just a game

1. joeter

   March 11th, 2008 at 9:22 am

   @Richard – agreed.

   I’m a senior in college and am looking to get involved in startups in the Bay Area after I graduate – so I’ve been watching our economy very closely. I was able to realize getting an investment bank job would not be the smartest opportunity to pursue. I’m fearful for some of my friend’s positions…

   Basically, the major investment banks created CDOs (collateralized debt obligations), which were sold in ARS markets with a minimum investment of 25k. These banks kept releveraging themselves on value that never really existed. Now, since the housing bubble has collapsed (as it was guaranteed to – it was a faulty assumption to think housing prices would never slow) these cash flows have completely dried up.

   Also, the AAA bond insurers do not have enough cash to back all the defaulted claims since the investment banks are INSOLVENT.

   Expect increasing margin calls on these banks – a lot of them will have to sell off faulty divisions and possibly reconsolidate.

   Here is a great post from market ticker that explains what caused this issue:

   http://market-ticker.denninger…..thers.html

   I hope some of you find it useful. There are rough times ahead for the next few years.

______

Wow, who saw that coming? I also had this discussion with a few fraternity brothers colleagues about Bear a month and a half ago – I told one to be wary of his Bear Stearns New York City position. Unfortunately, since obtaining said position at Bear NYC is such a prestigious honor for the Rhodes business student who has best played the trite games of the department’s egotistical professors – my advice was brushed off his shoulders. Nonetheless, these professors also hastily dismissed me on a multitude of occasions for suggesting we were going into a recession.

I wonder what this means for my friend. After I find out, I’ll post an update. He’s a smart kid and good person, so I’m sure he will figure something out.