Red Arrows and Red Blood


Late morning I had a chat with my ex-roommate about the financial meltdown happening in the US with Lehman Brothers the 4th largest investment bank in the US about to declare bankruptcy and Merrill Lynch to be bought by the Bank of America. (View the conversation at the bottom) I didn’t care. I know very little about accounting and economincs (BTW, my exroommate’s course which he seems to be having a very easy time in DLSU) maybe the reason why I’m getting blood all over my keyboard while reading the finance articles on CNN and New York Times. I’m better of listening to Buzz Out Loud from CNET. I don’t really get why so many people are panicing. Will it affect the Philippines that much? The US still has other banks so why worry? Stupid questions at best! After explaining it to me, I think I only got less that one-fourth of his mini-lecture but I was convinced that the situation now in the US is getting bad, specially after switching the cable TV to CNN and only seeing RED ARROWS POINTING DOWN. Maybe this is really big I thought. In 20 minutes time, Wallstreet will open and I would love to watch the action and drama in New York, shown by numbers changing every second. Whatever happens, I’ll ready myself by getting a pail to catch the blood running from my nose. And if you are thinking that the US is very far from our humble country to feel the effects. Just wait.
Daniel Jan del Mundo is a screen name used to protect the identity of my roommate.
Daniel Jan del Mundo: ei pare kagulo financial world ngayon a
Kaiser Fernandez: bakit ano nangyari
Daniel Jan del Mundo: tatlong banks sabay sabay pabagsak
Kaiser Fernandez: feed me
Daniel Jan del Mundo: big banks
Kaiser Fernandez: anong banks
Kaiser Fernandez: ?
Kaiser Fernandez: anong article mo nabasa?
Daniel Jan del Mundo: merrill lynch, AIG, and lehman brothers
Daniel Jan del Mundo: kahit san ka magpunta
Daniel Jan del Mundo: headline
Kaiser Fernandez: (Kaiser) <— halatang hindi nagbabasa ng balita
Daniel Jan del Mundo: ahehe
Daniel Jan del Mundo: pare patay na
Kaiser Fernandez: wala naman e
Daniel Jan del Mundo: inflation na naman unemployment na naman wah
Kaiser Fernandez: ano direct effect sa pinas?
Daniel Jan del Mundo: wait ka lang hehe basta meron yan
Daniel Jan del Mundo: medyo magegets mo naman yan
Kaiser Fernandez: ndi nga
Kaiser Fernandez: e
Kaiser Fernandez: binabasa ko yung sa cnn
Daniel Jan del Mundo: basta pabagsak yung lehman
Kaiser Fernandez: medyo pinupunasan na ng nanay ko ung keyboard kasi puro dugo na
Daniel Jan del Mundo: e kung may investment ka dun e di patay ka
Daniel Jan del Mundo: hehe
Daniel Jan del Mundo: i bet citibank’s next
Daniel Jan del Mundo: wah pare patay na
Kaiser Fernandez: yes
Kaiser Fernandez: haha
Kaiser Fernandez: ndi ko maintindihan boring e
Daniel Jan del Mundo: hehe
Daniel Jan del Mundo: oks lang yan dyan din ako nagsimula
Daniel Jan del Mundo: pero keep on reading
Daniel Jan del Mundo: punta ka dito
Daniel Jan del Mundo: www.investopedia.com
Daniel Jan del Mundo: may encyclopedia yan
Daniel Jan del Mundo: ng finance terms
Kaiser Fernandez: mas madaling intindihin ito
Daniel Jan del Mundo: shucks pare tataas na naman bilihin
Daniel Jan del Mundo: kasi pagbumagsak banks
Daniel Jan del Mundo: ibig sabihin magiging mas wary mga investors 
Daniel Jan del Mundo: di na sila magiinvest
Daniel Jan del Mundo: pag walang investment, walang capital para sa business
Daniel Jan del Mundo: pag walang capital, walang business
Daniel Jan del Mundo: pag walang business, less supply, higher prices
Daniel Jan del Mundo: walang sweldo, walang trabaho
Daniel Jan del Mundo: inflation + unemployment
Kaiser Fernandez: ndi ko talaga magets pero parang big deal kasi nagrereact tatay ko e
Kaiser Fernandez: bakit magiging wary investors?
Daniel Jan del Mundo: kasi yung pera nila na ininvest baka hindi na bumalik sa kanila matalo pa sila
Kaiser Fernandez: invest you mean magsava sa banko?
Daniel Jan del Mundo: parang ganun
Daniel Jan del Mundo: invest pede kasi pautang (bonds), o kaya maging part owner ka ng firm (stocks) etc
Kaiser Fernandez: im trying to understand
Daniel Jan del Mundo: gets mo na?
Kaiser Fernandez: ndi
Daniel Jan del Mundo: kung nagpautang ka sa company, tapos bumagsak ung company, malamang di ka na mababayaran diba
Kaiser Fernandez: bigayan mo naman ako concrete example
Daniel Jan del Mundo: so hindi ka na magpapautang
Daniel Jan del Mundo: kahit sa iba
Kaiser Fernandez: sino magpapautang?
Kaiser Fernandez: bank?
Daniel Jan del Mundo: yung investor
Kaiser Fernandez: ano kinalaman ng bank sa utangan nung dalawang company?
Daniel Jan del Mundo: yung investor kaya nagpapautang kasi may interest na babalik sa kanya bukod pa sa principal
Daniel Jan del Mundo: e isa yung bank sa pinapautangan e
Daniel Jan del Mundo: so kung bangko na mismo yung bumagsak
Kaiser Fernandez: concrete example pleas
Daniel Jan del Mundo: oks
Kaiser Fernandez: gusto talaga maintindiahn
Daniel Jan del Mundo: from scratch
Daniel Jan del Mundo: si Kaiser isang investor na may pera
Daniel Jan del Mundo: ngayon kung itatago niya lang yung pera, walang mangyayari sa perang yun
Daniel Jan del Mundo: e kung wala namang paggagamitan yung pera, e di sayang naman yung pera
Daniel Jan del Mundo: so iinvest mo na lang yung pera sa mga “securities” kung san pede ka pang kumita 
Daniel Jan del Mundo: “securities” tawag dun kasi parang sinesecure mo pera mo sa ibang tao
Kaiser Fernandez: ok gets so far
Daniel Jan del Mundo: pinapabantayan mo, kaya nga lang may babalik sayong kita
Daniel Jan del Mundo: yun namang nagpapa-“securities”, yun yung kelangan ng pera
Daniel Jan del Mundo: so sabihin natin ako company
Daniel Jan del Mundo: tapos si Ramon banko
Daniel Jan del Mundo: yan
Daniel Jan del Mundo: si DJ kelangan ng pera
Kaiser Fernandez: wait lang
Kaiser Fernandez: ano nangyari sa pera ko 
Daniel Jan del Mundo: pero para magkapera siya, kelangan umutang siya, o kaya manghingi siya ng pera sa iba
Kaiser Fernandez: nilagay ko ba sa banko?
Daniel Jan del Mundo: mamaya babalik tayo
Kaiser Fernandez: ok
Daniel Jan del Mundo: dun
Daniel Jan del Mundo: so since si Kaiser may extrang pera, si DJ kelangan ng pera, e di swak yung needs, magkakaron ng utangan. uutang si DJ kay Kaiser. 
Daniel Jan del Mundo: sabihin nating ganun din yung sitwasyon ni Ramon
Daniel Jan del Mundo: na bank
Daniel Jan del Mundo: gets?
Daniel Jan del Mundo: so far?
Kaiser Fernandez: di ko magets san papasok ang bank sa ating dalawa
Daniel Jan del Mundo: sige
Daniel Jan del Mundo: yung banko pinapadali nun yung buhay ni DJ at Kaiser 
Daniel Jan del Mundo: kasi sabihin nating hindi alam ni DJ na kelangan ni Kaiser ng pera, at sabihin nating hindi alam ni Kaiser na may pera pala si DJ
Daniel Jan del Mundo: so kahit kelangan nila pera, hindi sila mag-uusap
Kaiser Fernandez: them never knowing each other can benefit mutually tama?
Daniel Jan del Mundo: yep
Daniel Jan del Mundo: so yung bank si Ramon
Daniel Jan del Mundo: si Ramon trabaho niya magpautang tsaka mag-secure ng deposits
Daniel Jan del Mundo: yung pinapautang niyang pera, galing sa mga deposito sa kanya ng kung sino sinong tao
Daniel Jan del Mundo: diba?
Daniel Jan del Mundo: gets?
Daniel Jan del Mundo: so since alam ng lahat na ganun yung bank
Kaiser Fernandez: yes
Daniel Jan del Mundo: idedeposit na lang ni DJ yung pera niya kay Ramon sa coin slot hehe
Kaiser Fernandez: hahahahhaa
Kaiser Fernandez: the best
Daniel Jan del Mundo: tapos si Kaiser papautangin ni Ramon gamit pera ni DJ
Daniel Jan del Mundo: so ayun nagbenefit pareho
Daniel Jan del Mundo: diba? kikita si Ramon sa interest na ichacharge niya kay DJ at Kaiser
Daniel Jan del Mundo: mas mababa ichacharge niyang interest kay DJ kaysa kay Kaiser
Kaiser Fernandez: kala ko ba ako ang may pera 
Daniel Jan del Mundo: kasi yung interest kay Kaiser, makukuha niya kasi pautang niya yun
Kaiser Fernandez: bakit ako ngayon ang nangungutand
Daniel Jan del Mundo: pero yung interest kay DJ, ibabayad niya kay DJ kasi pautang ni DJ sa kanya yun e
Daniel Jan del Mundo: diba ikaw nga may kelangan ng pera
Kaiser Fernandez: o sige it doesn’t matter hehe
Daniel Jan del Mundo: onga di pala kelangan yun
Daniel Jan del Mundo: so erase erase balik tayo sa utangan without the interest
Daniel Jan del Mundo: ngayon BUMAGSAK yung bank
Daniel Jan del Mundo: kasi may problema, may kumalat na tsismis na hindi daw mababayaran nung bank yung mga deposits, kahit TSISMAX lang
Daniel Jan del Mundo: so gagawin ng mga depositor tulad ni DJ, iwiwithdraw nila pera nila
Daniel Jan del Mundo: e nasan ba pera nila? pinautang kay Kaiser. so walang perang pambalik yung bankong si Ramon kasi nakay Kaiser nga pera
Daniel Jan del Mundo: patay na
Daniel Jan del Mundo: pagnangyari yun
Daniel Jan del Mundo: mawawalan na ng gana si DJ magdeposit ng pera sa bangkong yun pati na rin sa ibang bangko 
Daniel Jan del Mundo: wala na rin siyang ganang magpautang sa ibang kumpanya
Daniel Jan del Mundo: kasi takot siya baka maulit
Daniel Jan del Mundo: so since wala na magpapautang kay Kaiser, lagot naman si Kaiser ngayon kasi wala siyang pera pagkatapos niyang bayaran yung utang niya sa banko
Daniel Jan del Mundo: so ayun BAGSAK
Daniel Jan del Mundo: that’s a simple illustration of how useful banks are, and how detrimental their fall would e
Daniel Jan del Mundo: be
Kaiser Fernandez: ayos pala e
Kaiser Fernandez: wait
Daniel Jan del Mundo: simple lang yan mas kumplikado yung sa Lehman kasi Investment Banking yun hindi Commercial Banking 
Kaiser Fernandez: balik tayo sa interest
Daniel Jan del Mundo: iba yung investment banking
Daniel Jan del Mundo: commercial banking yung kanina
Kaiser Fernandez: mas mataas ang interest ng umuutang kaysa nagpapautang that way kumikita ang bank tama ba?
Daniel Jan del Mundo: investment banking sa stocks wag muna baka maubusan ka na ng dugo
Daniel Jan del Mundo: yep
Kaiser Fernandez: ok sige commercial banking lang, pano kikita banko?
Daniel Jan del Mundo: gets mo ba yun?
Daniel Jan del Mundo: oks
Daniel Jan del Mundo: so si Ramon nagpautang kay kaiser ng 100 may interest na 12% 
Daniel Jan del Mundo: ngayon si DJ nagdeposit kay Ramon ng 100 may interest na 12%
Daniel Jan del Mundo: kung ganyan, pagnagkabayaran na
Daniel Jan del Mundo: si Kaiser babayaran si Ramon ng 100 + 100×12% (sabihin nating 1 year) = 112
Daniel Jan del Mundo: ngayon kung kukunin na ni DJ yung deposit niya kay Ramon, makukuha niya 100 + 100×12% = 112 din
Daniel Jan del Mundo: so parang wala ring nangyari diba
Daniel Jan del Mundo: lumipat lang yung pera mula kay Kaiser hanggang kay DJ
Daniel Jan del Mundo: walang kita si Ramon, so anong incentive ni Ramon para gawin yun
Daniel Jan del Mundo: dibadiba
Daniel Jan del Mundo: so dapat mas mababa interest sa depositors tulad ni DJ
Daniel Jan del Mundo: lets say 10%
Kaiser Fernandez: yes 
Daniel Jan del Mundo: so si Kaiser 12% pa rin
Kaiser Fernandez: gets
Daniel Jan del Mundo: may P2 kita na si Ramon
Daniel Jan del Mundo: ngayon gawin mong multi-million yung utangan tsaka deposits
Daniel Jan del Mundo: laki ng kita sa banko pare
Daniel Jan del Mundo: so mas masaya talaga mag business hehe kaysa ECE
Daniel Jan del Mundo: hehe
Kaiser Fernandez: ayos a pero kung walang mga techy edi walang yahoo messenger
Daniel Jan del Mundo: hehe
Daniel Jan del Mundo: onga no
Daniel Jan del Mundo: kung walang funds, e di walang magiging techy diba
Daniel Jan del Mundo: hehe
Daniel Jan del Mundo: so it all boils down to business and religion pare
Kaiser Fernandez: religion?
Daniel Jan del Mundo: yep 
Daniel Jan del Mundo: siempre religion lang kayang kumontra sa business
Daniel Jan del Mundo: tsaka law pala
Kaiser Fernandez: hehe 
Kaiser Fernandez: brb
Daniel Jan del Mundo: sige next time na uli

7 comments

  1. […] Filed under: Uncategorized | Last month, I posted something about the fall of Lehman Brothers (Red Arrows and Red Blood). This entry would be a sequel to that […]

  2. from this part:
    Daniel Jan del Mundo: so since wala na magpapautang kay Kaiser, lagot naman si Kaiser ngayon kasi wala siyang pera pagkatapos niyang bayaran yung utang niya sa banko

    —how come nagkaron ng utang si kaiser s bank? di ba supposedly si kaiser ung nagpautang s banko?bkit mawawalan ng pera si kaiser?
    and wat b difference ng commercial sa investment banking?

    pki ask man po yan kay Daniel..

    tnx and more powers..mejo ngbbleed din kasi ko pag dating sa ganyang situation pero i have 2 know yan 4 my studies..hehe
    tnx again..i like ur blog very much,,,so sana msagot din nyo mga questions ko..

  3. Kaiser Fernandez · ·

    About commercial and investment banking… no idea. Maybe if you ask me how electrical current works, then I can give you a lecture. Try asking DJ del Mundo. You can pm him on his facebook <– click this link. But another way is to google your queries. haha.

    Actually DJ mixed up who had the money and the one who borrowed. It doesn’t matter who owes who. The concept still holds.🙂

  4. In short po, what’s the reason behind the bankruptcy of Lehman Brothers?
    grabe, nosebleed n po talaga sa mga articles n binabasa q.
    i really need your help to easily understand the situation.

    keep on writing articles like this. keep on updating your blog.
    big help po sa students like me.

    ty po. godbless.🙂

  5. I can’t answer your question in one sentence. However, try reading my other post. It has links that can help you understand the financial situation…

    https://kaiserfernandez.wordpress.com/2008/10/14/undestanding-the-us-financial-crisis-for-dummies/

  6. may i ask another question??

    why is it entitled red arrows and red blood?

  7. Kaiser Fernandez · ·

    When stocks go down, they are represented by red arrows pointing down…

    “maybe the reason why I’m getting blood all over my keyboard while reading the finance articles on CNN and New York Times”

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