More High Finance Doings

Putting in some serious non-bankers' hours, BofA bought Merrill Lynch and Lehman Brothers announced that it would file for bankruptcy on Sunday. Strangely, with all of this going on, the government still insists on taking over some others our with our tax dollars (see AIG). Do we really want the government dictating private finance?

I just don't buy into this idea that some companies are too big too fail. Whether it's AIG, GM or Microsoft. Remember, this whole crisis was due to their making--they gambled on too many bad mortgages and, after making a killing for a while, eventually lost. That's how captialism works. Their investors and employees pay the price, just as they reaped the benefits earlier. Putting every American on the hook for these failures sends the wrong message (It's OK--you can fuck up as much as you want, but we'll save you from yourselves) and morally wrong since these machinations lead to a higher federal deficit that our children and grandchildren will have to payoff. The first bailout of Bear Sterns just encouraged more of these--and believe me, AIG won't be the last. By propping these companies up, the government refuses to let the market determine their true worth, so they are likely to get over-valued and fail again.

The story line is always the same, "We can't let Bear Sterns/Fannie Mae/Freddie Mac/AIG/Whoever's Next fail because it will destroy life as we know it...at least financially." I say bullshit. There's always someone out there to buy them for what they think is the right price. Which is a better price than whatever the government thinks it's worth because it's our money and it shouldn't be used to pick winners/losers in the financial markets.

Speaking of these buyouts, BofA is being extremely aggressive (they bought Countrywide before they went bankrupt in January). Clearly, BofA feels that in the medium-long term both Countrywide and Merill are undervalued. That's between their board and their stakeholders. My feeling is that they will have a tough time making them work. Most acquisitions fail not due to market reasons, but do to a poor job of merging cultures and getting people to work together. Absorbing two pretty big companies at once is going to be a big task (I don't envy BofA's VP of HR). I wouldn't be surprised if BofA eventually spins off one or both of them.