|
|
| Re: JP Morgan Chase Execs Vaporize $2B (941603) | |||
 |
|||
| Home > OTChat | |||
|
[ Read Responses | Post a New Response | Return to the Index ] |
|
||
|
Re: JP Morgan Chase Execs Vaporize $2B |
|
|
Posted by Charles G on Tue May 15 05:14:17 2012, in response to Re: JP Morgan Chase Execs Vaporize $2B, posted by AEM-7AC #901 on Mon May 14 20:27:10 2012. I think credit markets froze not because Lehman went down, but because Lehman went down and AIG didn't on the same weekend. You couldn't tell who was going to be bailed out and who wasn't. Making loans and accepting credit is a fairly simple game -- you are just trying to assess the likelihood of being paid back and be rewarded for the risk you take that you won't take back.Lehman's failure ended up being quite simple. You took a massive write-down on whatever you had coming from them and tried to get the best settlement you could from the liquidator. If Lehman owed you $100 Million on a particular mortgage security, you might have taken $40 Million from them on the Friday before the collapse and might have been thrilled to get $10M from them In the case of AIG, if they owed you $100 Million on the same exact mortgage security, you might have taken $50 or 60 Million from them on that same Friday before the collapse -- but on Monday you would have only accepted the full $100 Million. Credit markets froze (in part) because you could no longer assess the risk that you would or wouldn't be paid back -- you didn't know if the government would step in to back a firm or not. So in a matter of days, global credit ground to a halt. My hypothesis (which, of course, is worth about as much as the paper you would print it on if you actually thought enough of it to print it!), is that had AIG also been allowed to fail you would have seen global credit markets screech to a halt for a few weeks. During this time the market would have forced every player in the industry to "lift her skirt" and deals would have been struck everywhere and the entire mess would have been unwound in a matter of a month or two. |
|
|
|