http://www.nytimes.com/2008/09/25/business/worldbusiness/25comeback.html?partner=rssnyt&emc=rss
Someone on this blog asked if Indian banks should be buying chunks of Wall Street as the Japanese are doing here- I do not think that is a good idea. Primarily because investment opportunities in India are aplenty and more attractive than these risky Wall Street plays.
Also Japanese have a greater incentive to reacapitalize America's financial system - their enormous reserve holdings are in dollars - India holds it's reserves in a basket of currencies and also gold. I think the Japanese may be in for nasty surprises in the coming couple of years when these balance sheet's real holes are revealed
5 comments:
Acquisition targets should be assessed on a case-by-case basis. There are plenty of good targets on the US landscape, if India Inc wants to look for them. China and Japan are both moving in to buy some bargains for themselves. When the bailout happens, they'll both profit handsomely, while India could get left behind.
Look at Warren Buffett's $5Billion investment in Goldman-Sachs. That was a great deal for him. Buffett is not known to invest recklessly.
In my opinion, the Goldman deal by Buffet is a mistake. Goldman will soon go the way of Lehman, Bear Sterns, Merryl Lynch, AIG, WaMu and in the coming months shut down. I am waiting for the day when there will be no more Goldman Sachs.
Meanwhile, we should expect Mittal or Ambani to take our Buffet as the richest man in the world.
chitrakut, consider that Goldman were the first to offload their bad mortgage securities to others, and had made the most progress in distancing themselves from a crisis they recognized before everyone else. Yes, they would be badly hit if the US bailout doesn't work out, but so would everyone else.
Mittal can't get richer if the world is in recession and isn't buying his steel. It would be a mass disaster.
Well San,
The fact is that the business model of Investment banks is now dead. There is no more money to be made in the business. Goldman will have more losses from securitization and derivatives that they will slowly reveal going forward. They did not convert to being regular banks for no reason.
The key reason for the credit crisis is Leverage. These investment banks were leveraged like crazy. For example with just a billion dollars in capital, they borrowed more than 30 billion dollars to buy assets. When their 30 billion dollars of highly toxic assets lost just 5 percent of value (which comes 1.5 billion dollars), their billion dollar capital was completely wiped out. This happened with every investment bank on wall street.
Goldman probably succeeded in postponing the inevitable by heavily shorting fellow investment banks and using that capital to survive a few quarters. And now they want their own stock protected from short sellers, which they got because of their political connections. These people are crooks.
The story does not end here. The housing prices have not stopped going down. As long as the housing prices keep going down, the investment banks will continue to lose more money.
I particularly dislike Goldman Sachs. In the name of allocating resources effeciently, they shorted gold, and other commodities, and thus artificially strengthening the dollar. They manipulated the stockmarket with the ratings system, sometimes stifling genuine startups of well deserved capital. Used inside information to make a lot of money through speculation. I am glad they are dying.
Most of these banks should never have existed. They are a joke. The world is better without them.
Thank you Ghost Writer for clarifying the reason why it is fine for the Chinese, the Japanese, the Arabs, etc. who have large holdings of US T-bills to buy up badly performing banks to protect their dollar holdings.
Indians should be investing in infrastructure projects in India.
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