unravel [ʌn'rævl] (拆散、解體)

By Robert J. Samuelson
Wednesday, September 17, 2008; Washington Post

Wall Street as we know it is kaput [kə'pʊt] (adj) (口語:完蛋了). It is not just that Merrill Lynch agreed to be purchased by Bank of America or that the legendary investment bank Lehman Brothers filed for bankruptcy or that the insurance giant AIG is floundering ['flaʊndɚ] (掙扎). It is not even that these events followed the failure of the investment bank Bear Stearns or the government's takeover of Fannie Mae and Freddie Mac, the largest mortgage lenders. What's really happened is that Wall Street's business model has collapsed.

Greed and fear, which routinely govern financial markets, have seeded this global crisis. Just when it will end isn't clear. What is clear is that its origins lie in the ways that Wall Street -- the giant investment houses, brokerage firms (經紀業務公司), hedge funds (投機性投資避險基金) and "private equity" (私人股權) firms -- has changed since 1980. Its present business model has three basic components.

First, financial firms have moved beyond their traditional roles as advisers and intermediaries. Once, major investment banks such as Goldman Sachs and Lehman worked mainly for their clients. They traded stocks and bonds (債券) for major institutional investors (insurance companies, pension funds (養老基金), mutual funds (共同基金)). They raised capital for companies by underwriting -- selling -- new stocks and bonds for the firms. They provided advice to corporate clients on mergers, acquisitions and spinoffs. All these services earned fees.

Now, most financial firms also invest for themselves. They use partners' or shareholders' money to place bets on stocks, bonds and other securities -- so-called "principal transactions." Merrill and other retail brokers, which once served individual clients, have ventured (冒險從事) into investment banking. So have some commercial banks that were barred (禁止) from doing so until the repeal (取消禁令) in 1999 of the Glass-Steagall Act of 1933.

Second, Wall Street's compensation is heavily skewed toward annual bonuses, reflecting the profits traders and managers earned in the year. Despite lavish (豐厚的) base salaries, bonuses dominate. Managing directors with 15 years' experience can receive bonuses five to 10 times their base salaries of $200,000 to $300,000.

Finally, investment banks rely heavily on borrowed money, called "leverage" (槓桿) in financial lingo (行話). Lehman was typical. In late 2007, it held almost $700 billion in stocks, bonds and other securities. Meanwhile, its shareholders' investment (equity) was about $23 billion. All the rest was supported by borrowings. The "leverage ratio" was 30 to 1.

Leverage can create huge windfalls (被風吹落的果實,喻意外之財). Suppose you buy a stock for $100. It goes to $110. You made 10 percent, a decent return. Now suppose you borrowed $90 of the $100. If the price rises to $101, you've made 10 percent on your $10 investment. (Technically, the price has to exceed $101 slightly to cover interest payments.) If it goes to $110, you've doubled your money. Wow.

Once assembled, these components created a manic (狂燥的) machine for gambling. Traders and money managers had huge incentives (刺激、鼓勵、動機) to do whatever would increase short-term profits. Dubious mortgages were packaged into bonds, sold and traded. Investment houses had huge incentives to increase leverage. While the boom continued, government remained aloof (漠不關心的). Congress resisted tougher regulation for Fannie and Freddie and permitted them to run leverage ratios that, by plausible (貌似有理的) calculations, exceeded 60 to 1.

It wasn't that Wall Street's leaders deceived customers or lenders into taking risks that were known to be hazardous. Instead, they concluded that risks were low or nonexistent. They fooled themselves, because the short-term rewards blinded them to the long-term dangers. Inevitably, these surfaced. Mortgages went bad. The powerful logic of high leverage went into reverse. Losses eroded firms' tiny capital bases, raising doubts about their survival. This year, Lehman lost nearly $8 billion in "principal transactions." Otherwise, it was profitable.

How Wall Street restructures itself is as yet unclear. Companies need more capital. Merrill went to Bank of America because commercial banks have lower leverage (about 10 to 1). It seems likely that many thinly capitalized hedge funds will be forced to reduce leverage. Ditto [’dɪto] (如上所述,同上) for "private equity" firms. In time, all this may prove beneficial. Financial firms may take fewer stupid and wasteful risks -- at least for a while. Talented and ambitious people may move from finance, where they were attracted by exorbitant (過高的) pay, into more productive industries.

But the immediate effect may be to damage the rest of the economy. People have already lost their jobs. States and localities, particularly New York City and New Jersey, that depend on Wall Street's profits and payrolls will face further spending cuts. Banks and investment banks may tighten lending standards again and impede (阻止) any economic recovery. The stock market's swoon [swʊn] (昏厥) may deepen consumers' pessimism, fear and reluctance to spend. There may be more failures of financial firms. It's hard to know, because financial crises resemble wars in one crucial respect: They result from miscalculation.
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  • far
  • hedge fund一般譯作避險基金或對衝基金。與一般基金不同的地方是,一般基金都會有固定的標的,經理人不能超出某種範圍(例如亞洲股票基金只能買亞洲股票、美國公債基金只能買美國公債、礦業基金只能買礦業股票),但hedge fund的操作人彈性很大,除了一般的產業之外。還可以使用各種金融工具(期貨、選擇權等等)來達成作空、槓桿、套利等等效果,雖然這使得有可能在市況不好時能賺錢,但風險也相對大(而且經理人到底在搞什麼很不透明),有可能因為操作不當而損失慘重。(最近就倒掉不少避險基金)

  • 謝謝!商周這篇寫得真不錯

    瘋小貓 於 2008/09/18 11:52 回覆

  • Chris
  • 找到一個typo:
    kaout -> kaput
  • 訂正好了~ :D

    瘋小貓 於 2008/09/26 13:20 回覆