Humility and the Fear of the Lord with Hoekstra

By humility and the fear of the LORD are riches and honor and life . . . with the humble is wisdom . . . The fear of the LORD is the beginning of wisdom. (Pro_22:4; Pro_11:2; and Pro_9:10)

Many of our previous meditations have clearly demonstrated that walking in humility is the pathway for living by the grace of God. "God . . . gives grace to the humble" (1Pe_5:5). In our present verses, we see that humility and the fear of the Lord are related.  

Humility and the fear of the Lord result in the same blessings. "By humility and the fear of the LORD are riches and honor and life." The closing trio ("riches and honor and life") are an Old Testament description of a life that is fully blessed by God. The New Testament counterpart would be fullness of spiritual life. "I have come that they may have life, and that they may have it more abundantly" (Joh_10:10). Humility and the fear of the Lord also result in wisdom. "With the humble is wisdom . . . The fear of the LORD is the beginning of wisdom."  

Humility is the candid acknowledgment of our absolute need for the Lord to work comprehensively in our lives day by day. The fear of the Lord is respect and reverence toward our great God. It is not a fear involving terror or apprehension. Rather, it is based upon profound admiration and dependent devotion.  

Those who humbly fear the Lord (by placing their admiration and devotion in Him) also embrace His perspectives and values. They develop a hatred for the things that He hates. "The fear of the LORD is to hate evil; pride and arrogance and the evil way and the perverse mouth I hate" (Pro_8:13). Correspondingly, those who have respect and reverence for the Lord develop a love for all that He loves. The Lord loves for His people to walk in righteousness and justice. "The LORD loves the righteous . . . the LORD loves justice" (Psa_146:8 and Psa_37:28). The Lord loves Israel, His chosen nation. "The LORD did not set His love on you nor choose you because you were more in number than any other people, for you were the least of all peoples" (Deu_7:7). The Lord loves His church, the children of God. "Behold what manner of love the Father has bestowed on us, that we should be called children of God!" (1Jo_3:1). The Lord loves the world, those who need to know Him. "For God so loved the world that He gave His only begotten Son, that whoever believes in Him should not perish but have everlasting life" (Joh_3:16).

Lets Pray;

Lord God almighty, I humbly bow before You, acknowledging my absolute need for You to work comprehensively in my life day by day. I want to walk in the fear of the Lord, placing my admiration and devotion in You. I want to hate all that You hate and love all that You love, in Jesus name, Amen.

We should heed the lessons of the collapse of the ‘golden age’: a personal view

by Ilian Mihov, Professor of Economics, INSEAD ----



It seemed like it was never going to end – the rise of the economy, the increased prosperity, the bull stock market. Forbes magazine said it would be ‘recognized as a golden age of American industry.” This was in the summer of 1929, but then the US economy collapsed. From growth rates of between three and 10 per cent in per capita terms, the US economy imploded: contracting 11 per cent in 1930, another 9.5 per cent the following year, and then shrinking a further 15 per cent in 1932. Who would have thought that the Roaring Twenties would transform into the worst economic disaster of all time?

After surging during the 1920s, share prices on Wall Street plummeted, with the Dow Jones Industrial Average falling to a low of 41.22 points in July 1932 from 381.17 points in September 1929. To put that in context today, it would be like the Dow falling to 1,666 points from a peak of 14,164 (October 9, 2007) within three years.

While the stock market fell some 90 per cent, the output of the US economy fell by a third during the Great Depression of 1929-1933, unemployment shot up to 25.2 per cent from 3.2 per cent, and one in three of the 24,000 banks in the US closed down. This is a partial, yet telling view of the magnitude of the Great Depression. 

When I teach my macroeconomics class for the MBAs at INSEAD, I always discuss the Great Depression and the lecture ends on an optimistic tone with a simple statement: “The Great Depression will never happen again”. I firmly believed this because there is a widespread consensus that the Great Depression was a result of a sequence of policy mistakes. Economists have learned what policies should be applied to avoid the Great Depression. 

Unfortunately, I have to revise my optimism now. It is not because what we learned was wrong, nor because we have unlearned the big lessons from the Great Depression. Optimism fades because it turns out that political bickering and petty re-election agendas can wipe out the lessons of more than 70 years ago. 

What is the biggest lesson from the Great Depression? In my view, it is that monetary policy and the financial sector play a crucial role in economic development. Let me put it more precisely: good monetary policy is unlikely to accelerate the speed of economic growth – after all we have more income year after year because mankind comes up with new ideas, with new products, with more efficient ways of producing output. However, bad monetary policy can easily derail economic development. It is true for rich and poor countries alike. 

Why are financial markets and the banking sector so important? Banks fulfill a very important role in the economy by matching borrowers and lenders. When we deposit $100 in a bank, the bank keeps, at most, two to three dollars in its vaults (in fact the money is often in the central bank), the remaining $98 or so is lent to a borrower. 

Most businesses require loans for their normal perations. When the banking sectordoes not work properly, businesses cannot get loans and they have to curtail their production and lay off workers. As they curtail production, they demand fewer products from their suppliers and therefore their suppliers have to reduce their output and fire workers. If manufacturers cannot sell their goods because the firm downstream does not need as many products as before, they cannot generate enough revenue to repay their earlier loans. Businesses go bankrupt and banks experience further problems as their balance sheet deteriorates due to non-performing loans. At this point, banks want to lend even less because of the uncertainty generated from bankruptcies. As they lend less, the vicious circle continues – with producers cutting production and firing workers. On the top of this, depositors start worrying about their deposits because the non-performing loans have made some banks go belly up – your bank has lent out your money to borrowers who cannot return it. Depositors start withdrawing their cash and banks have even fewer possibilities for lending as they have to hoard cash in case there is a run on the bank. If the financial sector does not work, the real economy can go into a deadly spiral and shrink by 30 per cent as during the Great Depression. 

It is unlikely this will happen today. But I used to think that it was impossible. The lessons of the Great Depression are so clear and vivid that it was unimaginable that someone would risk the stability of the economy just to gain votes from his or her constituency. Are these CEOs overpaid? Should they go to jail? Maybe the answer to both questions is “yes”, but it’s important to understand that penalising greedy CEOs has nothing to do with saving the macroeconomy. Many of the issues raised by politicians recently have to be addressed, but it is a separate debate and will involve separate legislation.

US economy may plunge into depression if banking sector bailout fails

The US economy may plunge into a depression if the $700 billion rescue package fails to revive the ailing banking sector, says Ilian Mihov, INSEAD Professor of Economics.

“The Great Depression (this time) is still unlikely but it is not impossible anymore. This is quite sad,” Mihov says.

The Bush administration proposed the bailout plan as US financial institutions continued to wilt under the weight of distressed financial assets. In September alone, the Federal Reserve had to rescue America’s biggest mortgage lenders Freddie Mac and Fannie Mae, as well as insurance giant AIG.

In a sign of deeper problems in the financial sector, Lehman Brothers filed for bankruptcy, Bank of America took over Merrill Lynch, while JPMorgan took over Washington Mutual. The financial sector’s deterioration has accelerated since Bear Stearns was jointly rescued by the Fed and JPMorgan from the brink of collapse in March.

“The bailout package does not solve the problems of the economy but nevertheless it is a necessary thing to do so we can stop the collapse,” says Mihov, who had studied under Fed chairman Ben Bernanke and co-authored several papers with him, including one on the Great Depression.

More banks could fail if distressed financial assets are not taken off their balance sheets because these assets continue to deteriorate every day, creating more uncertainty for the investors and bank depositors. Such a situation could force a fire sale of bank assets to satisfy demands from investors and depositors, further weakening the banks’ balance sheets.

“This is a vicious cycle that could lead to an implosion of the real economy,” Mihov told INSEAD Knowledge.

Once this happens, banks will be unwilling to lend. If companies cannot borrow from the banks, production cut backs will follow, workers will lose jobs, demand in the economy will fall and companies will be unable to pay their debts.

“This was the vicious spiral that was behind the Great Depression,” Mihov says.

But a spiral of the economy into depression can be avoided if the government takes timely and decisive action to rescue the financial sector.

“It (the bailout) has to be done,” Mihov says.

Although the Bush administration has already acknowledged the magnitude of the problem with its rescue plan, US stocks fell sharply on Monday (Sept 29) after Congress failed to approve the plan. 

Democrats are blaming the Bush administration for spawning ineffective policies to deal with the 13-month old crisis and even some conservative Republicans are also not convinced the plan will work this time.

“We have learned the lessons of the Great Depression but the politics can be so different from the economic point of view,” Mihov says.

Political differences, between the outgoing Hoover administration and the incoming Roosevelt administration, stalled efforts to minimise the damage caused by the credit squeeze on the US economy in the 1930s.

Hoover lost the elections in November 1932 and Roosevelt came into power in March 1933. During those five months, Hoover and Roosevelt could not agree on what to do with the banking sector, Mihov says. “That aggravated the situation and a lot of people became unemployed in the period of just five months.”

In the case of today’s financial crisis, politicians are failing to see the bigger picture.

“The politicians do not see the forest from the trees. The important thing is to save the economy from collapsing,” Mihov says. “We may agree or disagree whether the banks’ CEOs are overpaid or whether they should be punished or go to jail. These are important points but these are points that can be dealt with later.”

During the Great Depression, Roosevelt made decisive actions at the beginning of his administration to prevent the further collapse of the economy, but action was taken to regulate the banking sector with the passing of Glass-Steagall Act in June 1933.

The Glass-Steagall Act was a very important piece of legislation that separated investment banking and commercial banking activities. It was repealed in 1999, allowing banks to be both commercial and investment banking entities.

Whether such a regulation is needed to prevent a similar crisis in the future will have to be debated in Congress, Mihov says, but for now the important thing is to save the economy from collapsing.

Sources: Insead Website

Companies Under Pressure By MICHAEL M. GRYNBAUM

Almost 62 years ago to the day, Aubrey Pilgrim bought a two-bit feed and seed store in east Texas with the help of a $2,500 bank loan.

His tiny operation grew up to become the Pilgrim’s Pride Corporation, the alpha-chicken of the poultry business, with 53,000 employees, customers like KFC and Taco Bell — and a heavy load of debt.

On Wednesday, Pilgrim’s Pride warned that it would break certain agreements with its lenders, underscoring the tightening bind that many companies, even those far from Wall Street, find themselves in as loans grow scarce and the economy struggles.

As a government bailout of the financial industry seemed elusive on Thursday, and the credit markets remained on edge, many analysts saw more pain ahead for debt-burdened companies, as well as their shareholders and employees.

Some of these companies, like Pilgrim’s Pride, went into hock when times were good to make acquisitions and grow. Others were saddled with debts by financiers who bought them with borrowed money. And still others are simply struggling to pay the bills as the economy worsens.

Every company needs to borrow money to finance its operations, and the cost is rising for virtually all of them because of the unease in the credit markets. But the weakest, like Pilgrim’s Pride, are being squeezed particularly hard.

On Thursday, yields on corporate junk bonds — that is, those without investment grade credit ratings — jumped to nearly 14.6 percent, the highest level since late 2002. Prices of risky corporate loans, which are traded like bonds on Wall Street, fell to record lows, fetching about 82 cents on the dollar on average, according to Standard & Poor’s. Bonds and loans of blue-chip companies like General Electric weakened too.

“Have we seen anything like this?” asked Kingman D. Penniman, the president of KDP Investment Advisors, a bond research firm. “No. I don’t think I’ve seen good credit go down so much so quickly.”

The turmoil in the credit markets is taking its toll on a wide variety of companies. Hard Rock Park, a theme park in Myrtle Beach, S.C., filed for bankruptcy on Thursday, citing “frozen credit markets.”

Analysts worry that a host of other companies, ranging from mortgage lenders to restaurant chains, will come under mounting pressure, and that companies will start to default on their debts in growing numbers.

“We’re just in the beginning of the default cycle,” Mr. Penniman said. “Companies are violating their covenants. They need to come to the debt markets and can’t get refinancing.”

For Pilgrim’s Pride, difficulty with debt is translating into big losses for shareholders.

The company’s share price plummeted nearly 40 percent on Wednesday and that much again on Thursday, when the company said it expected to report a “significant loss” for its fourth quarter, in part because of the rising cost of feed and weaker demand for its chicken. Such a deficit would cause the breach of one specific covenant, or lending requirement, with its lenders as of the fiscal year ending on Saturday.

But the company has reached an “understanding” with two groups of lenders, one led by CoBank and the other by the Bank of Montreal, over a waiver of that covenant, said Gary L. Rhodes, a company spokesman. Pilgrim’s Pride is working to reach a formal 30-day waiver, which would buy it time to work out a “longer-term fix.”

As of Thursday, the company had $2.23 billion in debt, according to Bloomberg News, some of which it piled on when it bought Gold Kist for $1.1 billion in December 2006. That was the height of the credit boom, when debt flowed freely and terms were cheap, a trap that has since ensnared many companies.

Since the onset of the credit squeeze last summer, analysts have fretted about the health of companies taken over by private equity firms, which often rely on high amounts of debt to finance their deals. But since then, many other companies have been hard pressed to repay their debt, challenged by slowing consumer spending and falling housing prices.

Already, scores of restaurants and retailers have filed for bankruptcy protection. Some, like the retailers Linens ’n Things, Mervyns and Steve and Barry’s, were backed by private equity firms. Others, like the Sharper Image and the Bennigan’s restaurant chain, were crushed by debt they had incurred for other reasons, like expanding their businesses.

“For consumer-facing companies, you can already see the early stages of trouble," said Barry Ridings, a co-head of the restructuring advisory group at Lazard. He added that companies like restaurants are often “the canaries in the coal mine” that presage trouble across the economy.

Dozens of other companies are being closely watched for signs of trouble, according to Mr. Penniman. Among those he cited whose debt showed distress were Sbarro, the Italian fast-food chain; Dollar Thrifty Automotive Group, the rental-car company; and Sealy, the mattress maker whose predecessor helped lead to the fall of First Boston.

Analysts are also watching Claire’s Stores, the costume jewelry purveyor, and Realogy, the parent company of the Century 21 and Coldwell Banker real estate brokerage firms.

Though the headlines have been dominated by the likes of financial firms like Lehman Brothers, the American International Group and Washington Mutual, the disarray of the credit markets and the wider economy have extended to every part of the nation.

Hard Rock Park, which features attractions like Led Zeppelin: the Ride, cited a panoply of ailments in its bankruptcy filing. Among them is the collapsed housing market and the spike in energy and gas prices, which led to lower-than-expected ticket sales.

But what drove Hard Rock Park to bankruptcy court was its inability to refinance a $15 million revolving line of credit, Steven Goodwin, the company’s chief executive and chief financial officer, wrote in a court filing.

“Due to the frozen credit markets,” he wrote, the company “was unable to increase the size of the revolving facility as planned.”

Essentially, the park operator ran out of money.

Visitors to Hard Rock Park’s Web site are greeted by a notice saying the park had closed for the rest of the season to restructure its finances. The company says it expects to reopen next spring.

As Stocks Rally, Credit Markets Appear Frozen by MICHAEL M. GRYNBAUM

As Washington dickered, Wall Street waited.

Nervous investors stayed on the sidelines on Thursday, awaiting signs of progress on the government’s bailout. While stocks rose, the anxiety gripping the credit markets barely abated.

Banks continued to hoard cash, clogging crucial financial arteries that deliver money to businesses and consumers for car loans, credit cards and payroll payments.

Investors appeared to be taking a defensive posture as they waited for lawmakers in Washington to determine the final structure of the government’s plan. Interest rates on short-term loans jumped back toward the record levels seen at the end of last week, although the yields on Treasury bills slightly rose.

“These moves are having extraordinary negative impacts on the brick-and-mortar level of the U.S. economy,” said T. J. Marta, a fixed-income strategist at Royal Bank of Canada. “We’re not talking about highfalutin, fat-cat Wall Streeters. This is whether or not your local hospital gets the new wing put on.”

While swings in the stock market can affect Americans’ investments and mutual funds, the credit market is considered the front line of the day-to-day functioning of the economy. Businesses depend on short-term loans to pay for basic costs like electric utilities and employee salaries.

“This is the engine room of the U.S. economy,” Mr. Marta said. “It’s not very sexy, it’s kind of esoteric, nobody ever pays attention to it, but that’s what’s breaking.”

On Thursday, this was the type of critical short-term financing — including markets for commercial paper, municipal bonds and overnight bank loans — that was gumming up.

Banks, apparently stocking up amid the worst financial crisis in decades, were reluctant to lend cash, sending interest rates soaring.

The three-month Libor rate, a benchmark gauge that measures how much banks charge one another for overnight loans, jumped the most in one day in nearly a decade, reaching 3.77 percent.

The TED spread, which tracks the difference between how much banks pay for a three-month loan versus the Treasury, has tripled this month, and widened again on Thursday to a near-record high.

“There continues to be extraordinary hoarding of cash,” Mr. Marta said. “There are still a lot of things broken in the markets.”

Investors did seem slightly more confident about moving their money out of ultra-safe short-term Treasury notes; for days, they had been willing to accept minuscule returns in exchange for a safer bet than stocks or corporate bonds.

On Thursday, the yield on the two-year Treasury note rose to 2.19 percent, up 0.22 percent. The yield on the one-month Treasury bill rose to 0.1 percent, although this remained near last week’s lows. Fear was much less pronounced in the stock market, where investors seemed to place their bets with an eye toward the imminent passage of the bailout plan.

The broad Standard & Poor’s 500-stock index gained 2 percent, and the Dow Jones industrial average, which measures stock prices of 30 companies, rose nearly 200 points to close at 11,022.06. The Nasdaq composite gained 1.4 percent.

Shares of Goldman Sachs gained 1.9 percent; Morgan Stanley was up 9.3 percent. The cost to insure both companies’ debt declined, although the cost for Morgan Stanley remained near the highs of last week.

The stock market made gains despite three grim government reports on the economy. Orders for big-ticket manufactured goods fell 4.5 percent in August, a sign that businesses were reluctant to make major investments, and the Labor Department said the number of new applications for jobless benefits rose by 32,000 last week to a seven-year high.

Sales of new homes fell again last month, even as prices continued to decline. Sales were off 11.5 percent from July, and median prices were 6.2 percent lower than a year ago.

Stocks also shook off a pessimistic report from the General Electric Corporation, which said on Thursday morning that it expected to earn less money this year than it had originally forecast. The company also froze its dividend payments and suspended a stock repurchasing program.

Markets in Europe ended higher after a quiet start. The FTSE 100 in London and the DAX index in Frankfurt each gained 2 percent; the CAC 40 in Paris ended 2.7 percent higher.

Following are the results of Thursday’s auction of 34-day cash management bills and five-year notes:

Climateer Investing: Investment Banking 2.0: Into the Future

Bear Stearns? Gone. Lehman Brothers? Gone. Merrill Lynch? Gone. What next? I had the pleasure of hearing Nouriel Roubini speak at a planning dinner for the 2009 Money:Tech Conference, and he had more than a few thoughts on the topic. I respect Nouriel and his analytical thinking a great deal, and he and I have had similar views of the inevitable credit-driven storm dating back quite some time. But on the issue of what will happen to the surviving investment banks, and what should happen, he and I have differing viewpoints.

According to Nouriel, the "Axe of the Apocalypse" as I like to call him, Morgan Stanley and Goldman Sachs are close behind Lehman and Merrill. His argument? Investment banks are largely financed with overnight funding, creating a massive asset/liability mismatch, and are heavily levered. In the wake of Lehman's collapse, a run on the investment banks will continue, pushing them into the arms of banking acquirers with large, stable deposit bases. This will create a universal bank that is better positioned to weather the market turmoil. While Nouriel has a valid argument, I believe his view is simply wrong, strategically, tactically and ethically.

The problem with the investment banks is that they've generally financed themselves for the good times, not the bad times. This means an excessive dependence on short-term funding and high leverage. This generated high ROEs in good times, supporting large payouts for employees and shareholders alike. But when times turned bad, compounded by poor risk management and mind-bogglingly stupid investment decision, such a capital structure has come back to haunt many a firm. Nouriel says solve the problem by joining investment banks and commercial banks, and using core deposits as a vehicle for extending the duration of the investment bank's liability structure. I say no. I say that Goldman Sachs and Morgan Stanley should materially alter their financing strategy, lengthening duration by issuing different tranches of preferred stock, subordinated debt and term debt, de-levering in order to weather the storm and accept lower ROEs in the process. This also means that these firms, their culture and their employees won't be destroyed, which is what invariably happens when investment banks do M&A deals. If my strategy is to operate my firm as an independent entity, and I tactically want to keep my key employees in their seats to ensure continuity and resources for when the market turns, I want to control my own destiny. This means securing some of that liquidity-driven option value, which can only be gotten by putting a more conservative, less leveraged, more flexible capital structure in place.

The ethics issue is an interesting one. Felix Salmon, who was sitting at my table at tonight's dinner, raised the issue of an FDIC subsidy in the event that investment banks were subsumed by commercial banks. This point was further amplified by a commenter on this blog, referring to my critical post earlier today concerning the BAC/MER deal:

Looking at this deal from a somewhat "old school" view, it is just toxic for BAC and the rest of the banking system. The theory is that MER gets access to a more stable funding source. Well, IF Merill did not have such unfathomable assets on the books with such monsterous leverage it would not ahve any trouble getting funding. Lenders have to make loans to make money. They cannot profit if there are writeoffs on cheap loans. MER would not have such a funding problem if they did not deserve it. And, IF MER was a qualified borrower, they would get the funding without much problem.

What is being carried out is a transfer of the potential MER losses to the FDIC. And that is exactly what Glass Steagell was put in place to prevent. BAC has a balance sheet with goodwill representing 50% of equity. Recall that when FNM was revealed to be using tax loss carryforwards as assets everyone finally wised up that those cannot be used to pay any bills. Which counter party to BAC will take goodwill as payment?

In almost every case, the normal banks which have gotten involved in the chase to replicate the IB transaction and deal environment have enjoyed tremendous losses as a result. Banking should still be required to be seperate from the IB business without the cross ownership. This merger is financial nonsense.

- Augustus

Augustus, I agree. The deal is a scam. A sham. And should be slammed. If these deals continue, and if Nouriel is right, what I see happening is a new wave of boutique investment banks opening for business - the next generation of Evercores, Gleachers, Beacon Groups and Greenhills. Top talent will not stay inside these monolithic mega-firms; if Citigroup is any example, these firms are not good places to work as integration disruption continues for many, many years. Value accretion? I'd say not. So once these boutiques are created what will happen? Some will merge to achieve the benefits of scale. And soon enough, we'll once again have multi-product, multi-geography investment banks as we've had for generations. The universal banking utopia was Sandy Weill's fantasy. In the real world such institutions don't function well. They are too large. Too diffuse. Lacking in a unified culture. Hard to risk manage. Bound for failure.

Investment Banking 2.0 will be the re-emergence of the boutique, the focused, nimble, high-touch firm that was the bedrock of capital formation in the early years of the stock market boom. Because these mega-firms being created at the urging of the Treasury are not sustainable. They'll live just long enough for investment banking losses to be absorbed by the commercial bank's larger capital base, after which the best talent will flee for greener pastures.

Investment banks' future questioned By Peter Thal Larsen and Francesco Guerrera

When Chase Manhattan bought JPMorgan in the autumn of 2000, many thought the deal would trigger a series of mergers in the investment banking business. Senior bankers predicted that other Wall Street firms such as Bear Stearns, Lehman Brothers and Merrill Lynch would have to join forces with larger lenders or risk being marginalised.

Eight years on, those predictions are finally coming true. After an extraordinary weekend on Wall Street, Lehman yesterday filed for bankruptcy protection while Merrill Lynch rushed into the arms of Bank of America, its larger rival. Combined with the collapse of Bear Stearns earlier this year, the ranks of the Wall Street banks have been cut in half. Among the so-called "pure" investment banks, only Goldman Sachs and Morgan Stanley remain.

Not surprisingly, the crisis has once again raised serious questions about the viability of investment banks that are not part of a larger institution. "Merrill has been a strong and respected competitor in the marketplace," Ken Lewis, BofA's chairman and chief executive said yesterday. "But the market continues to question the viability of a stand-alone investment bank."

That process continued yesterday. Shares in Morgan Stanley were down almost 9 per cent by early afternoon in New York yesterday, and have lost almost half their value in the past 12 months. Goldman Sachs, which has survived the credit crunch in better shape than any of its direct competitors, was down 7 per cent. The cost of buying protection on a default of both banks also jumped sharply yesterday as traders absorbed the consequences of the decision by Hank Paulson, the US Treasury Secretary, not to support Lehman. "What's got everyone on edge is that Paulson has effectively declared that the broker-dealer model has no backstop," one banking executive said, referring to the fact that there is no regulator standing behind it.

For executives at larger universal banks - which combine deposit-taking activities with their investment banking operations - the turmoil is long-awaited proof of the vulnerabilities of Wall Street banks, which tend to have smaller balance sheets and rely entirely on the wholesale markets for their funding. They believe the recent takeovers are merely a delayed consequence of the 1999 repeal of the Glass-Steagall Act - the depression-era legislation that separated commercial banks from Wall Street broker-dealers.

"This is a tough time to be an investment bank," a senior executive at a US commercial bank said yesterday. "Given the events of the past few months, it is difficult to argue that it is better to be monoline at anything, be it investment banking, credit cards or insurance."

Vikram Pandit, the former Morgan Stanley banker who now heads Citigroup, made a similar point in an internal memo aimed at reassuring the financial giant's 360,000-plus employees of the company's ability to weather, and even profit, from the current turmoil.

"Our industry is in a state of change, but I am confident that this should be an opportunity for Citi," Mr Pandit wrote.

But others dismiss as too simplistic the idea that the business model of investment banks such as Goldman Sachs and Morgan Stanley is broken and that they are doomed to merge with a deposit-taking institution. They argue that the disappearance of three fierce competitors in the space of a few months would benefit the two surviving firms.

"Capital markets are not going to disappear, the investment banking business is still going to be there and you will only have two companies exclusively focused on it: that does not sound like a recipe for disaster," a senior investment banker said yesterday.

With Goldman considered a notch above the rest due to its trading prowess and enviable client base, much of the spotlight will be trained on Morgan Stanley, which reports third-quarter results tomorrow. John Mack, the firm's chief executive, yesterday was at pains to stress that Morgan Stanley's solid capital position and healthy revenues put it in a good position to benefit from the industry's re-shaping.

However, stand-alone investment banks face two fundamental challenges: capital and liquidity. The bursting of the credit bubble and the drying up of the securitisation market favours banks that can put large balance sheets to work in support of their clients.

The turmoil has also highlighted the vulnerabilities in the investment banks' dependence on the short-term repo market for secured funding. Wall Street banks, which have historically been overseen by the Securities and Exchange Commission, are also set to be brought under the supervision of the Federal Reserve, leading to tighter regulation of .

"The brokers may not be broken, but in future we expect the financial system in general - and the brokers in particular - to become shadows of their former selves," Matt King, a strategist at Citigroup, wrote in a recent note.

None of this means Goldman or Morgan Stanley will be forced to surrender their independence. In the past, Wall Street banks have proved adept at reinventing themselves and adapting to a changing market. For the time being, however, the Wall Street banks must be feeling increasingly lonely.

The future of banking By Vincent Freeman

RIGA - “It was the best of times, it was the worse of times” — the opening lines of Dickens’ “A Tale of Two Cities” — could easily be said about the current turmoil sweeping the financial markets.

Just two weeks ago, it was inconceivable that all four U.S. investment banks would disappear or change status, or that half of all Britons would be with the same bank, or that there would be chaos in Hong Kong as depositors tried to get their money back.

New York, London and Hong Kong may seem a long way from the Baltics, but the economic crisis will affect all of us. Swedbank, the region’s biggest, is heavily invested in the U.S., especially in the toxic bad debt. As we reported in The Baltic Times last week, the bank was exposed to Lehman by 1.3 billion dollars (921.4 million euros). Despite assurances that most of the debt is secured there has been a mini-run on the bank in some Nordic countries, as reported in the press in Finland and Sweden.

The stock market plummeted between Sept. 15 and Sept. 19 as the bad news kept coming in, only to rebound on Sept. 22 on the news that the U.S. Treasury is going to bail out the financial system.

“There probably isn’t a single happy investor on the Tallinn stock exchange right now; both old-timers and newcomers have been losing money. Unless one badly needs money, there’s no point in selling shares at present,” trader for Marfin Pank Eesti, Kristjan Tolmats, told the Baltic News Service.
And it isn’t just the bad news coming out of the Unites States that has investors worried. The real estate market is in a dreadful state and the industries that depend on it have all suffered.
Latvia is now in recession, a situation analysts don’t expect to change in the near future.
“Looking at these trends, I’m quite sure we will see worse numbers in the coming two quarters,” Zigurds Vaikulis, a Parex Asset Management economist, told Bloomberg.

“The good thing is that inflation is dropping,” he said. Latvian inflation, at 15.7 percent in August, is the fastest in the EU. The overall euro zone inflation rate is 4 percent.
Analysts say that profits will be small for investors.

“Private consumption is expected to decline this year. We also expect investment to fall markedly in 2008 as construction loses steam,” Anssi Rantala, chief analyst with Nordea, said.
Rantala did put in a note of good news despite soaring inflation of prices. “We expect inflation pressures to ease gradually, as the substantial commodity and food prices increases are over now and wage hikes will be moderated by a softening labor market,” Rantala said.

There is no doubt that some people are scared. When The Baltic Times contacted local banks about how they plan to make money for their investors, they didn’t seem to want to talk.
There are mutterings that a big regional bank could go under.

“It could be a bloodbath,” one source, who didn’t wish to be named, told TBT.
But what hope is there for the investor? When the entire paradigm has been destroyed, where is the careful investor to turn?

Some analysts and financial experts believe that now is actually an excellent opportunity for investors to make money. As companies consolidate and others go to the wall, a shrewd investor could find rich pickings in funds invested in distressed capital, mergers and acquisitions and private equity funds.
“The current market condition presents an excellent opportunity to pick up assets at attractive levels,” Mattias Wallander, chief of investment at Evli Bank in Estonia, said.
Wallander said that he believed that the waters needed to clear a little before investors and their advisor would know how and where to invest.

“I still believe the best opportunities will come in 2009. For well-funded buyers, it could definitely be interesting to start looking at the Baltic region,” Wallander said.

Some say that for investment companies starting out right now, the timing couldn’t be more perfect.
Maximus Capital, which set up shop this week, said they feel that there is a number of strong arguments in favor of starting a financial services firm exactly at this very moment.

“The financial turmoil has triggered industry consolidation and there is a surge in demand for fresh capital, and significant [mergers and acquisitions] activity, primarily driven by market consolidation, is behind the strong influx of new business along the lines of investment banking services that we are offering to our clients,” said Gene Zolotarev, founder and CEO of the company.

Zolotarev believes that the personal touch of putting the customer first will become a mainstay in the future investment landscape.

“We are not offering our own funds, as we feel that might create a conflict of interest and
limit our investment horizon to the selected number of in-house products. Instead, Maximus Capital is being entirely focused on delivering absolute returns in any market conditions,” Zolotarev said.
Maximus Capital was set up by a team of financial experts who saw the potential for a fresh approach to investment opportunities.

Many of the old maxims have gone out of the window. The recent market developments have clearly shown that the size of the financial player does not mean that it will be successful.

Maximus Capital does not offer any proprietary funds and does not sell any in-house products. This gives them the flexibility to follow the market objectively and offer truly unbiased advice to the investors. Maximus point out that unlike the bigger players, they are able to provide individual service geared towards the specific needs of their clients and communicate with their clients at all times.

Maximus admits that the current economic climate does provide an opportunity for rich returns for smart investors. “We are planning to capitalize on the unique investment options present in several fragmented and somewhat distressed sectors of the Baltic and CIS region,” Zolotarev said.

“Finally, the time is ripe to capitalize on the fresh prospects that are emerging for the private equity investor — the opportunities in distressed investing have never been so lucrative. We will turn the credit crunch around and use it to offer our clients direct access to new investment options with unique profit,” Zolotarev said.
Analysts agree that the current market conditions lend themselves to companies being merged and bought up.
“The CIS region saw a lot of M and A activity recently, and the volume of this business is likely to increase in the future,” Zolotarev said.

The financial turmoil in the global markets brought about the strong consolidation tendencies among financial services providers as well as corporations. Maximus Capital believes it can to take full advantage of its broad network of industry contacts in order to further expand this business area.

“Our brokerage clients tend to be very dynamic individuals with knowledge of the markets who value rapid execution, low cost and best market pricing, while our investment clients are drawn to our network of relationships,” Zolotarev said.

Graduates Entering Investment Banking

Thousands of graduates will be looking to enter Investment Banking this year. Many who are very focussed and know exactly where they want to be and those who just know they want to work within Investment Banking. There are many choices to be made but these early choices are crucial to future career development.

For those graduates who have achieved A grade "A" levels and are looking to achieve a 2:1 minimum in a financial discipline should definitely be applying direct to the banks to join a graduate scheme which will give you the experience of the different areas of the bank and allow you the choice at the end of the scheme as to where you are best suited. For those graduates who do not get one of the few places on the various graduate programmes, there are still various attractive options available.

By joining a specialist consultancy you will be able to apply to banks via your consultant utilising relationships that they have across the city in a wide range of Investment Houses. For those graduates who know they want to work in a front office role will need to have outstanding academics to get an entry level role as the majority of roles in the front office are filled by the internal graduate scheme. However there is also the option for those candidates who want to study for accountancy exams to join the middle office as opportunities exist for those again with outstanding academics to work within product control or management reporting. Lastly but by no means least Operations is a fantastic area for graduates to join. Here you will gain an excellent understanding of the products, gain invaluable training and have the choice of a career either within management, projects, middle office or alternatively front office. Again standards are very high and depending on the Bank, you will need good 'A' levels and ideally a minimum of a 2:1 or above.

Graduates wanting to enter the world of Investment Banking within Operations should be looking towards an entry level role within Fixed Income due to the increasing numbers of vacancies in that area. This is largely due to the fact that it was essentially Fixed Income, which carried equities and investment banking above the quicksands just as they were threatening to disappear last year. A not insignificant proportion of the bonuses paid to corporate financiers and equity specialists were borrowed from the debt capital markets pool.

Veteran Bond specialists do not need to be reminded that after the heady 1993 came 1994, which flattened many bond houses. During uncertain global economic times, it is equities that will suffer rather than bonds. The future is looking brighter for those looking to enter Banking Operations as confidence returns to the market.

Source: monster.co.uk

A country for old men? By Jurek Martin

John McCain wants to dispel the notion that America is “no country for old men,” as last year’s Oscar-winning movie had it. But his age, at 72 he would be the oldest first time president, is generally assumed to be a handicap to his success in November.

Still, an experienced Democratic pollster, chatting over the metaphorical garden fence last weekend, wondered if, in a crisis like the present financial one, Americans might not prefer the greybeard to the relatively unknown younger quantity.

History provides a mixed guide, though on balance it is not encouraging for the Republican candidate. The age difference between Mr McCain and Barack Obama – 24 years and 340 days – is the largest ever between nominees, exceeding the 23 years and 28 days separating Bill Clinton and Robert Dole in 1996. We know who won that one.

Moreover, the country has elected eight 40-something presidents since the founding of the Republic, most recently Mr Clinton in 1992, and only one septuagenarian – and that was for a second term in office for Ronald Reagan, who was 73 in 1984.

On the other hand, since 1856, the older candidate has prevailed in 24 of 38 elections. This is about the same percentage, 59 per cent, won by the taller nominee. (Mr Obama towers above Mr McCain.) Curiously, Mr McCain’s generation, born between 1925 and 1945, has never produced a president; nor has Mr Obama’s – though with fewer chances.

Elections held in a national crisis have often not been kind to incumbents. Herbert Hoover lost to Franklin Roosevelt in 1932 in the depths of the Depression, while Jimmy Carter’s Iran hostage problem helped his defeat by Mr Reagan in 1980. In 1968, with the Vietnam war going badly and turmoil in the country’s inner cities, Lyndon Johnson abandoned his re-election bid – and his vice-president, Hubert Humphrey, ultimately lost the election to Richard Nixon.

It has been different in war time. Abraham Lincoln won a second term in 1864 in the middle of a finely balanced civil war, as did FDR his third term in 1940, with battles raging in Europe, and his fourth in 1944, when the US was leading the allies to victory.

Still, this is the first election since 1952 when no sitting president or vice-president is on a national ticket – and Mr McCain has been doing his level best to distance himself, not always successfully, from his fellow Republican, the incumbent George W. Bush.

Commensurately, relative good and peaceful times have tended to favour the party holding the White House. That was the case in 1956 with Ike’s second term, 1984 with Reagan’s, 1988 when Bush the Elder succeeded Reagan, 1996 with Clinton’s re-election and even 2004, when the economy was still bubbling and opposition to the war in Iraq had not reached critical mass.

But each election has its own dynamic, to which history sometimes appears tangential, and this year is no exception. The colour of Mr Obama’s skin itself breaks the historical mould and asks America questions it has never previously had to answer. An AP-Yahoo poll released last weekend suggests his race could hurt him as much as age does Mr McCain.

The Democratic pollster may have been speaking from his gut, not from statistical empirical evidence, when he observed that Mr Obama appeared “so young” at a time when the country might be drawn to somebody who has been around the lot for as long as his opponent.

Mr McCain has not helped himself by being all over the same lot in his responses to the financial crisis, asserting that the economy was “strong” when Wall Street was leaking from every seam, first opposing the bail-out of AIG, the insurance company and then supporting it, and asserting that, as president, he would fire the head of the Securities and Exchange Commission, an authority a president does not possess.

More generally, he has taken to imitating Peter Finch as Howard Beale in the 1976 movie, Network (”I’m as mad as hell, and I’m not going to take this anymore!”). The more cerebral Mr Obama has been more deliberative and nuanced, while, like Mr McCain, not exactly covering himself in glory.

The temporary result, according to some recent opinion polls, has been to restore Mr Obama’s lead, though not necessarily to the point that he can feel comfortable. But that could change, in either direction, again – and might if Mr McCain takes the advice of some in the rightwing blogosphere and comes out, in swinging populist style, against the proposed $700bn Wall Street rescue plan advanced by Hank Paulson, the treasury secretary.

The first presidential debate, whether or not it is delayed, might reveal how Mr McCain wants to play his hand in the weeks remaining and if he wants to capitalise on his age and experience. The risk is that by emphasising these qualities he will remind everybody that he has been around for a very long time, when some not very good things were happening in Washington.

But the voting public, if not yet as mad as Howard Beale, is scared. In No Country for Old Men, Javier Bardem played the part of the young(-ish) assassin, Tommy Lee Jones the ageing sheriff. Neither really won in the end.

Everyone is paying price for share buy-backs By William Lazonick

During the stock market boom of the 1980s and 1990s the argument that “maximising shareholder value” results in superior economic performance dominated corporate governance debates. Economists argued companies should disgorge their “free cash flow” to create value for shareholders, rather than horde cash or invest in productive capacity that was not insufficiently profitable.

Traditionally companies distributed cash to shareholders through dividends. Increasingly, however, the payouts of US companies have taken the form of stock repurchases – total repurchases surpassed total dividends in 1997. Over the past five years, stock buy-backs have increased at a remarkable rate. Combined, the 500 companies in the S&P 500 index in January 2008 repurchased $120bn in 2003 and $597bn in 2007; in 2007 repurchases represented 90 per cent of their net income, while dividends were another 39 per cent.

These buy-backs are a measure of the grip that shareholder value ideology has on corporate America. Economists argue that among all stakeholders, only shareholders are risk-bearing “residual claimants”. The returns they get depend on what is left over after other stakeholders have been paid for their contributions according to guaranteed contractual claims. However, it is not true that all stakeholders receive guaranteed returns. Workers, for example, supply their skills with an expectation of long-term rewards such as promotion, but without these being contractually guaranteed. Governments often subsidise businesses without guaranteed returns to taxpayers. The shareholder-value perspective provides a simplistic answer to a complex problem: how to reward stakeholders so that their contributions raise living standards and provide economic gains that can be shared equitably.

Cash dividends are fundamentally different from stock repurchases. Dividends provide a return to those who hold stock, and hence maintain a commitment to the company. Yet executives have become enamoured by stock repurchases. Their abundant stock options give them an incentive to do buy-backs to boost stock prices even if this undermines long-term value.

The adverse impact of these decisions goes beyond the unseemly explosion in executive pay. The crisis in the US financial sector offers one example. Having spent billions on stock repurchases, some of the oldest Wall Street banks find that the subprime crisis has left them in need of cash to stay afloat.

In November 2007, the $7.5bn equity investment that Citigroup secured from the Abu Dhabi Investment Authority was almost as much as it spent on buy-backs in 2006 and 2007. Merrill Lynch did more than $14bn in repurchases in those two years, but by January 2008 had given up a 12.7 per cent equity stake to raise $9bn from foreign investors. Morgan Stanley, which did over $7bn in buy-backs in 2006-07, traded a 9.9 per cent equity stake with China’s sovereign wealth fund for $5bn. It has now agreed to a takeover. Lehman Brothers, which repurchased more than $5bn in 2006-07, is now bankrupt.

The taxpayer is also paying the price of buy-backs. When the US government bailed out Bear Stearns, by assuming the risk of $29bn of its subprime mortgage assets, there was almost $6bn less cash on Bear’s balance sheet because of buy-backs during 2003-07. So too with the government takeover of Fannie Mae and Freddie Mac, the government sponsored housing entities. They have spent $10bn on repurchases since 2003, including $4bn in 2006-07.

The crisis in the US financial sector demonstrates that the so-called “free cash flow” distributed as buy-backs was not really free. Wall Street banks could use that cash now to avert financial crisis rather than turn to foreign governments and the US taxpayer for a bail-out. Cash spent on buy-backs could also find better uses in other sectors. Leading pharmaceutical companies do buy-backs that sometimes exceed their R&D budgets even as they argue in Congress against the regulation of US drug prices contending they need to pump their profits into drug research.

The $1,700bn that S&P 500 companies spent on buy-backs in 2003-07 represents a huge manipulation of the stock market. US executives who allocate corporate resources to them reap the benefits as they exercise stock options. In the 1980s, executives learnt that greed is good. Now, their mantra could be “in buy-backs we trust”.

The author is a professor at the University of Massachusetts Lowell. A paper, The Quest for Shareholder Value: Stock Repurchases in the US Economy, to appear in Louvain Economic Review, is available at www.uml.edu/centers/CIC

We need a new Global Monetary Authority By Jeffrey Garten

Even if the US’s massive financial rescue operation succeeds, it should be followed by something even more far-reaching – the establishment of a Global Monetary Authority to oversee markets that have become borderless.

Washington recognises that the crisis has become global. Hank Paulson, Treasury secretary, has said that foreign banks operating in the US will be eligible for federal assistance and he is urging other nations to fashion their own bail-out programmes. Central banks have also been synchronising injections of funds into markets. These should be steps to a more comprehensive international response designed not just to extinguish the current fires, but to rebuild and maintain the capital markets for the longer term.

The current global institutional apparatus is woefully incapable of overseeing the financial system that is evolving. The International Monetary Fund is irrelevant to this crisis, the Group of Seven leading industrial countries lacks legitimacy in a world where China, Brazil and others are big players, and the Bank for International Settlement has no operational role. The US Federal Reserve is too besieged to act as a global central bank.

That vacuum at the centre is dangerous for everyone. The US’s dependence on massive inflows of foreign capital, roughly $3bn (€2bn, £1.6bn) a day, will surely increase now as Uncle Sam acquires $1,000bn in new obligations from current bail-outs. For years to come, Wall Street and Washington will be unable to manage without strong co-operation from other markets.

Beyond that, the international dimensions of finance are mind-boggling. Global assets have increased from $12,000bn in 1980 to nearly $200,000bn in 2007, far outstripping the growth of gross domestic product or the expansion of trade. An increasing amount of this capital now resides in Asia and the Gulf, not the US or Europe. A US company such as AIG sold more of its credit default swaps and insurance policies outside the US than within it. UBS employs 30,000 Americans, is listed on the New York Stock Exchange and owns Paine Webber. The capital markets will evolve in the context in which emerging market economies will be growing twice as fast as the rich nations and will, by mid-century, probably account for almost two-thirds of global GDP.

Globalisation will now also create a clash of philosophies. Most governments and investors outside the US never shared the American system of cowboy capitalism. Now they have good reason to demand that some fundamental changes be made in the way the US manages its financial institutions. This can happen with a conscious, negotiated modification in the US financial model, or it could result from foreign investors shifting their funds elsewhere.

All of these considerations point to the eventual need for a new Global Monetary Authority. It would set the tone for capital markets in a way that would not be viscerally opposed to a strong public oversight function with rules for intervention, and would return to capital formation the goal of economic growth and development rather than trading for its own sake.

A GMA would be a reinsurer or discounter for certain obligations held by central banks. It would scrutinise the regulatory activities of national authorities with more teeth than the IMF has and oversee the implementation of a limited number of global regulations. It would monitor global risks and establish an effective early warning system with more clout to sound alarms than the BIS has.

It would act as “bankruptcy court” for financial reorganisations of global companies above a certain size. The biggest global financial companies would have to register with the GMA and be subject to its monitoring, or be blacklisted. That includes commercial companies and banks, but also sovereign wealth funds, gigantic hedge funds and private equity firms.

The GMA’s board would have to include central bankers not just from the US, UK, the eurozone and Japan, but also China, Saudi Arabia and Brazil. It would be financed by mandatory contributions from every capable country and from insurance-type premiums from global financial companies – publicly listed, government owned, and privately held alike.

In terms of US and international politics, a Global Monetary Authority is probably an idea whose time has not yet come. That may change as today’s crisis evolves.

The writer is the Juan Trippe professor of international trade and finance at the Yale School of Management

Do not exaggerate investment banking’s death By Philip Augar

Did the eight days between Sunday September 14 and Sunday September 21, 2008 mark the death of the investment bank? Lehman Brothers went bust, Merrill Lynch gave up and Goldman Sachs and Morgan Stanley became regulated banks. It was part of the most catastrophic shift among investment banks since the event that created them, the Glass Steagall Act of 1933. In future, familiar terms such as the bulge bracket, the tag for elite US investment banks, will need to be redefined, end-of-year league tables will have a different look and clients and executives will need to adjust to new ground rules. But despite these changes and provided they survive the current crisis, it is likely that investment banks will exist as recognisable entities within their new organisations and investment banking as an industry will emerge with enhanced validity.

In one sense not much will change. The firms we regarded as investment banks had already become large financial conglomerates. Morgan Stanley ceased to be a stand-alone investment bank in 1997 when it merged with the consumer finance company Dean Witter. Goldman broadened away from investment banking when it expanded its trading and principal investment activities after it went public in 1999 and by 2007 less than 15 per cent of its pre-tax profits came from investment banking. The truth is that pure investment banks ceased to exist long ago. The absorption of some famous old names into banks and the redefinition of some others will make little difference to client service or market dominance. In respect of their performance as investment banks it is a matter of semantics whether such financial conglomerates include or exclude banking alongside their many other businesses.

The disruption in the market will, however, give an opportunity for other institutions to move into the investment banking space. In recent years there has been a convergence of financial services involving private equity firms, hedge funds and investment banks. Goldman Sachs, with its private equity and hedge fund businesses, is no more an investment bank than Blackstone, with its advisory experts and alternative investment funds, is a buyout firm. The blurring of such distinctions has already led alternative investment firms into investment banking territory. Firms such as Blackstone, KKR and others coming from the hedge fund end of the spectrum will no doubt see further opportunities as the existing investment banks readjust.

Much depends on the regulators’ response to the investment banks’ problems. The bail-out is so large and public opinion is so inflamed that new rules are inevitable. However, it is unwise to underestimate the industry’s powers of survival. The last time Wall Street was in the mire was between 2001 and 2003 when the dotcom bubble burst. President George W. Bush pledged “to end the days of cooking the books, shading the truth and breaking our laws”, but instead a patsy settlement with the investment banks was reached in 2003 that imposed trivial fines and minor rule changes but left their business model intact. What happened then was the industry argued that the investment banks were essential to oiling the wheels of global capitalism. They will be hard-pressed to use such arguments this time round but Washington and Whitehall are still pro-market and the investment banks, whether independent or part of larger financial conglomerates, may yet receive more lenient treatment than seems likely today.

Far from bringing about its downfall, the beating that the investment banks have taken in the market could even restore investment banking to what it once was. In the past decade advising clients on corporate finance and investment matters has been subsumed in a dash for profit involving principal investing and proprietary trading. In the hurly-burly of the bull market investment banks got mixed up between what they were doing for themselves and what they were doing for clients. While they are licking their wounds, the investment banks may well eschew some of the more esoteric structured finance products that have caused them such problems and refocus on what they used to regard as their core business. While we may have seen the death of the investment bank I would be very surprised if we have seen the death of investment banking as an industry.

The writer was group managing director securities at Schroders and is the author of The Greed Merchants and other books. His new book Chasing Alpha will be published by Bodley Head in the new year

The Future of Investment Banking by Lisa Novak (New York City)

In an interview on Bloomberg in July, Nouriel Roubini, a professor of Economics at the Stern School of Business at NYU and Chairman of RGE Monitor, had some dire predictions about the economy. Foreseeing no end to the current financial crises, he warned, “It’s a vicious circle between a contracting economy and greater credit and financial losses feeding on the economy.”

Roubini further prognosticated that, “in a few years’ time, there will be no major independent broker dealers as their business model…is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure…”

Starting with the fire sale at Bear Sterns earlier this year and culminating this week with the shocking news of the Lehman bankruptcy and rush sale of Merrill Lynch, Nouriel Roubini’s prophesies seem to be coming true before our eyes. Now, only two of the five largest independent brokers–Morgan Stanley and Goldman Sachs–remain standing. With reports this week that Morgan Stanley is considering a merger with Wachovia, many in–and out–of the financial world are questioning the future of investment banking.

Some, like John Gapper, believe that investment banks are not going to disappear in the future, “but they will be smaller, specialized institutions, like the merchant banks of old. There are plenty of advisory firms, hedge funds and private equity funds and this Wall Street crash will create more.” Gapper, associate editor and chief business commentator of the Financial Times further commented “all of the unemployed financiers will need something to do.”

An example of this type of firm is Jefferies Group Inc., a full-service global investment banking and institutional securities firm headed by Richard B. Handler, an ex-junk bond trader, formerly of Drexel Burnham Lambert. Third-market trading companies like Jefferies, which trade over-the-counter securities not listed on a stock exchange, are less affected thus far by the financial crisis because they haven’t been involved in subprime mortgage loans.

On September 2nd, Reuters reported that Jefferies hired 25 ex-Bear Stearns bankers. One cannot help but wonder whether this is a sign of things to come and whether all the newly-jobless Merrill and Lehman people will hop into the same lifeboat as the Titanic sinks.

However, others argue that Bank of America’s acquisition of Merrill Lynch and the possible acquisition of Morgan Stanley by Wachovia portend an opposite trend: the re-absorption of investment banks into the fold of traditional banking institutions as in the pre-Glass-Steagall Act era. The law, which was enacted following the Great Crash of 1929, banned commercial banks from underwriting securities, avoiding a conflict of interest and forcing banks to choose between being simple lenders or brokerage/underwriters.

It remains to be seen whether the investment bank as we know it will, as is predicted, fade away or whether rumors of the death of the investment bank are greatly exaggerated. In any case, we can expect that any action will be accompanied by an institutionalized code of ethics for the banking industry to stave off a future breakdown of this nature and scope.

Manasseh Pridefully Rebelling against the Lord with Hoekstra

Manasseh . . . did evil in the sight of the LORD, according to the abominations of the nations whom the LORD had cast out before the children of Israel . . . And the LORD spoke to Manasseh and his people, but they would not listen. Therefore the LORD brought upon them . . . the army of the king of Assyria, who took Manasseh with hooks, bound him with bronze fetters, and carried him off to Babylon. (2Ch_33:1-2, 2Ch_33:10-11)

Manasseh was another king who walked in prideful rebellion against the Lord. "He did evil in the sight of the LORD." His pride was even more shocking than Nebuchadnezzar's (who ruled in Babylon), since Manasseh ruled in Jerusalem and had been raised by a godly father, King Hezekiah.  

Manasseh was heavily influenced by the remaining presence of the godless nations that dominated the land before God gave it to Israel. His evil was "according to the abominations of the nations whom the LORD had cast out before the children of Israel." The spiritual behavior of these Canaanite nations was abominable in God's sight. They indulged in licentious worship of idols on the hills and mountains. Manasseh "rebuilt the high places which Hezekiah his father had broken down; he raised up altars for the Baals, and made wooden images; and he worshiped all the host of heaven and served them" (2Ch_33:3). Manasseh also brought idolatry into the very Temple of the Lord in Jerusalem. "He also built altars in the house of the LORD, of which the LORD had said, 'In Jerusalem shall My name be forever' " (2Ch_33:4).  

The nations that preceded Israel in the land were even engaged in sacrificing their children and seeking demonic guidance. Shockingly, Manasseh also "caused his sons to pass through the fire in the Valley of the Son of Hinnom; he practiced soothsaying, used witchcraft and sorcery, and consulted mediums and spiritists" (2Ch_33:6). Actually, Manasseh brought more evil into the land than his abominable predecessors. "So Manasseh seduced Judah and the inhabitants of Jerusalem to do more evil than the nations whom the LORD had destroyed before the children of Israel" (2Ch_33:9). Lovingly, the Lord reached out to this pridefully rebellious king. "And the LORD spoke to Manasseh and his people, but they would not listen." The ultimate result of this persistent resistance was humiliating and painful captivity. "Therefore the LORD brought upon them the captains of the army of the king of Assyria, who took Manasseh with hooks, bound him with bronze fetters, and carried him off to Babylon."

Let's pray;

Heavenly Father, please guard me from the seductive influence of this godless world. I am already too familiar with the bondage that worldly indulgence brings. Please nurture to fullness every godly seed ever planted in my life, for Your glory, Amen.

Nebuchadnezzar Exemplifying God's Grace for Humility with Hoekstra

And at the end of the time I, Nebuchadnezzar, lifted my eyes to heaven, and my understanding returned to me; and I blessed the Most High and praised and honored Him who lives forever . . . He does according to His will in the army of heaven and among the inhabitants of the earth . . . At the same time . . . I was restored to my kingdom . . . Now I . . . praise and extol and honor the King of heaven . . . and those who walk in pride He is able to abase. (Dan_4:34-37)

When Nebuchadnezzar exalted himself, he exemplified God's opposition to pride. "Is not this great Babylon, that I have built for a royal dwelling by my mighty power and for the honor of my majesty? . . . a voice fell from heaven . . . 'the kingdom has departed from you' " (Dan_4:30-31). When he humbled himself, he exemplified God's grace for humility. "God resists the proud, but gives grace to the humble" (1Pe_5:5).  

Nebuchadnezzar had been driven into the fields to live as an animal. "That very hour the word was fulfilled . . . he was driven from men and ate grass like oxen . . . till his hair had grown like eagles' feathers and his nails like birds' claws" (Dan_4:33). This season of God's opposition for Nebuchadnezzar's pride would end when he looked to the Lord above. "And at the end of the time I, Nebuchadnezzar, lifted my eyes to heaven, and my understanding returned to me." Now, with his mind enabled to think clearly, he began to give blessing and praise and honor to the Lord God Most High. "And I blessed the Most High and praised and honored Him who lives forever."  

This represented a completely transformed perspective for the king. Previously, he was glorifying himself. Now, he glorified the Lord. Previously, he thought he had established himself upon his throne. Now, he saw the will of God behind his ascendancy to power. "He does according to His will in the army of heaven and among the inhabitants of the earth." The Lord then granted grace to this humbled king, who had formerly walked in rebellious pride. "At the same time . . . I was restored to my kingdom." Seated again in authority, he gave honor to the King of heaven (instead of to the king of Babylon). "Now I . . . praise and extol and honor the King of heaven." Then, he added a remark that reveals the new conviction he received during his humbling. "And those who walk in pride He is able to abase."

Let's Pray

Lord God Most High, I confess that I have had moments of success which I wrongly assumed were of my doing. Thank You for the grace You have always given when I humbly turned to honor You again. Lord, help me to keep my eyes consistently toward heaven that I might think clearly and give You all glory and praise day by day, Amen.

Isaiah Proclaiming God's Power for the Weak with Hoekstra

He gives power to the weak, and to those who have no might He increases strength. Even the youths shall faint and be weary, and the young men shall utterly fall, But those who wait on the LORD shall renew their strength; they shall mount up with wings like eagles, they shall run and not be weary, they shall walk and not faint. (Isa_40:29-31)

Isaiah is another example of an Old Testament saint who lived by grace (that is, by depending upon God to work in the lives of His people). This dependence upon the Lord can be seen in Isaiah's proclaiming God's power for the weak. "He gives power to the weak . . . those who wait on the LORD shall renew their strength."
God desires to impart His power to the feeble. "He gives power to the weak." Those who are of the world cannot partake of this power, because they do not know the giver of this heavenly power. Sadly, many of God's own children do not receive this divine enabling, because they are unwilling to admit their weakness. Actually, the privileged place for receiving the Lord's empowering is to confess that we have no might at all on our own. "To those who have no might He increases strength."

In the days of youthfulness, mankind is the most convinced of possessing personal might. When one is young, weariness seems to be a distant threat. Yet, the truth is that even youthful energy eventually proves to be inadequate for the demands of life. "Even the youths shall faint and be weary, and the young men shall utterly fall." Nevertheless, there is enablement available that the most promising days of youth could never supply. It is an empowering that only God can provide.

This God-given power is experienced only by those who will wait upon the Lord. Left to themselves, old and young alike will find human might so frail and inadequate, "but those who wait on the LORD shall renew their strength." Those who place their hope in God are strengthened by the Lord Himself. They are enabled by God to live above their circumstances, looking down on life from heavens' perspective. "They shall mount up with wings like eagles." When it is time to press energetically ahead, they can do so without becoming exhausted. "They shall run and not be weary." When it is more appropriate to plod along methodically and persistently, they do not collapse. "They shall walk and not faint." All of this results from the power of God unleashed within those who wait upon Him.

Dear Giver of all true power, I have hoped in myself in the midst of so many demanding circumstances of life. My own strength has always proved to be so inadequate. Teach me to wait upon You, to place my hope in You. I desperately need and earnestly desire Your irreplaceable empowering, for Your glory, Amen

More on David Confessing the Lord as His God by Hoekstra

For my iniquities have gone over my head; Like a heavy burden they are too heavy for me . . . I am troubled, I am bowed down greatly; I go mourning all the day long . . . in You, O LORD, I hope; You will hear, O Lord my God . . . Do not forsake me, O LORD; O my God, be not far from me!  (Psa_38:4, Psa_38:6, Psa_38:15 and Psa_38:21)

When the battles raged with pain and cruelty, David drew upon God's grace by humbly confessing the Lord as his God. "I hear the slander of many; Fear is on every side . . . But as for me . . . I say, 'You are my God' " (Psa_31:13-14). Then David added, "My times are in Your hand" (Psa_31:15). He knew that all of his times were in the hand of his sovereign God. David demonstrated this comprehensive dependence upon the Lord in all types of situations (not only during the agonizing betrayals that he faced). 

When David experienced times of personal sin and failure, he turned to the Lord, his God. "For my iniquities have gone over my head; Like a heavy burden they are too heavy for me." The guilt of David's sins overwhelmed him like mighty flood waters and crushed him like a massive weight. "I am troubled, I am bowed down greatly; I go mourning all the day long." This left David distressed, greatly pressed down, and continually grieving. Thus, with a broken and humble repentance, he confessed the Lord as his God.  "In You, O LORD, I hope; You will hear, O Lord my God . . . Do not forsake me, O LORD; O my God, be not far from me! " 

In other times, David confessed the Lord as his God. When he was sick and near to death, he turned to the Lord, confessing Him as his God. "O LORD my God, I cried out to You, And You have healed me. O LORD, You have brought my soul up from the grave; You have kept me alive, that I should not go down to the pit" (Psa_30:2-3). When David was humbly aware of his lack of innate goodness, he also confessed the Lord as his remedy. "Preserve me, O God, for in You I put my trust. O my soul, you have said to the LORD, 'You are my Lord, my goodness is nothing apart from You' " (Psa_16:1-2). On the other hand, when David was joyously abounding in the goodness of the Lord, he also confessed the Lord as his God. "Many, O LORD my God, are Your wonderful works which You have done; And Your thoughts which are toward us cannot be recounted to You in order" (Psa_40:5).

Dear Lord, You are my God as well! Yet, I know that in many situations, I have not confessed You as my God. Lord, teach me to confess You as my God in every circumstance — when I have sinned, when I am sick, when I am abased, when I am abounding. Wherever I am, whatever comes my way, may I see You as my God, lovingly and powerfully handling my times, in Jesus name, Amen.