Monday, October 6, 2008

Stock Plunge, Bank Fight and More!

How does that goofy Disney song go?
"It's a small world, after all..."
Well, today's stock market plunge of nearly 800 points proves that point. It is a small world and we're in the midst of a full-blown global economic crisis.
Yes, the market rebounded but the panic-fueled free fall was triggered by news that major European nations are taking drastic measures to stabilize their financial institutions and economies. Among them: Austria, England, Iceland, Sweden and Germany.
But wait! There's more to come.
Europe is beginning to look a lot like Wall Street and not in a good way.
Many European investment banks are as highly leveraged as the our now brain-dead investment houses (aka Bear Stearns and Lehman Brothers), according to a recent Fortune magazine story.
More disturbing, these stock market gyrations aren't going to ease for awhile. Expect more fallout once a very resentful Europe is forced to cook up a U.S.-like bailout plan.(European leaders are royally ticked at the U.S. for infecting the Continent's financial system with sick subprime mortgage paper.)
And we've yet to hear from the major Asian economics, which have their own systemic problems.
All together now: It's a small world, after all.

Bank fight, bank fight!
Wells Fargo and Citigroup are clawing over the bones of the near-insolvent Wachovia.
You can read details of that tussle here.
Suffice to say, Citigroup thought it had a deal to acquire Wachovia. That is until Wells Fargo stepped in with a better offer.
How will this battle be resolved?
My bet is that federal regulators, who started the Wachovia sales process rolling, will barter a Solomon-like deal.The result? Basically, Citi gets the eastern half of Wachovia and Wells gets the western half.
In the end, both banks avoid costly, and potentially ruinous, litigation. And they end up with some decent banking properties and a whole bunch of low-cost deposits for a very reasonable cost.
Half a loaf, as they say.

Flash! Economy chugs along. Despite the carnage on Wall Street, there are signs of the economy fighting back.
Some evidence: Mars completed its estimated $23 billion acquisition of Chicago-based Wm. Wrigley Jr. Co. (with an assist from billionaire Warren Buffett).
And Eli Lilly announced plans to make a $6.1 billion purchase of ImClone Systems Inc.
Now, don't we all feel a little better?


Monroe Anderson said...

I'm not feeling better yet, Bob. Tell me it'll all be okay six months from now.

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