Is there another Great Depression on the horizon, or is it upon us as I write? That seems to be the question. More than a few Wall Street giants have gone belly-up in this time of, to put it lightly, unfavorable conditions. In the past couple of days, the biggest news to hit Wall Street is that of the demise of behemoths such as IndyMac, AIG, Lehman Brothers, Fannie Mae, Freddie Mac Bear Stearns, and don’t forget the buy out of Merrill Lynch by Bank of America (BAC).
The question rises, with trading firms, why did Merrill Lynch decide to sell out ever so quickly when firms like Goldman Sachs (GS) and Morgan Stanley (MS) are sticking it out. Manny Weintraub of Integre Advisors, LLC says, “…Merrill Lynch has always been more aggressive about raising more capital sooner and was more aggressive about selling out sooner…You’ve got to get out while the going is good.” Although it has been determined that they will buy Merrill Lynch, it is not yet known how they will combine operations of both firms.
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Ah IndyMac, the Government takeover; maybe one downfall of this company was the “conceited and cocky” IndyMac executive as explained by one unnamed employee. It was said that he didn’t listen to anyone’s suggestions and “had no interest in learning”; he just pressed on until there was no more money to press.
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Will a government loan help the world’s largest insurance company, American International Group (AIG)’s rating and help fix their broken wings? One of the largest aircraft leasing companies in the AIG family is the International Lease Finance, which is looking at a “$40 billion emergency bridge loan” to get them out of their downward spiral into the credit abyss as reported by Mark Lacter.
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Fannie Mae and Freddie Mac hold hands as they limp off the field together. While government joyfully sticks their prickly fingers into these once plump pies, the human factor no less than disappears in that interest rates will no doubt lower to assist first-time buyers or people looking to refinance, but not to benefit those who are already buying a home with no desire to refinance. However, the downsizing of mortgage companies comes into play due to no new buyers not buying new homes.
A day before the debacle at Lehman Brothers, it seemed unlikely, especially after the previous bailout of Bear Stearns in March 2008 that it would be in danger again in September. It was. And it is. Now, will the government do it again?! Not this time Mr. Bearenstein.
In all this, we find that not only are individuals affected by the economic deterioration of this economy, but as a whole, so are corporations, no matter what the size. “The ticker of this nation is breaking down like a bad clock,” as Indigo Girls put it ever so boldly. We need a giant defibrillator! But seriously, things will improve (as they do) and everything will go back to normal (as they do), or if we are lucky, better than normal (we can only cross our fingers). It will take time, as was the case after the Stock Market crash of 1929.
Investors in all of these busted companies could have protected themselves using stock options. Stock options have a reputation for being highly risky and speculative, which is true, but stock options can also turn very risky investments, like AIG, Lehman Brothers, Bear Stearns, Fannie Mae, Freddie Mac and IndyMac into investments with limited risk. For example, purchased put options or married put options for any of these wayward companies would have limited the investor’s downside exposure and enabled the investor to participate in the upside movements of these companies.
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[tags] Great Depression, Wall Street, IndyMac, AIG, Lehman Brothers, Fannie Mae, Freddie Mac, Bear Stearns, Merrill Lynch, Manny Weintraub, Integre Advisors, International Lease Finance, Mark Lacter, Indigo Girls, AIG, American Intl. Group Inc., BAC, BankAmerica Corp., GS, Goldman Sachs Group, MS, Morgan Stanley, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]