Monday, August 11, 2008

the cost of greedy ambitions

In his play Julius Caesar, Shakespeare has Mark Antony say " They say Caesar was ambitious, and if so, it was a grievous fault. But grievously has Caesar paid for it."

Capitalism is the same way: it punishes hubris and excess sometime sin grievous ways.

The business plans of those who promoted the subprime mortgage market and the CDO derivatives using such mortgages for support did not plan for great losses or that famous CEOs would lose their positions of power and influence. Nor did they plan for a global credit crunch that would lower asset values across the board and dilute the value of then ownership in big banks and investment banking firms.

But that is what happened.

Profits came in up front, to be sure, but at a cost.

To date, the score card on business success from these financial endeavors is:

Citigroup has lost or written down US$54.6 billion - that offsets a lot of past profits - and replaced its CEO.

Merrill Lynch took a US$51.8 billion hit and replaced its CEO.

UBS took a hit of US$38.2 billion and replaced its CEO.

Wachovia replaced its CEO and took write-downs and losses of US$22 billion.

HSBC took a hit of US$ 27.4.billion. The number for Bank of America was US$21.2, for Royal Bank of Scotland US$15.2 billion, for Washington Mutual US$ 14.8 billion, and for Morgan Stanley US$14.4 billion.

And, the prices for shares of all these firms dropped some 60% on average.

These market driven results do not add up to a glorious victory for business.

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