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Chrysler's Response to Indiana Pension Funds

The legal issue may have merit but it doesn't matter because there is no working capital to run the business. Without a buyer who is willing to invest additional billions in work. capital or a willing DIP lender there is no ongoing Chrysler. That is why a political settlement is the only solution. Presumably the government wasn't that stupid to ignore other buyers - Nissan, etc. if they wanted to pay more. None do because they have to invest billions more. That is why the lenders conceded to a settlement. If the lenders including Indiana pension want to lend additional money to preserve their secured investment let them but I don't see anyone stepping up nor has anyone since December.

Is State Street's Stock Price Decline Justified?

Maybe you should take a look at the $3 bil or so in unrealized losses on bal sheet, the impact of consolidating $30 bil in unconsolidated off-bal sheet conduits not to mention more unrealized losses (how much?), and its SSGA fixed inc problems before assigning a valuation. Note, the U.S. govt had to inject capital and there could easily be more capital required over the next 6 months. Also a few new brokers won't move the needle on this global custodian. In the meanwhile it will continue to see fee erosion from falling asset values and lower transactions. By the way there are no cash earnings in a finance company. It is all smoke & mirrors as the most recent environment indicates.

The Case for Derivatives

You all are missing the point about the cause of the falling markets although some points about derivative are good. What has happened shows how intertwined the capital markets are. Here is my take and I do blame structured investments created out of primarily subprime mortgages as the catalyst to everything that has occurred since mid 2007.
When subprime mtg defaults climbed faster than anticipated in Spring, 2007 the following occurred:
Owners of CDO's - specifically AAA rated saw prices fall much more than ever expected, i.e. in dollars vs normally in bps
Owners of CDO's then began selling CLO's (leveraged bank loans - the funding for all those LBO's, etc.) because mkt liquidity for structured investments was decreasing thanks to the sudden volatility in CDO pricing, not what AAA buyers are use to.
Banks couldn't sell their unsyndicated bank loans
Money mkt funds started puking out their structured investments
It was revealed that asset backed com'l paper was invested in CDO's, etc. and some of these vehicles were levered causing rapid pain.
Money mkt funds started selling AB-CP
Other AB-CP issuers such as auto captive finance co's couldn't get financing
Money mkt funds got more risk adverse and stopped buying credit card asset back securities.
Meanwhile the subprime mkt was being driven by the underlying ABX derivatives index. As it continued to slide fr what were presumably cheap AAA, AA, A, BBB levels to prices reflecting distressed assets it forced everyone holding CDO's to reprice accordingly.
The bond insurers who normally insure default of mostly municipal bonds but also asset backs, and some corporates, entered the subprime CDO market over the past 5 yrs, leading to them hitting the wall when CDO prices fell.
This led to significant problems with many municipal bonds including the student loan market. Now everyone who thought they were invested in AAA-AA muni's because of the insurance were no longer. Their risk appetite went away as their portfolios' credit quality went south.
Meanwhile buyers strike continued for CDO's and CLO's and we haven't even gotten to 2008.
Banks started feeling the pain of charge-offs associated with structured investments that had fallen in price or no longer had valid bond insurance. Furthermore, banks couldn't get rid of upwards to $200 bil in unsyndicated bank loans still hanging from bridge loans/promises made to all the LBO shops. Anyone who knows anything about bank accounting will quickly realize that charge-offs erode capital that must be replaced if these companies are to remain sound and viable.
Now we are going into Dec, 2007 and one very large insurer announces to the world that they also have made some very big subprime CDO bets via selling insurance (CDS) on many of these subprime CDO's that are now headed south in price. However, this large insurer, AIG, also had been selling insurance on bank loan portfolios worldwide to the tune of half a trillion dollars. Thus what should have remained a subprime problem was growing much larger.
One other market was also beginning to fall apart beginning in the 4Q.07 which was the commercial mtg mkt. It turns out that many com'l mtgs are underwritten and then sold into structured investments just like residential mtgs, i.e. CMBS. So if you figure the typical buyer of all the structured investments rated AAA were money mkt funds and other conservative investors they were not going to stay invested in AAA rated CMBS's either leading to lack of liquidity in this market. So now another large part of the economy is losing steam because the capital markets are increasingly not there.
Hedge funds - they are mostly based on leverage (sound familiar) and thus their returns became very exagerated, both up & down. As banks continually shrank their balance sheets it consequently led to lack of access to borrowing for hedge funds. This in turn led to rapid unwinds of hedge fund portfolios (think $2.5 tril in hedge fund money levered by 2-3x). And what normally gets sold out of portfolios first are the best and most liquid assets and then the unwind story continues leading to the rapid decline in commodities exacerbated by the fear of a global economy slowing.
The rest of the story is pretty simple: the key capital markets continue to decline, stock investors begin to catch up with the bond markets, more people get nervous, and then things just start to unravel faster and faster until we get to this fall. As banks and brokers continue to see their capital erode sources of new capital are no where to be found. Now AIG which is continuing to see a rapid erosion in its subprime portfolio is downgraded by the rating agencies leading to more collateral required to back up all those insurance policies, specifically the $500 bil in bank loan CDS spread across banks globally. Do you save it or potentially watch a global catastrophe result.

So really if the subprime mtg debacle never occurred there is some likelihood that we wouldn't be here today. For some perspective:
Residential mtg backed securities mkt has functioned fine since the early 1980's just not in the form of CDO's
Asset backed mkts for autos, credit cards, equipment has functioned for over 20 yrs
Derivatives mkt in most forms has functioned well for 20 yrs
Bond insurers have been around for many yrs

However, the CDS mkt has been around for less than 10 yrs and was probably going to create some problems given the slow pace of regulation of this mkt and the lack of a central clearing house for trading. The Fed was on to this a few yrs ago but the players were not acting quickly enough.

In the meanwhile everyone wanted to own AAA paper that paid a yield higher than AAA, the 'free lunch' which there is none in this world. So subprime mtgs met the needs of the 'free lunch' and the rating agencies, investment bankers, and investors all helped it succeed.
Unfortunately, now that all hell is breaking out it is easy to blame everyone and everything which when the dust settles is probably going to leave some ugly regulation.