lehmann [sic] bank is scary

[zippitippitoes]

..oh dear

(what's the hedge fund? )

Slept ok last night, but feeling sick again now. Dh has gone in for an announcement re pay.

We have no savings. He was on a decent, but modest salary - we put what we could have saved into paying off our mortgage (ie changing from interest only to capital plus interest).

We do have an endowment policy which we could cash in, but that is all we have and if we cash it in, we'll lose considerably as will get out less than we've put in given the current financial climate.

This is not really hitting home yet, but it will and I'm dreading the emotional drain much more than the financial one.

Going to Cadbury's now for tea and sympathy (and if I know her well enough, cake). Need to offload a bit before I start dealing with the shit as it flies off the fan. Will get onto that as soon as dh gets home. This is horrible.

Spandex, if you want to understand the context and implications, have a listen to this radio programme:

www.bbc.co.uk/iplayer/episode/b00dfbm8/

Aero, fingers crossed for you and your DH

Chipmunkswhereareyou, don't mean to pry and v sorry to hear of your predicament but am curious as to how a retail investor can invest in Lehman's? They're not a deposit taker, don't offer any savings based products and their bonds are only sold to institutions. Is it their shares you own?

thanks upwind.

surely it can't all crash can it???

Re are we pegged to the dollar - not really as the pound is falling aginst the dollar as well. It is about how the economy that supports one currency is perceived against another currency, one of the strengths (and weaknesses) of the euro is that it is supported by a large number of economies (albeit dominated by the Frenach and German) and so you get a portfolio effect that if the economies are pushing in different directions the effects can cancel each other out. (this is a gross simplification from somebody who failed every macroeconomics exam he ever sat).

Re hedgefunds. the media loves a black and white picture, the problem (and again advantage!) of hedge funds is that they are often smaller than the big investment banks, so don't have the internal checks and balances, this means they can react faster and close deals quicker, however it also means they can be (but only a very small minority are) more reckless and this is the element that attracts all the attention. Again a gross simplification as it is a degree of recklessness (/lack of foresight?) that has caused this thread to exist in the first place.

Yes DH does = he is a very successful Fund Manager has been doing it since leaving Uni - his funds are rated at the top of most market bulletins and he is even doing very well in this awful climate.

I wish he would come on here but he won't.

Spandex, it can all crash but hopefully it won't

I think a recession is a sure thing. A bit soon to call it a crash. And definitely too soon to compare it to the Great Depression.

(of course I'm no expert. All of my knowledge on the subject comes from fool.co.uk. So I'm not exactly qualified to speak on the matter)

Sorry to Aero and co. Pretty bleak times in the City. Spoken to a few friends in a couple of the institutions where I used to work and even those unscathed by this are in shock - not just trading, but across capital markets, corporate finance and asset management. Lehman's always been held in pretty high regard and I've always found the people there to be smart and straight.

Apparently as far as Lehmans going down affects the other banks, there's going to be minimal direct effect. Most of its major counterparties were net or long on a trading basis (which partly explains the situation) so none of them are owed significant amounts of money by Lehmans. That's part of the reason the Fed let them fail - it wouldn't drag down anyone else. Much more scarily, I understand that not only Merrill's heading the same way very quickly and that if they had gone down, they'd have pulled down Morgan Stanley due to the massively exposed nature of the trading positions between them. That's why the deal between Merrill's and BoA was agreed and approved so quickly. Will be interesting to see what Goldman and Morgan Stanley report in their Q3 results.

On the plus side, if you care to see it, I really struggle to see this sort of collapse happening to the major retail banks (i.e. HSBC, Citi, JPM, Barclays, HBOS etc.) for two reasons. Firstly, what brought down Northern Rock, Bear Stearns and Lehmans was not their 'toxic' securities per se, but the fact that other institutions stopped lending to them because they were scared about the nature/ value/ amount of these securities coupled with the mis-matched nature of their funding and liabilities. As a result they were unable to meet the short term obligations which they did have. The retail banks have their own pool of liquidity to draw upon (i.e. deposit accounts etc). Secondly, the governments won't let a major retail bank fail as the fall-out would be catastrophic - they stepped in for NR, Fannie Mae and Freddic Mac and they'd do so again.

Oh, and as far as "hedge funds" go, they're neither good nor bad to my mind, however, they do typically create much more market volatility which in this environment is not a great thing.

in the spirit of trying to be constructive, if those with friends/relatives affected can post details of the types of jobs they are looking for, I'm happy to trawl our internal database to see if there are any job matches (am at another financial institution in CW) - the jobs are usually advertised there before "going public": I can CAT details if I spot any matches. I suspect others elsewhere might be able to do the same?

Aero and chipmunks - so sorry to hear what has been going on with you both re Lehman.

I have resolved not to watch the news today, or read anything online. It is too upsetting, and there is nothing any of us can do. I am significantly invested in AIG shares, and it looks the next company to go unless a miracle happens.

The CEO of Bank of America was interviewed on telly yesterday about buying Merrill. He was asked about AIG, and said it should not be allowed to fail as he 'couldn't think of a single bank that didn't have major exposure to AIG'. He indicated the ripple effect of an AIG failure could be far-reaching and dangerous to the economy.

So far, the Fed is not stepping in as they insist AIG should sort itself out by selling assets or finding private money. Problem is - those things take time, and time is running out. Most say another 24-48 hours at most.

This is the first time I have been directly affected by a national/international 'tragedy' (don't know what else to call it). Certainly it is not nearly the same as the loss of life that comes with natural disasters, but once this financial earthquake ends, life will be radically different (and worse) for many, many people.

Yes, c'estlavie, I've heard the same. My DH works in another investment bank and he told me last Thursday that they had as a point of policy stopped accepting counter-party risk with Lehman, ie that as a bank they would no longer enter into any transactions with them.

As he said, once one bank does that, it spirals quite quickly. He said on Thursday that he would be very surprised if Lehman would last the weekend.

Like others we have a reasonable amount of money tied up in DH's bank's stock options. Whenever bonus figures are bandied about they sound fantastic, but firstly it is the net figure quoted (so 40% off of that immediately) and then huge chunks of it are tied up in deferred stock, which falls in over a period of time (three years largely in our case).

So you have a flashy sounding package but the reality is (i) that you have no idea how much you are going to earn in any year, because the bonus element is so random: it makes things like mortgage planning difficult when your bonus part of your salary is more than half of the total. The "guaranteed" part of it - ie the salary - is smaller - usually substantially smaller - than what you would get in a different environment doing the same job; (ii) a good chunk of it is tied up with stock in the company, which you lose if you leave and which runs the risk of becoming worthless and at least devalued.

Its hard to garner sympathy for the remuneration packages of people in investment banks (and in many ways rightly so), but many people will have these sorts of very precarious packages who are not earning at all the type of salaries bandied around in the headlines. The headlines focus on the bankers themselves, but there will be a lot of people in IT, compliance, regulatory, legal etc who are caught by this.

Hedge funds have NOTHING to do with the current credit crunch.

Hedge funds are those with a very wide mandate, meaning they can buy or sell short anything and everything, including FX pairs, commodities, tresuries, and stocks. This makes them very flexible and they tend to buy or sell huge amounts in hours. So they CAN be blamed for the large selling we have seen in markets recently.

However, they did not and could not have perpetuated the credit crisis we are weathering. Culprits for that are the banks and brokerage houses who have invested in high-risk debt instruments (like sub-prime mortgages), repackaged them into different instruments, and sold them to investors who had no idea about the underlying risk profile of the end product they were buying.

That those very banks and brokerages are now bankrupt or teetering on the brink of bankruptcy is small consolation.

AIG in the UK is a seperate legal entity from their US owners, and has enough assets to continue its business in the UK, so no worries there. However if the US arm goes tits up then the UK company will in all likelihood be sold off, but probably as a going concern so hopefully less impact on jobs etc. HTH

Not sure if someone mentioned this before but US allowed AIG to lend itself USD 20 bn yesterday.

Yes but they don't think it'll be enough. They were looking for 40bn and even then they weren't looking good.

general opinion is that the US just won't let them go under as the consequences would be catostrophic on all levels.

Will the UK let HBOS go? Their shares have plunged again today, 27% That is where our savings are

I know Sazzles, not that we have anything close to that amount, it is just that if it was to go under it might take a very long time to get our money. And DH's job is not looking secure right now so we might really need it.

I don't understand enough about hedge funds to make any sort of judgement or assessment but having done some research on hedge fund salaries for a project, I do find it very difficult to understand how hedge funds can make so much money without it having an effect somewhere; paying some of their top people £100m+ a year (every year!) - if they're paying themselves that, how much are they making for their investors . I am totally naive on this but it seems collectively like a lot of money being taken out of the system and going to individuals. At the very least, it's got to split the division of wealth even further.