Sunday, September 14, 2008

Interesting Times

Monday will be one of the more interesting days in our capital markets in the last several years. Over the weekend, the venerable Wall Street institution Lehman Brothers was the latest casualty - a sign that the Ponzi scheme is finally running out of buyers. Even more interesting, Merrill Lynch was basically forced by regulators into finding itself a suitor - which it did in the form of BankAmerica. Merrill was going to get pounded the same way Lehman did, and the Fed seemingly twisted their arm into merging.
The more interesting question is why BofA agreed to pay a premium (MER closed around $18, and BofA bid $29 per share in stock), when it seemed obvious that they'd be able to scoop MER for a discount if they so desired. It seems that BofA either a) is retarded, which is a possibility, considering their recent history of acquisitions (Countrywide Financial), or more plausibly: b) BofA decided to pay up for MER to try to shore up confidence in the financial markets, and essentially eat the premium they paid, in turn avoiding subsequent panic and systematic risk when MER would have followed LEH straight to zero.
This deal is especially surprising to me since it seems logically impossible that both sets of shareholders should want to approve the deal: if it's a good deal for MER because they had no alternative and were going to face the same fate as Lehman and Bear Stearns, then it's a bad deal for BofA because they overpaid. There is the odd probability that BofA is getting a quality asset (Merrill's massive retail brokerage network) at a discount price - and they had to pay up in order to preserve Merrill's franchise of brokers who would have likely walked if the stock plummeted. We'll see... I hope BofA didn't pay up for the sake of appearance - to inspire confidence - because as I've stated before, I don't think you can con your way through a Ponzi scheme of this magnitude.
Sadly, I will miss much of the action tomorrow on a plane. The good news is, I'm going to Vegas with the Big Show! Although I may be under-informed in terms of the rapidly evolving financial markets, I will hopefully have some blogworthy stuff to relay when I return. If you're looking for frequent stock market commentary that's not tainted by the mainstream media, check out Dealbreaker, and Barry Ritholtz's Big Picture Blog for the lowdown.
In the meantime, if any readers are in the Northeast (ie, Connecticut, Western Mass, Eastern NY State, NH, VT or Maine) - and live in a nice rural/suburban area - please tell me about it - the Dynamites will be looking for a new home eventually, and the task of relocating when you have no idea where you want to go is actually much more daunting than it sounds. We're looking to leave NYC because I want to be able to stay retired, and this city is too damn expensive to live in the style I've become accustomed to. I'll get into this deeper at another time.
until next time,


Anonymous said...

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Anonymous said...

Kid...I thought Robert Samuelson's article here ( was fantastic...hope you get a chance to read.