Goldman and Morgan Stanley get wise
Posted by: Reggie Middleton in Investment Banks, Heard on the Street on
Aug 18, 2008
From the Dealbreaker site:
Morgan Stanley and Goldman Sachs are linking their lending to hedge funds to the market's assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices....
The changes would limit the ability of hedge funds to borrow from either firm if borrowing by Morgan and Goldman became too expensive, indicating a lack of market confidence in the financial health of the firms.
In one sense, this seems a practical response to volatility in the credit markets, reducing exposure to hedge fund leverage as credit markets for financial companies become unsettled. It does, however, create a self-serving dynamic for the investment banks. If hedge funds taking the view that the companies have become unstable push up CDS or bond yields on the firms, they may find themselves unable to borrow from the firms. In other words, it gives the hedge funds an incentive not to bet against Goldman and Morgan....
Well, I don't borrow from any of them so as far as I'm concerned it's open season. Remember that Bugs Bunny, Daffy Duck, Elmer Fudd skit? Duck Season, no Rabbit Season...
TrackBack URI for this entry
Subscribe to this comment's feed
written by cemekao, August 18, 2008
While you raise a fair point, Goldman and Morgan Stanley also derive some income by lending. Would they be willing to give up that income simply because the hedgies are betting against them? I seriously doubt that. I compare this to a subprime borrower who refuses to do business with anyone but American Express. To such a person, i say "goodluck." After pulling out every trick, the last item in this dangerous game is a gun with only one bullet. This cannot end well.
-
- +0
-
-
written by Ed Ryan, August 19, 2008
Yes they can. But would not that be betting against their clients?
Jessie Livermore would have. And Goldman does not have higher ethical standards than Jessie.
But isn't there a J.P. Morgan to counteract Jessie?
NO, no, no. The force is the fed and investment banks will cheat just like members of OPEC cheat. This is a game of survival, and every once in a while, the members will gather just like the TV show, and someone will be voted off.
Lehman did not participate in the bailout of LTCM. Thus, they could be voted off.
Washington Mutual is not one of the blessed 19, thus they could be voted off.
Wachovia is not one of the blessed 19, thus they could be voted off.
We are in the middle of the 'forces-that-be' desparately trying to save the Western Monetary System from total collapse, while individual players are trying to stay aflot.
Some times, some players, are not willing to take a bullet for the greater good.
Thus, we have increased volitility and no end in sight.
But fear not, Rock On! We faced this is 1931 and survived! We will again!
-
- +0
-
-
written by Reggie Middleton, August 20, 2008
-
- +2
-
-
written by Marc Authier, August 25, 2008
-
- +0
-
-
written by stock exchange, August 29, 2008
-
- +1
-
-
Elmer J. Fudd, Millionaire