Forget the President-Elect, who is running the Treasury?

Since this blog is not about politics I will not pontificate or discuss the recently ended presidential campaign. Regardless of your political orientation this has been a historic election on many levels and we should be proud of our democracy.

Back to my usual topic, the economy! Things seem to be stabilizing a bit, most likely due to the sheer amount of government money that is now flowing throughout the world. While the personal lending markets are still very tight and there is virtually no residential lending occurring, bank-to-bank lending is improving, which should stabilize the banking sector for now. The 3rd quarter earnings reports have been released for most banks and it was a bloodbath, as expected. The continued collapse of the housing markets, combined with the mark-to-market requirements, caused banks (including Wachovia) to write down record amounts. While the optimists hope that this quarter was the worst, I suspect we have at least 1-2 quarters of continued bad news. The fundamental issue is the housing market and until there is a price floor things will not rebound. The frightening thought is that some analysts peg the potential bank losses at over $1.3 trillion, which means we aren't even half-way through the cycle.

As a result, I am following with keen interest who our next Treasury Secretary will be - make no mistake, this will be the most important decision Obama will make for at least the next year. The short list includes Larry Summers, Paul Volker and Jamie Dimon - of the three my preference is Jamie Dimon, only because he is living in the existing market and would be straightforward around the pain that has to occur in order to fix the market (i.e. increased foreclosures, tightened lending standards, changes to our tax policy to encourage saving instead of spending). We'll see soon enough.

Finally, there was an interesting article about our area in the Charlotte Business Journal - the area just south of us is unicorporated but booming. As a result, four developers are partnering to literally build a town center with private funds. God bless capitalism!

The ButterflyEffect and Wall Street

So it's been a while since I posted - believe it or not, I've been busy! It's amazing how busy one can get with a house, spouse, three kids, two cars and a job. . .

That hasn't stopped me from keeping up with the daily flood of news about the financial crisis. While things seem to have stabilized a bit and we aren't seeing 400 point swings in the Dow daily, it's still a roller coaster ride on a daily basis and the U.S. government continues to roll out more guarantee's. Not good.

On that point, I watched a terrifying segment on PBS tonight. The nightly Business Desk interviewed Nassim Taleb and Benoit Mandelbrot. . .who are they, you ask? Well, Benoit Mandelbrot is a french mathematician and the father of fractal geometry. He is better known for his groundbreaking work supporting chaos theory, better known as the "Butterfly Effect":

The flapping of a single butterfly's wing today produces a tiny change in the state of the atmosphere. Over a period of time, what the atmosphere actually does diverges from what it would have done. So, in a month's time, a tornado that would have devastated the Indonesian coast doesn't happen. Or maybe one that wasn't going to happen, does.

Nassim Taleb, on the other hand, is a former finance manager who has written significant financial analysis books based on the Butterfly Effect, notably a book called the Black Swan. He is also known for predicting 2 years ago much of the current financial crisis, in particular the breakdown of the international banking system.

They are both very worried about the financial crisis and don't believe we've seen the end of it. Their premise is that the current series of worldwide financial stimulus are susceptible the butterfly effect, an unpredictable chain of events that result in unintended consequences. Worse, the efficiency of our global markets, the speed with which transactions move throughout the world, can amplify events within the chain, rapidly making them much worse. Finally, the network effect of global interconnected markets also amplifies consequences (and mistakes) globally. Further, they believe that due to the rapid speed of the crisis (due to the efficiency of our markets) global leaders have simply not had time to analyze the potential impacts of their actions. As a result, they fear that while we've avoided a meltdown now, the butterfly effect will kick in viciously down the road. The saving grace is that none of their theories clearly predict human behavior, and our uniqueness and oddness may save us all. Ironically they are also very concerned about the recent consolidation within the banking system since it will concentrate risk to a few large firms, amplifying mistakes (such as the recent $800 million dollar bad trade made by a French bank resulting in it's near failure).

If you are interested, go here to listen.

WachFargo!!

Late in the day CitiBank announced that it was ceasing negotiations with Wells Fargo and allowing the merger with Wachovia to move forward. While there is still a lot of uncertainty and hard work to do, it is a big relief that we will now be joining Wells Fargo. Citi will be pursuing a lawsuit to compensate them for their trouble, but most analysts expect this to not be a significant amount.

I'm sure more will be written about this in tomorrow's Wall Street Journal, New York Times, etc. But virtually everyone in Charlotte is excited about this - it's been a challenging few weeks and it will be good to focus on the merger and growing our business again. The potential of this is very exciting - once the merger is completed (December) we will be the larger retail bank in the U.S., the larger small business lender in the U.S. and the largest brokerage firm in the U.S. Not too shabby in the midst of a global recession. . .It also means business trips to San Francisco. ;)

Another crazy week. . .and some common sense tips

A whirlwind of activity over the last few days. I won't bore folks with the trials and tribulations of a certain bank here in Charlotte, but the global financial meltdown has accelerated. Headlines from just the last three days:

- Congressional budget estimate that $2 TRILLION dollars have been lost in retirement savings in the last 15 months

- Iceland on the verge of bankruptcy due to bank insolvency

- Central Banks cut rates globally in emergency move

And that is just the last three days! Folks, the best case scenario at this point is that the U.S. is in a deep recession, from which we may pull out by early 2010. The worst case, as Jim Cramer (CNBC) puts it, is that any money in stocks will lose value for the next 5 years. Essentially Cramer is stating that we are entering a once-in-a-lifetime Depression that will take 5 years to get out of. THIS IS A REAL POSSIBILITY AND SHOULD NOT BE TAKEN LIGHTLY.

Lot is being written about how best to prepare for this financial "Perfect Storm." I am not a financial planner, but I think most of the suggestions below are sound:
1. Clean up any outstanding short term debt now. That means stow the credit cards, pay off balances, and make sure that you only have "healthy" debt (i.e. a single mortgage, car loan, etc.)
2. Stockpile cash - now is the time to save. At a minimum have 3 months of living expenses. Ideally get 6 months if possible. Ditch the lawn service, forget about the car wash, and cut back to a single latte!
3. Think through your worst case scenario and prepare for it - in the case of job loss, think about how you would get health care, etc.
4. NETWORK - now is not the time to hunker down. Talk with people in your industry and outside it. The hidden job market still exists and is hiring, but don't expect to get a job off Monster.com. In my experience, now is a great time to get to know people because everyone is nervous and more willing to chat.
5. In terms of your retirement accounts - I cannot give any advice here but urge you to check your allocations, contact a financial planner, and try not to check the account daily. If you do, it will be a miserable experience.

If history is any guide, we will all make it through this - we may have scars from it, but we will all make it. The key is to not panic, to be aware and educated on what is going on, and to stay involved in the political process. Like it or not, it will be the federal government's actions that will ultimately determine how long this lasts. As a result, it pays to know your elected leaders and how they vote.

Aftershocks

So it's now been 72 hours since the Wachovia announcement, and for the most part everyone is still in the dark about what is going to happen. I'm sure there is a lot activity going on behind the scenes, but not a lot is being distributed to the general Wachovia population.

As a result, rumors have become news - sadly, this is freaking people out. Among the things that have been discussed:
- Everyone in one business unit has already been given notice (simply not possible and actually illegal)
- Citi plans on doing mass layoffs Dec 15th, when the deal may close (possible, but unlikely since they actually need many Wachovians well past that date)
- There have been cash runs on the bank since Monday due to account holder fear (this is possible given the current climate)
- The remaining Wachovia units are actively being shopped and soon there will be no Wachovia (quite possible, especially if you review the financial obligations Wachovia has to it's preferred shareholders)

What have I been doing? Trying to stay optimistic (but realistic), support the proactive efforts underway to assemble information for Citi to review as part of their due diligence, and spending as much time as I can networking! Obviously I don't know what will happen but I'm keeping an open mind, trying my best to have lots of options, and maintaining my connections as best possible. The atmosphere is pretty bleak right now because the job market is tight, there is a lot of uncertainty, and the local press is painting a pretty grim picture (got to love that!)

The bailout package has not been voted on yet, but I think our elected leaders now understand how precarious a situation we are in. The market drop on Monday erased $1.4 trillion dollars in retirement and equity. That is double what the bailout would be, and we have already lost it because of the House's inaction. Boggles the mind. . . This is now a global problem - we are seeing systematic bank failures in France, Great Britain, Belgium and Russia. As a result, the EU is also considering a bailout, more proactively than the US did.

If you are curious about how things have spiraled out of control so quickly, I urge you to read this article. Lets hope that Monday ended any debate about the need for this. . .

Crazy Day and the Death of a Good Company

So I've decided to start this blog on perhaps the darkest day in recent Charlotte history. I am doing this for the following reasons:

• We are living in very complex and trying economic times and it's sometimes difficult to make sense of what is going on;
• I believe we are in the midst of a historic moment, one that will impact generations to come;
• I am a know-it-all and need an outlet!

Earlier today my organization was acquired by Citibank for $2.2 billion dollars. This deal, the brutal result of a loss of confidence in Wachovia, erased approximately $61 billion dollars in value instantly. Many within the organization have only begun to come to terms with the startling events of today and I suspect some never will. Wachovia is a good company with good people, but made a horrible decision two years ago to purchase Golden West, a morgage lender specializing in ARM mortgages.

This acquisition has been horrific for Wachovia, forcing over $12 billion write-offs and triggering fears on Wall Street that the losses would continue. While we have an excellent new CEO in Bob Steel, he was powerless in the face of recent events. Essentially, once WaMu was taken over by JP Morgan, regulatory filings indicated that WaMu's projected losses were greater than anticipated. This was projected onto Wachovia's books and suddenly our stock was being destroyed. Fast forward to Monday and we are now the property of Citibank.

Right now no one knows what will happen to Wachovia's workforce or presence in Charlotte - Citibank is saying all the right things but it is unknown what the strategic intent is for "Citicovia." It will mean some level of job losses and a major ego hit to everyone who has come to expect Wachovia as the acquirer. I am personally optimistic that job losses will be minimized and that both the smaller Wachovia and Citibank will successfully coexist in Charlotte. I'm also somewhat excited about the possibilities with both Wachovia and Citi and look forward to updating this blog as events unfold.

On a seperate but related topic, I am terrified that the House did not pass the economic recovery bill. Folks, regardless of your political affiliation, regardless of your dislike for Wall Street, the time to act is now. This credit crisis is impacting main street - since banks have no trust with each other or borrowers, they have severely restricted credit to small businesses and individuals. This is preventing businesses from making payroll, farmers from buying seed, and you and I from borrowing money for college, cars, and our homes. The crisis is getting worse by the day, yet our political leaders are bickering about philosophies and letting the economy dangle. WE ARE IN SERIOUS DANGER OF AN ECONOMIC MELTDOWN THAT WILL TAKE A DECADE TO RECOVER FROM! Do you want a "lost decade?" Do you want your retirement delayed due to inaction? If not, then you need to contact your representative and demand they vote yes for the recovery bill.

Alternatively, we can wait for our leaders to act and watch our 401's disolve, our jobs dissappear and businesses close. The choice is clear for me.