as investors grew concerned over the company’s credit crisis.

AIA policy

I have to fret because I hold an AIA Assurance (whose parent company is AIG), bought since I started working in 1985. And my hubby has an AIA policy now. Will we see any money should we need to make a claim on the policy?

Here is an uninformed person’s take on the whole situation.

America has been the world’s role model for greed at all cost. Now we learn, greed comes with a price on our heads. We also learn, that we should not buy investments we don’t understand.

The American banking system has been the role model for modern capitalist nations – they all want to emulate Lehman, Bank of America or Goldman Sachs. How they fail to see, the “emperor too has no clothes”. Shame, shame.

America has in the past looked at disdain at Asia, at its crony capitalism. Now, we know, America too has its own version of crony capitalists. All those bankers wrapped up in Giorgio Armani or Ermenegildo Zegna suits. They all look positively crisp, the smell of greed lingering out of every pore as they seek to outsmart one another in creating, buying and selling debt instruments no one can understand but themselves.

Here’s what America should learn from Asia. Do what the Koreans did: bring out your gold, and melt them. Except Americans don’t save in “gold” they have annuities which are possibly all invested in airy fairy-type instruments.

America should peg its currency to the Renmenbi, for some stability. China may be able to use some of its reserves to bail America out. (Provided the Crony Capitalists in China haven’t bought heaps of Lehman or Merrill Lynch debt instruments which they thought they understood.)

Or better, America can do what Malaysia did; set up a National Investment Agency (using Fed Reserve money) to buy up all the soon-to-collapse company and salvage all the not-so-junky assets, reemploy all those men-in-fancy outfits. Soon you’ll realize, people forget. And life goes on. See how Malaysia survived.

One other way is to have the IMF bail out America. Except, where would the IMF get its money from (since the US is the largest holder of voting rights (which I read to mean also financial contributor). Then IMF would have to lay some rules on the banks in America – no more excesses. No more new expensive suits and mega laptops and fancy Bloomberg or Reuters-Thompson trading terminals in their dealing rooms. Use the abacus, they are cheaper. No more lattes or mochachinos, drink Chinese green tea.

Perhaps America should let some Arabs take over their banking system, convert them into hybrids – a form of Islamic banking housed in capitalist buildings.

Or perhaps, America should sell some of its banking assets to a venture owned by the oil-rich states in the Middle East and the nouveau riche in China. Then the Chinese and the Middle East will teach the world their form of trading, the Ali Baba kind which is less complicated.

Here’s how you and I, as man-in-street may be affected. Imagine all the layoffs in the US? Well, these financial types will soon be walking in the streets, looking for work. They will flock to Asia, Europe or elsewhere, to sell their “once were warrior” skills.

I love this saying: “Those who don’t learn from history are doomed to repeat the mistakes of the past.” So, unless we remember the price of greed, we will always have to relearn what we missed learning.


  1. Another interesting/disturbing fact is that the Iraq war is the first war to be 100% funded by foreign debt/borrows.

  2. Interesting. Wonder which other wars in history were funded that way...Now that American banks have their own mess to sort out, bet, it will become less easy to swap debt for new territories.

  3. The ~10 yr cycle is true!
    1986 --> 1997 --> 2008

    Not sympathetic of what's happening in the banking world... the hotshot bankers lived lavishly during the boom time, and creating that bubble that's just burst.
    i'm actually more concerned on the ripple effect to the ordinary folks who are trying to make a living... now hit with economic slowdown and high inflation.

  4. anyone who thinks financial markets don't need regulation have just seen the consequences. Preservation of capital and not rates of return should be the government's guiding principle.

    I would feel a lot better if the bankers, mortgage lenders and others had to work minimum wage for awhile. Maybe a view from the bottom up would change their perception

  5. you are great...Har looi boleh!!!


Hi, I welcome your say on the matter!