Wednesday, September 17, 2008

Witnessing history

The events of the past few days convince me that we are witnessing history. The demise of Lehman Brothers, Wall Street’s fourth largest investment bank, would surely find its place in history.


I remember the day in March when I heard that Bear Stearns, Wall Street’s fifth largest investment bank, is heading towards bankruptcy. As an aspiring quant in investment banking I had applied for an entry level quantitative analyst role a month ago and was waiting to hear from them about my application. It was taking unusually long for a bank with a proper recruitment procedure in place to respond on my application. I was patient, waiting for a response was much better than hearing a rejection so I did not complain. Least did I know that I would straight get to hear the news of the bank struggling to survive and so being bailed out by the Fed and thereafter bought by JP Morgan Chase at the price of peanuts! Little did I know that the application which I worked on for hours and the cover letter which I got checked from my career counsellor at university and at least two other people were destined to go into the dustbin! Little did I know that those who would recruit me are busy saving their own jobs!


The memories of the crisis at Northern Rock, UK’s fifth largest mortgage lender, and how it had to be nationalised to protect the monies of the hundred’s of pensioners and savers had not even faded, that I was in for this jolt of a prospective employer who was taken over so as to avoid its demise. Things were going to be tough, I realised.


Having completed the course with the submission of dissertation, since the last couple of weeks I had been planning my strategy to go for the application spree again. I chalked out the banks I would target as a single application takes at least 5 hours of thorough research of the organisation. This research made me go through the current financial situations at each bank and I realised that Lehman Brothers was in a bad financial state. I was hopeful that like Bear Stearns, probably Lehman would also get a helping hand from the Fed so that even if my hopes of working for the bank are bleak, at least those working still have hopes of not losing their jobs. On Monday I was in for the second biggest shock, Lehman was not bailed out and so had to file for bankruptcy. 5000 employees in the UK were rendered jobless.


Merrill Lynch, Wall Street’s third largest investment bank, was also having its balance sheet in red, only to be saved by the proposed take over by the Bank of America. My housemate works for Merrill and though he has not been made redundant, since his contract gets over with the bank in a couple of weeks and there is no chance under these circumstances it would be renewed so he is looking for another job. But as he said, there are so many redundancies made by Lehman that getting a job at this point seems next to impossible.


The financial system is in shambles. Today’s BBC business news headline reads “US government rescues insurer AIG”. Mind you, AIG is the US’ largest insurance company and had the Fed not rescued it, it would have to file for bankruptcy. And then the whole system would have collapsed, we would have been experiencing the Great Depression of 1929. However I am not sure if the visible signs are any good to ensure that we are not heading towards it.

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