Comments on: Wall Street Losses Reach Half of Post 2004 Profits (And the Fat Lady Has Yet to Sing) http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html Sun, 22 Nov 2009 01:53:05 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Lune http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9621 Lune Mon, 16 Jun 2008 19:22:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9621 <i>Do you think that a financial system composed of a few, large, highly regulated firms is in our best interest?</i><br/><br/>As opposed to a few, large, highly <i>unregulated</i> firms...?<br/><br/>Also, WRT the original article, it's not at all true that the losses have erased the profits of financial firms. It's erased <i>shareholders'</i> profits. In financial firms, much of the profits of their business activity get funneled to employees through outrages salaries and bonuses, while the shareholders and equity investors get saddled with losses.<br/><br/>When the net worth of the executives of these firms goes back to 2004 levels, that's when you know a full accounting of profit/loss has taken place. I'm not holding my breath for such a correction, however. Do you think that a financial system composed of a few, large, highly regulated firms is in our best interest?

As opposed to a few, large, highly unregulated firms…?

Also, WRT the original article, it’s not at all true that the losses have erased the profits of financial firms. It’s erased shareholders’ profits. In financial firms, much of the profits of their business activity get funneled to employees through outrages salaries and bonuses, while the shareholders and equity investors get saddled with losses.

When the net worth of the executives of these firms goes back to 2004 levels, that’s when you know a full accounting of profit/loss has taken place. I’m not holding my breath for such a correction, however.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9603 Anonymous Mon, 16 Jun 2008 13:54:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9603 ☺☺Richard Kline said... <br/>"...this tells us plainly how LITTLE value added there actually is in their business model. Without destabilizing churn, these concerns simply aren't exceptionally profitable."<br/><br/>Richard, I would take that one step further. I believe the entire financial sector is bloated. Take this observation from the NY Times article: <br/><br/>"For now, investors are not holding out hope. They have dumped bank stocks with each round of bad news, and recently the financial sector lost its perch atop the nation’s stock market. The combined value of technology shares, those darlings of yesteryear, has eclipsed that of financial stocks. And the energy sector is not far behind."<br/><br/>There is something horribly wrong with a society that values its productive sectors much less than its financil sector. Don't I recall something in the Bible about money changers in the temple?<br/><br/>Anyway, if we are going to get back to anything resembling a healthy, productive economy, technology and energy need to rise further and the financial sector still has a long way to fall. ☺☺Richard Kline said…
“…this tells us plainly how LITTLE value added there actually is in their business model. Without destabilizing churn, these concerns simply aren’t exceptionally profitable.”

Richard, I would take that one step further. I believe the entire financial sector is bloated. Take this observation from the NY Times article:

“For now, investors are not holding out hope. They have dumped bank stocks with each round of bad news, and recently the financial sector lost its perch atop the nation’s stock market. The combined value of technology shares, those darlings of yesteryear, has eclipsed that of financial stocks. And the energy sector is not far behind.”

There is something horribly wrong with a society that values its productive sectors much less than its financil sector. Don’t I recall something in the Bible about money changers in the temple?

Anyway, if we are going to get back to anything resembling a healthy, productive economy, technology and energy need to rise further and the financial sector still has a long way to fall.

]]> By: Richard Kline http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9590 Richard Kline Mon, 16 Jun 2008 08:03:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9590 I draw three conclusions from this NY Times article. First, if top tier financials can't generate large profits without moving exceedingly large volumes of borrowed money around to rake off fees (the function of all that 'over-leverage'), this tells us plainly how LITTLE value added there actually is in their business model. Without destabilizing churn, these concerns simply aren't exceptionally profitable. <br/><br/>Second, if to pay out their large employee bonuses top tier financials can't at the same time maintain significant capital reserves against losses, those bonuses _are overtly parasitical_ of the firms themselves. A well-reserved financial concern simply isn't as spectacularly profitable for its employees. <br/><br/>If spectacular 'profits' at a cyclical top are eventually discovered to be spectacular losses under less piggy conditions, then there really wasn't all that much _actual profit_ in that leverage, just actual debt. Which somebody else was expected to get stuck with. If I did that with my credit card, it's called fraud. The line between mastery and criminality in finance looks rather like the same line, just with different names for the head and the foot of the queue. <br/><br/>To Stephen of 12:57, any assumption that prices for MBSs have 'over-corrected' is a helluva stretch. Yah, sure, _if_ they have over-corrected than the holders of those instruments will be sitting pretty: Why, then are the holders trying to move them while the market is trying damn hard to move away from them? Foreclosures and their attendant price declines are still accelerating; could that be the reason? At some point, some tranches of some MBSs or other ABSs will yield more than their holders paid for them; few present holders will ever finish in the money, though. Most present holders face further _real_ losses on these assets, not paper ones. I draw three conclusions from this NY Times article. First, if top tier financials can’t generate large profits without moving exceedingly large volumes of borrowed money around to rake off fees (the function of all that ‘over-leverage’), this tells us plainly how LITTLE value added there actually is in their business model. Without destabilizing churn, these concerns simply aren’t exceptionally profitable.

Second, if to pay out their large employee bonuses top tier financials can’t at the same time maintain significant capital reserves against losses, those bonuses _are overtly parasitical_ of the firms themselves. A well-reserved financial concern simply isn’t as spectacularly profitable for its employees.

If spectacular ‘profits’ at a cyclical top are eventually discovered to be spectacular losses under less piggy conditions, then there really wasn’t all that much _actual profit_ in that leverage, just actual debt. Which somebody else was expected to get stuck with. If I did that with my credit card, it’s called fraud. The line between mastery and criminality in finance looks rather like the same line, just with different names for the head and the foot of the queue.

To Stephen of 12:57, any assumption that prices for MBSs have ‘over-corrected’ is a helluva stretch. Yah, sure, _if_ they have over-corrected than the holders of those instruments will be sitting pretty: Why, then are the holders trying to move them while the market is trying damn hard to move away from them? Foreclosures and their attendant price declines are still accelerating; could that be the reason? At some point, some tranches of some MBSs or other ABSs will yield more than their holders paid for them; few present holders will ever finish in the money, though. Most present holders face further _real_ losses on these assets, not paper ones.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9585 Anonymous Mon, 16 Jun 2008 05:46:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9585 I feel like I am caught between main street and wall street and see both sides. I don't see the worry I should from the wall street players of what main street is thinking or capable of. Can someone explain to me what a modern day revolution would look like and how it would go down? I feel like I am caught between main street and wall street and see both sides. I don’t see the worry I should from the wall street players of what main street is thinking or capable of. Can someone explain to me what a modern day revolution would look like and how it would go down?

]]> By: Bitter Renter http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9584 Bitter Renter Mon, 16 Jun 2008 05:04:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9584 Derivatives, commodities, and FX are other possibilities. Derivatives, commodities, and FX are other possibilities.

]]> By: Bitter Renter http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9583 Bitter Renter Mon, 16 Jun 2008 05:02:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9583 I wouldn't worry too much about the "Masters of the Universe." They will shift their activities to a different unregulated corner of the financial profession.<br/><br/>The following areas come to mind: hedge funds, private equity, and venture capital. These are all areas where the SEC has little oversight authority. I wouldn’t worry too much about the “Masters of the Universe.” They will shift their activities to a different unregulated corner of the financial profession.

The following areas come to mind: hedge funds, private equity, and venture capital. These are all areas where the SEC has little oversight authority.

]]> By: Stephen http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9582 Stephen Mon, 16 Jun 2008 04:57:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9582 Many of the losses are based on "Marked-to-market" accounting. If the market has over corrected in its declined pricing of MBS and other CDOs, the losses currently being booked may be paper only losses, and turn out to be nothing more than a tax savings for the firms. I am not saying that there aren't losses, just that the losses may be overstated to some extent. I have seen this to some extent personally in the overreaction of OCC regulators in the downgrading of credits in regional banks, requiring reserves on many credits that will most likely not turn into actual losses. <br/><br/>Now, if the firms are over-leveraged and run into liquidity problems like thornburg and bear... it doesn't much matter what the actual losses turn out to be.<br/><br/>my 2 cents Many of the losses are based on “Marked-to-market” accounting. If the market has over corrected in its declined pricing of MBS and other CDOs, the losses currently being booked may be paper only losses, and turn out to be nothing more than a tax savings for the firms. I am not saying that there aren’t losses, just that the losses may be overstated to some extent. I have seen this to some extent personally in the overreaction of OCC regulators in the downgrading of credits in regional banks, requiring reserves on many credits that will most likely not turn into actual losses.

Now, if the firms are over-leveraged and run into liquidity problems like thornburg and bear… it doesn’t much matter what the actual losses turn out to be.

my 2 cents

]]> By: Tom Lindmark http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post.html#comment-9580 Tom Lindmark Mon, 16 Jun 2008 04:44:00 +0000 http://www.nakedcapitalism.com/2008/06/wall-street-losses-reach-half-of-post-2004-profits-and-the-fat-lady-has-yet-to-sing/#comment-9580 Sort of a depressing article. Do you think that a financial system composed of a few, large, highly regulated firms is in our best interest? Sort of a depressing article. Do you think that a financial system composed of a few, large, highly regulated firms is in our best interest?

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