The Bonfire of the Vanities, the Sequel
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June 26th, 2008 by AdvisorAnalyst
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June 26, 2008 - Andrew Ross Sorkin, of the New York Times, writes about how prophetic Tom Wolfe’s declaration was on the day of the Blackstone debut: “We may be witnessing the end of capitalism as we know it.”
When you get to the end of an era, marking the timeline with watershed events is always therapeutic. Here are some excerpts from Sorkin’s NYTimes article:
… Mr. Wolfe must be in attendance — was that the Blackstone Group, the big private equity firm, was minutes away from going public, the largest initial public offering in the United States since 2002. (At the time, he told The New York Observer that a friend was giving him a tour.)
Just then, a CNBC reporter pulled Mr. Wolfe aside to ask him what he made of all the hubbub. Mr. Wolfe paused for a moment to contemplate his answer.
And then, with a wry smile, he delivered a prophetic declaration: “We may be witnessing the end of capitalism as we know it.”
One year later …
Blackstone’s stock has gone nowhere but down since it went public, dropping nearly 50 percent from its high the day it started trading. But that’s the least of it.
The once mighty Wall Street investment banks have been brought to their knees, sending out pink slips to more than 83,000 employees worldwide, racking up billions of dollars in losses as a results of their foolish forays into subprime mortgages. Bear Stearns all but went out of business before being “saved.” Some hedge funds have gone belly up.
Those lords of private equity, many of which were preparing to follow Blackstone into the public markets, have been put on semipermanent hiatus. (Kohlberg Kravis Roberts & Company refuses to withdraw its I.P.O filing, almost a year after submitting it, with no immediate hope in sight.) Their deal-making has all but stopped.
As Mr. Wolfe nicely put it, “It sounds like even the firms that aren’t in trouble are in trouble.”
And, what of credit …
And yet, there has been a perverse, and misguided, optimism that somehow the situation will improve in the second half of 2008. How? Sure, the big banks may take fewer write-downs — but there is no way of knowing that. The news a few days ago that the big bond insurers were being downgraded will create new havoc — and losses — for holders of toxic subprime debt. Indeed, the bigger issue is what kind of business is going to generate any return for its investors. When you can’t lend or trade — and you can’t invest with the leverage that juiced returns to support seven- and eight-figure bonuses — how exactly are you going to make money?
“It has always interested me that the word ‘credit’ comes from the word ‘credere,’ which means ‘to believe,’ ” Mr. Wolfe said. “It only works if people believe in it.” He’s right, of course: one reason the credit markets have tanked is that people don’t believe anymore.
Complete Article:
A “Bonfire” Returns as Heartburn, Andrew Ross Sorkin, NYTimes, June 24, 2008
Read more from the author/contributor here.
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Tags: Aig, American International Group, Andrew Ross Sorkin, Bank Of America, Barack Obama, Bonus Payment, Corporate Defaults, Foreign Banks, Gambling Debts, Goldman Sachs, Gretchen Morgenson, Hara Kiri, Immense Credit, Mass Hysteria, Michael Lewis, New York Times, Political Backlash, Seventy Three, Societe Generale, Taxpayer FundsPosted in Credit Markets, Gold, Markets |
March 25th, 2009 at 4:21 pm
Very good point, nobody ventured to look at this issue from the other side.
However.. maybe I’m a bit deluded here, but my understanding of the word bonus, is something that is paid over and above your salary, when you achieve a certain target or an extra level. which was obviously not the case with AIC!! and this is why the street is enraged!! how could a losing company pay bonuses to the divison that caused the whole mess?!! not salaries.. but bonuses..?