Silence in the Boardroom & in the Home of the Brave ~ The Risk Averse Alert

Monday, July 04, 2011

Silence in the Boardroom & in the Home of the Brave

Over at the C-SPAN BookTV website, I was watching former Lehman Brothers VP, Lawrence McDonald, present his book "A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers," and I thought his message about silence among the Lehman board and those with access to the firm's 31st floor executive lair offered a microcosm of what ails the American nation. This shout-out on the 4th of July is rightly timed due, then.

Along these lines, if I were in the audience during McDonald's presentation, my question to him might have been, "Could you provide some insight on the dynamic connecting reckless leadership in the nation's largest banks with a reckless body politic? Some enlightenment on the man Henry Paulson in this context — unquestionably relevant to your story — might prove instructive, as well."

Then, moving to the matter of leverage I would ask, "Given the obscene degree to which leverage was added not only at Lehman, but throughout the entire trans-Atlantic financial system, is it not likely that, industry consolidation accelerated in 2008 might proceed with, say, Morgan Stanley being reabsorbed back into JP Morgan Chase, with the combined enterprise then being poised to destroy Goldman Sachs? In other words, with the means having been made available allowing leverage to reach obscene levels, and this now being defended with vigor by lenders of last resort, is it reasonable to think the aim all along, and continuing, is the very consolidation of financial power making Lehman Brothers but among the first victims?"

(This, too, is to ponder whether the widely bemoaned connection between Goldman Sachs and Washington is but a trap venturing to destroy both. And please spare me the "I don't buy conspiracy theories" line, as this is American Independence Day, which was from the first a conspiracy, indeed.)

company chart (GS)
Goldman Sachs

company chart (MS)
Morgan Stanley

company chart (JPM)
JP Morgan Chase

Relatively speaking, Morgan Stanley appears judged by a consensus most vulnerable of the three, so the order of prospective industry consolidation finds agreement in perception displayed by share price behavior in relation to respective 200-day moving averages. Pressure on these firms presently — falling share prices uniformly turning relative strength decidedly negative (but not yet extremely so, as would reflect an irrational selling contingent) — suggests risk of a further contraction in leverage throughout the trans-Atlantic soon might occasion another round of chaotic consolidation among leading financial firms, this in keeping with my second fantasy question to Lawrence McDonald.

The internet being the greatest invention since Gutenberg's printing press, I will tweet him, begging his brief, and hopefully provocative reply to this, the matter of systemic leverage now backstopped by lenders of last resort to the tune of tens-of-trillions of dollars (that, today, trouble in the euro-zone but shows woefully inadequate), and whether silence among elected representatives in the face of the Fed's failed Maiden Lane II auction, much like silence at Lehman Brothers, might rightly be feared these days portending the same end to the United States as came to that firm.

If you have not read Lawrence McDonald's "A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers," co-authored with colorful ghost writer, Patrick Robinson, by all means, purchase the book from via my affiliate link below, and kill two birds with one stone: summer reading for you and a dime for me, this in appreciation for killer content.

(Being Independence Day, this American will not shun promoting his cause doubly, as this too, as always, is for our mutual gratification...)

Might as well get that Kindle, too, because bound books or soooo 20th century!

Lawrence? Comments? Being opposed to bailout, like you, there's just one thing left to do...

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