Wednesday, September 24, 2008

So that's what we did!

It's a little embarrassing to only fully appreciate the distinction of investment banks when they're about to become obsolete. They borrowed money worth 20-30 times the value of their liquid assets in order to run their risky operations and if they didn't go out of business usually reaped huge profits at the end of the quarter. This was possible and sanctioned because what they were risking was their own necks as well as those of their faithful creditors with just the appetite for risk.

Now that those creditors are no longer willing to let investment banks play with their money, investment banks have to resort to borrowing from regular peoples' savings. The government is a little sensitive about that since it's the protection of regular people which originally led to the legislated segregation of investment from commercial banks. History certainly has a way of repeating itself, but it was fun while it lasted.

3 comments:

blah said...

The market can be irrational longer than you can stay solvent - John Keynes

Will said...

Well quoted. I wonder what makes a good trader that they can navigate the irrationality.

blah said...

Nah that would be a good long term investor ... Traders are the ones who create the irrationality ...