Attended a fund-raiser last night here in Toronto and the main topic of conversation around the table was of course the bad news etc out of New York this week. Lehman filing for bankruptcy protection, AIG getting bailed out by the U.S. government, Merrill Lynch getting sold to Bank of America.
Someone asked me what I thought was going on, and my short answer was: “I don’t know.”
Is this the end of the investment banking model? Is this a vote of nonconfidence in the global financial system? Possibly.
But against that one has to weigh the reality that Wall Street–and Bay Street and the City, along with the media who cover them–tend to believe that the economic world begins and ends at their borders. What effect the collapse of Lehman and sale of Merrill, big though they are, will have on the real economy remains to be seen.
Two interesting observations did emerge last night around the table. One is that hard times in the financial services capitals will have a ripple effect on real estate–rich people (brokers, bankers, traders) thrown out of work in New York will push prices down there and across the U.S. Same in England and Canada, one supposes–aggravating an already crumbling housing market in the States and overseas, maybe here too.
Another observation: the purchase of parts of Lehman by Barclays and the sale of Merrill to Bank of America repeats, in some ways, the kind of consolidation that occurred here in Canada more than a decade ago. Now, as banks bought out brokerage firms here, it led to much grumbling among die-hard Bay Street cowboys about working for a (boring, bureaucratic) bank.
One wonders how the honchoes at Lehman and Merrill are going to like it….