Oil Energy Money

Welcome to another day of panic after Lehman Brothers announced the biggest bankruptcy ever and Merrill Lynch was sold to Bank of America for a mere $50bn.  America’s largest insurer American Insurance Group (AIG) has been rescued by the government with an $85bn loan.

No one knows who may be the next to fall.  As mentioned in the post below, investors are pulling their money out of equities and in to safer investments.  Which makes sense, the economy has been sprouting  since 2003 and a crash seems long overdue. 

After all, the 1929 crash came at the end of the second great merger wave and a period of perpetually increasing returns.  The fourth merger wave, in the 80′s, came to an end with Black Monday in 1987 and the collapse of junk kings Drexel Lambert and the securities fraud arrest of Michael Milken.  The go-go merger years of the 60′s created congolmerates like ITT and LTV, most of which failed within a decade and much of the 80′s were spent fixing the mistakes of the 60′s.

But, in hindsight, the 80′s were great.  Lots of innovation.  Mergers as we know them today wouldn’t exist without the continued use of leveraged buy outs.  And the conglomerates of the 60′s weren’t too bad, firms like Berkshire Hathaway and General Electric have become increidbly successful, efficient conglomerates by learning from the mistakes of the go-go years.

Even the dot com bubble of the late 90′s gave way to web 2.0, paving the way for E-bay and Amazon and WordPress, without which you wouldn’t be reading this lovely post today. 

So banks, please, don’t fire all your employees.  It accentuates the downturn and leaves you unprepared for the eventual, cyclical upturn.  The reason KKR became a powerhouse in the 80′s was because they took risks and embraced hostile take-overs at a time when the big banks like Merrill or JP Morgan didn’t want to damage their reputation with clients.  And we all know what happened to Merrill Lynch. 

Investors will return and the market will improve.  The fundamentals are in place, global demand will recover quickly from American shocks and the financial contagion will not spread as far or as deep as the current sell-offs suggest.  Oil has already increased over 3% today, and rightly so.  It’s all about fundamentals, fundamentals, fundamentals.  ML will fit in well to Bank of America and Lehman Brothers’ brokerage assets will be put to use efficiently by a buyer like Barclays.  Until then, we all need to calm down and look at all this turbulence with a little bit of perspective.   It’ll alll work out in the end.

Your Friend,

Oil Energy Me

P.S. The title of this article was inspired by a much harsher piece at satirical website Something Awful.