Monday, 15 September 2008

Lehman Brothers bites the dust

Working and living in London, you undergo a daily abuse of your health, both mental and physical, and while I was walking back home ( I live in Bow, ranked #2 on worst places to live in Britain, and I have lunch almost everyday in Hackney, ranked #1 on the same infamous list), as usual trying to block out all of the "noise" of London ( if I may borrow the term from Mr. Nicolas N. Taleb ), I was trying to digest the crash of Lehman Brothers, which now takes over WorldCom as the biggest bankruptcy in US , and subsequently, World history.
A bit later, I talked to a good friend of mine back home in Lebanon, who, apparently was only worried about the cost of petrol for his car. The magnitude of the financial crisis, obviously seemed much different to him than it was to me, which made me think, what is the impact of this crisis on the rest of the "non-modernized" if I may use this term sparingly to refer to the Western world, or Europe and the United States to be exact.

Well, I like to follow the KISS principle : Keep It Simple and Stupid. Fair enough, so here is, simple enough for anyone who lives in the Middle East, and reads "Layalina" or any of the other "Hello" type tabloids:
Lehman Brothers owes to Citigroup, to which Prince Al-Waleed Bin Talal is a major shareholder, and a couple of other banks, what is near $155 Billion , which is a quite a fair amount. Although the Prince may not be worrying about paying his mortgage just yet, this will definitely have an impact on his portfolio. i.e. he may have to rethink his investments in the media, and his ambitions in the political scene in Lebanon.
That's for the common man, KISS style. The real issue that will surely have ripples that will affect the Middle East economy, is , well, oil prices, as with the markets crashing, oil dropped to $94 per barrel. This is definitely not bad news for some, but, if continues, may have an impact on the investment strategies of sovereign wealth funds, such as ADIA. The Arabs are already deep in investing in the western markets, but these investments, in return are dependent on the excess cashflow from high oil prices (peaking at $165 this year). These funds are no way close to liquidity problems surely, but, well, if you are making half the money you were when you threw in a few billion to bailout the ailing European markets, well.... tough luck. Why? The Western economies, also called economies of scale , have strong manufacturing industries to which low energy prices will only help, while unfortunately, the Middle East has hardly any industries that can sustain an economy over a long period. A quick look at the Middle East Financial Markets, and the listed companies, besides Saudi Arabia to (to which I worked in for a while , and was actually impressed), no country has any significant "heavy weight" industries.

This is just a bird's eye view of what the worst crisis since the Great Depression in 1929 can impact the Middle East, and the world. It's so bad, that only 2 investment banks, Goldman Sachs and Morgan Stanley, still stand, out of the Big Five (Lehmans, Merril, Bear Stearns being the other three ... may they R.I.P.).

I'll keep thinking about it whilst smeling the lovely pollution of the London Underground tomorrow morning.

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