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Data Centers Crucial To Lehman Sale
Posted by
kdawson
on Wed Sep 17, 2008 12:45 PM
from the gilt-edged dept.
from the gilt-edged dept.
miller60 writes "What assets retain value in the midst of a financial panic? Data centers. When assets of bankrupt Lehman Brothers were sold to Barclays Tuesday for $1.75 billion, Lehman's data centers and headquarters accounted for $1.5 billion of the value in the deal. That echoes the JPMorgan-Bear Stearns fire sale, in which Bear's two data centers and HQ represented much of the sale price. Amidst financial turmoil, Wall Street's high-tech data centers become the crown jewels for buyers of distressed assets."
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IT: IT Workers Cushioned From US Economic Downturn 357 comments
DontLickJesus writes "According to the AP, technology has been the least hardest hit by the U.S.'s recent economic downturn. Quote: '"Overall technology employment is up in America and the wages associated with it are up," said John McCarthy, a vice president with Forrester Research.' The article goes on to say that companies realize the worth of their [IT] staff. This paired along with a recent article regarding the value of data centers when selling a company leads one to believe that the business world, while historically not fond of IT workers, is showing its true opinion of the sector."
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Asset valuation programmer seeks job (Score:5, Funny)
Hi! I'm a programmer for Lehman brothers and I'm looking for work. I was the designer of Assett Manager 1.0, a powerful tool that allowed our brokers to get values of our contracts....it's not a bad program, but it had a couple of bugs in it that I would like to have fixed.
Re:Asset valuation programmer seeks job (Score:4, Insightful)
Companies enabling idiots to buy things they can't afford have their own assets siezed and sold for cheap.
Poetic Justice(tm)
Parent
Re:Asset valuation programmer seeks job (Score:5, Insightful)
Nice. I'm sure this whole mess boild down to 'idiots buying houses they can't afford' and the companies who enable them.
No, I'm sure no normal people got hurt in this mess, only bad, dumb people or greedy people who deserved it. I'm sure no first time home owning, hard working parents with dreams of getting out of the ghetto were suckered into ARMS that would screw them over at the first downturn. Nope. Couldn't happen.
I'm sure no one with a job they thought was secure got laid off and found their finances spiraling out of control, then found themselves and their kids living in their car. Nope. Not in America.
Have a heart, man. Don't try to make reality fit your worldview that everything is fair, hard work is always rewarded, and only bad people have bad things happen to them. People are born with compassion and empathy circuits in our brain for a reason, and those that don't have them or can't use them are seriously handicapped.
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Re:Asset valuation programmer seeks job (Score:4, Funny)
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but (Score:5, Funny)
People are born with compassion and empathy circuits in our brain for a reason, and those that don't have them or can't use them are seriously handicapped.
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There's a difference between 'dumb' and 'trusting' (Score:5, Insightful)
Also, a difference between 'dumb' and 'uneducated about financial matters.' Is there a class on ARMS in high school people can take? I don't think those are covered in home ec.
People can't be experts on every field. Add to that fact that finances bring up survival fears in most people, and fear shuts down the brain, and you will see that many people may be smart in many areas, but uneducated about finance.
So people have to trust the experts they hire to do right by them. When those experts say, "Hey, you can own a house now and save that money you were putting into rent. Don't read the fine print, it's boring and it doesn't matter," people trust those experts. And they were misled.
Finally, I know you probably agree with me but I have to point it out: dumb people do not DESERVE to be taken advantage of by smart people. Social Darwinism is an inherently fascist, evil, and anti-social philosophy that destroys societies and people's lives. Don't subscribe to it. Society works because of trust, and social Darwinism destroys that trust.
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Re:There's a difference between 'dumb' and 'trusti (Score:5, Insightful)
I have to point it out: dumb people do not DESERVE to be taken advantage of by smart people. Social Darwinism is an inherently fascist, evil, and anti-social philosophy that destroys societies and people's lives. Don't subscribe to it. Society works because of trust, and social Darwinism destroys that trust.
Quoted because it deserved to be posted twice.
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Re:There's a difference between 'dumb' and 'trusti (Score:5, Insightful)
No, you're mixing two separate things up. If you don't understand ARMs that doesn't make you dumb. But if you then buy one and you don't understand them, that definitely makes you dumb. What the hell?! A mortgage is a huge commitment. You're going to be paying it back for a long, long time. If somebody commits to a huge thing, turns around and says "Oops! I guess I can't deal with this after all. It was scary and my brain shut down" then I don't see why they are deserving of much sympathy.
No, they were stupid. The risks involved with large debts are enormous. This is way different than being misled by a second hand car salesman and buying a SUV with poor mileage. This is a vast sum of money. If there's one time in your life you read the boring fine print and think about it really hard, it's when taking out a gigantic loan.
Now this I do agree with. However trust can cross a line into blindness. Somebody who does whatever they're told without considering the consequences eventually crosses the line from being a poor innocent misled person into something else - a liability to society.
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Re: (Score:3, Interesting)
I agree with your general point:
they were misled. ... dumb people do not DESERVE to be taken advantage of by smart people.
But I still should point out that:
-Any taken-advantage-of borrower requires an even-more-taken-advantage-of lender. The borrower gets to walk away, at least having a gained some time in a home they shouldn't have moved into, while the lender suffers a huge loss. (Of course what actually happened here was the immediate lender, a broker, pocketed a huge gain and dumped it on other investors.)
-The problems were by and large not with the fine print. They were problems like, "I
Re:There's a difference between 'dumb' and 'trusti (Score:4, Informative)
-Any taken-advantage-of borrower requires an even-more-taken-advantage-of lender. The borrower gets to walk away, at least having a gained some time in a home they shouldn't have moved into, while the lender suffers a huge loss. (Of course what actually happened here was the immediate lender, a broker, pocketed a huge gain and dumped it on other investors.)
I love how you gloss over this statement in parenthesis as if it's a minor point. The situation that occurred is that predatory lenders issued ARM mortgages to people that they knew would be unable to pay for them. Keep in mind, the issuing bank has a full financial report of the borrower's income, debts, and credit history. These bankers then offered deals such as "you can have a fixed rate mortgage, but you'll need a $10k down payment, but if you get an ARM, we can do it without a down payment!" I live in Tennessee, and by and far this state is not as hard hit as some others. One of the reasons is that we have protective lending laws. In this state, you cannot get a mortgage without a 10% (IIRC) down payment. That may seem unfair to those who cannot afford the down payment, but it's for their own good; if they can't afford the 10% down, odds are they cannot afford the mortgage, and a bank should be prevented from signing them into a contract they cannot afford to pay off.
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Re:Asset valuation programmer seeks job (Score:5, Informative)
The trouble is that this has NOT been happening as long as mortgages have been around.
Anyone that knows anything about econ knows at the core Economics is about incentives.
In the last 10-15 years inventives in real estate have been flipped backwards.
Let's just take a few examples:
#1 The rise of a secondary market for mortgages.
There was a time when most mortgages were self-funded. The bank would fund the mortgage out of its own pocket. If they were sold, it was to FNMA.
Banks had a real incentive to do solid deals on homes with proven valuations.
In the late 90s the secondary market exploded. Somebody figured how to sell just portions of a mortgage by combining it with portions of other mortgages into a MBS (Mortgage Backed Security) and these securities were sold as ROCK SOLID CREDIT opportunites. The reason?
#2 The derivatives market and other developments
The derivatives market is valued at an est. 6tn. Bigger than stocks. Bigger than bonds. This and other developments, like the consolidation of the IBank industry led to real issues with the 3 credit rating agencies. There began to be financial incentives to give good, AA and AAA ratings to securities.
So these MBS's were given, yes, A, AA and even AAA ratings. You have to understand that AAA means "rock solid investment." That is, a AAA credit rating is considered to be as good as a t-bill.
#3 Brokers
Since banks sold mortgages to the secondary market, all of a sudden you didn't NEED $200k for 15 years to lend somebody $200k. All you needed is $200k for 180 days. This led to the rise of mortgage brokers. With far less scrutiny than banks, it was easier to fudge numbers to get deals made.
This led to an array of CRAZY financial instruments designed basically just to make a profit for the lender.
Take the infamous NINJA loan: No Income, No Job, No Assets. That is, you're given a mortgage based on nothing but good looks and your credit score. Nothing else is verified.
Or the interest-only loan with a balloon payment.
Or ARMs.
Technology played a part, too. A small role, but still, being able to access a HELC via a debit card makes that TV purchase or riding lawnmower or whatever a lot more tempting.
All of these things casue real issues with inventives.
Who is the appraiser working for? Well, he's hired by the loan officer. Who is the loan officer working for? Well, he's not lending his bosses money anymore, since the mortgage will be sold in 90 days after close anyway. Who is the agent working for?
This has NOT been business as usual. Make no mistake about that.
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Re:Asset valuation programmer seeks job (Score:5, Funny)
The big problem with the NINJA loans was that the interest rates given on them did not reflect the risk. Typically NINJA loans were made with just a 1-2% premium over standard loans. They should have been assigned a Phenomenally Increased rate (at least a 5% premium), or PIRATE -- which would have held them in check.
However, because the NINJAs were allowed to go unchecked, we still have a dearth of PIRATES, and thus heavy global warming in addition to the credit crunch.
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Re:Asset valuation programmer seeks job (Score:4, Informative)
The trouble is that this has NOT been happening as long as mortgages have been around.
Anyone that knows anything about econ knows at the core Economics is about incentives.
In the last 10-15 years inventives in real estate have been flipped backwards.
In the late 90s the secondary market exploded. Somebody figured how to sell just portions of a mortgage by combining it with portions of other mortgages into a MBS (Mortgage Backed Security) and these securities were sold as ROCK SOLID CREDIT opportunites. The reason?
That somebody was Alan Greenspan. When he took over as Fed Chairman, one of his goals was to shrink the financial sector to just a few banks to better compete with Europe. In 1933, the US passed the Glass-Steagall act; which made it illegal for Lenders (Banks) and Underwriters (Brokers) to be under one roof. This law was further tightened in 1956 to exclude ownership of out of state banks.
Fast forward to 1996. The Federal Reserve, under the leadership of Alan Greenspan (a former head of JP Morgan) decides to allow banks to have 25% of their business in Underwriting (brokerage). This decision effectively nullified Glass-Steagall. Then, in 1999, the Gramm-Leach-Bliley act repealed part of Glass-Steagall and opened the door for Banks to compete with Insurance and Security companies. This law was signed by then-president Bill Clinton. While it was created by two Republicans; it had bi-partisan support in an attempt to 'modernize' financial services.
#3 Brokers Since banks sold mortgages to the secondary market, all of a sudden you didn't NEED $200k for 15 years to lend somebody $200k. All you needed is $200k for 180 days. This led to the rise of mortgage brokers. With far less scrutiny than banks, it was easier to fudge numbers to get deals made.
This led to an array of CRAZY financial instruments designed basically just to make a profit for the lender.
This monster is precisely what the GLBA created. And this monster is precisely why the Tech Bubble and then the Housing Bubble occurred. It will be a decade, at least, before we have completely recovered. The Bush Administration is not at fault for creating the mess, but neither they nor Congress did anything to fix it early on--despite numerous warnings from economists across the country.
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Re:Asset valuation programmer seeks job (Score:4, Informative)
An amusing footnote to illustrate how powerful the proto-financial-services people were in U.S. politics:
Citigroup nee Citibank merged with Travelers a year before GLBA using a temporary exemption from Glass-Steagall.
Smith-Barney, Travelers, Shearson and Primerica merged in 1994, five years before GLBA, using a similar waiver from Glass-Steagall compliance.
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act [wikipedia.org]
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Re:Asset valuation programmer seeks job (Score:5, Interesting)
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Re:Asset valuation programmer seeks job (Score:4, Insightful)
Problem is, the entire global economy is affected when the US is in a recession. ...and most of us cringed when we saw that you reelected Bush
Parent
Here's a clue (Score:3, Interesting)
y = (1 + x)^N
It's the function which describes the growth of a debt due to interest.
Here's the function which describes the growth in the money created at exactly the same moment, when the loan is taken out.
y = x
You notice one is exponential, the other isn't in fact growing at all.
That is the Fractional Reserve Banking based monetary system. I'll let you work out the implications.
Re:Asset valuation programmer seeks job (Score:5, Insightful)
"We owe it all to the bedrock of our economy: the ordinary hard-working taxpayer. You resisted the siren call of credit cards, lived within your means to save for a rainy day, never took out an interest-only mortgage, credit score to make Jesus cry. Without taking every penny you saved over the $100,000 guarantee, we'd never have made it. And the best bit is, we know you'll still vote Republican! [today.com] God bless you all!"
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Wot No Houses? (Score:4, Interesting)
Here's the real problem. Everything the banks have lent money to people to buy are kinda valueless because they are obsolete. Technology keeps advancing such that there is no such thing as collateral any more and thus all the banks are worthless...
I was under the impression that houses were the main cause of the problem- and with the possible exception of some ludicrously techie piles built by multi-billionaires, they aren't really "tech" items and they certainly don't go obsolete within four or five years.
Even though cars (which I'd guess are probably second in terms of loan-spending) only last a few years, it's generally not because the tech goes obsolete, it's because they wear out and/or fall apart. (I'm sure that my parents first car (built in the late 1970s) would still be going today with some engine adjustments for unleaded petrol, except that its rusting to pieces by 1986 precludes this possibility!)
Granted, I'm sure that people take out more (and less justifiable) loans to spend on tech crap than they should- along with home decorating and expensive holidays- but I doubt it's the driving force behind the current economic mess. In fact, moderately cutting-edge tech is *dirt cheap* compared to what it used to be twenty- and even in some areas ten- years ago. People can fill their new homes with techie crap which will generally still be worth a small fraction of what they paid for the house itself. Yeah, the house will last longer and can be considered an "investment" in the way that electronics technology almost never can. But the value and losses involved when that "investment" goes wrong dwarfs the cost of most peoples' boxes of flashy boys' toys.
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Re: (Score:3, Interesting)
I was under the impression that houses were the main cause of the problem- and with the possible exception of some ludicrously techie piles built by multi-billionaires, they aren't really "tech" items and they certainly don't go obsolete within four or five years.
Think : Home Equity Loans...
besides, if banks have a million reposessed houses...how much are they worth if no one will buy them?
Re: (Score:3, Insightful)
If you think your house isn't worth anything I'd be happy to buy it for twice that price
Re:All the banks are valueless. (Score:4, Interesting)
It's a very simplified explanation of what's happened. From what I understand, it all comes down to everyone believing that real-estate value wouldn't stop rising.
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Re:All the banks are valueless. (Score:4, Informative)
From what I understand, it all comes down to everyone believing that real-estate value wouldn't stop rising.
That's a pretty good summation for parts of the country (e.g. the Washington D.C. area, probably areas like California too). Essentially, in W.D.C, people said "Well, the gov't is here, and so jobs are guaranteed. So housing will always go up." The problem is when it goes beyond where the base market can buy.
There's also another issue though - there were a lot of banks, etc. that issued bad mortgages outright. For example - the high school graduate students that moved into my parent's neighborhood - no jobs, but they got a mortgage, and eventually ended up in foreclosure. Of course, the city of Columbus, OH had some issues too politically as they tried to "clean up" downtown by moving the "poor" out into new housing (helping to get the qualified for loans they shouldn't have had) elsewhere in the state - e.g. by my parents, and other places in the Greater Columbus, OH area. For them, the politics work out good - their constituents are happy, and those people are now "someone else's problem" (literally), so it is hard to hold them accountable (their district was improved while someone else's was deteriorated).
Another good example - my wife and I were looking at buying a house in 2006. In getting pre-qualified, we looked at Washington Mutual and several others. Because we did not have a large-enough down-payment available (we had closing costs) at that time, WaMu was going to give us a double loan so we didn't have to have PMI (mortgage insurance). The first loan would be the mortgage itself, and the second was to become the down payment. We didn't really like it; but they were going to let us do that. We ended up not buying that year, and have since moved and bought a house through BB&T, with a better loan - only one loan too.
All-in-all, it was not just one issue that caused the problem.
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Re:Asset valuation programmer seeks job (Score:4, Funny)
I was the designer of Assett Manager 1.0, a powerful tool that allowed our brokers to get values of our contracts....it's not a bad program, but it had a couple of bugs in it that I would like to have fixed.
Unfortunately it appears that some people missed your important email (subject line:"important Tech news..") about positive and negative values being displayed the wrong way round if the application is started between 7 and 9.30AM. I suspect that many also missed your 284-line MSN message reminding them of the "isolated few dozen places" where they had to watch out for decimal points being a digit or two out of place.
Other than that your software was excellent, and it's a real shame we won't be able to give you your bonus of -$2.347 this year.
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No DR Site? (Score:4, Funny)
I guess this is one 'disaster' Lehman Bros couldn't failover?
It's all about the data (Score:3, Insightful)
Programs come and go. Information is timeless and valuable.
Re:It's all about the data (Score:5, Interesting)
Posted anon since I was involved in one of these things recently.
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Re:It's all about the data (Score:5, Insightful)
At least, it would have been if I'd had a brain.
OK, since my name's out I'll finish the job. The operations are most likely valuable, as are the apps running in there. However, come merger and consolidation time merely having those centres around is a tremendous advantage. These things cost serious amounts of cash, and the electronic transaction volumes are growing all the time - yes, even now. So the raw existence of a pre-equipped building is the thing, not necessarily the data files within it.
Cheers,
Ian
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Re:It's all about the data (Score:5, Insightful)
And let's not forget the multi-gigawatt generators, the fail-over system, the trained staff, the fire suppression systems, the network infrastructure, the secured access, etc., etc., etc.
The actual servers in the racks are the LEAST valuable part of a good data center. They're also the highest depreciating.
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Re:It's all about the data (Score:5, Informative)
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Re:It's all about the data (Score:5, Insightful)
Information is timeless and valuable.
I just can't agree with this. When something is timeless that means that it does not age. But information does age. Virtually all information ages; all information relating to human affairs certainly does. The aging of information can be measured not merely in whether it is forgotten, or known, but in how it is considered. Remember: we can still watch the original series of Knight Rider on re-run channels. This does not mean it is 'timeless'. It would be too polite to call it anachronistic.
Even for example the information we have about the collapse of Lehman.
Two weeks ago that information would have been worth billions.
Now it is common knowledge, and the details must be investigated, after the fact.
In twenty years it will be of historical interest, taught in economics classes.
In a thousand years it may have been forgotten.
The very fact that we have already seen different states of this information over two weeks means that it is not timeless.
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All you really need are... (Score:3, Funny)
Suprising? (Score:5, Insightful)
You know what else retains value in the midst of a financial panic? Skyscrapers.
Anytime you have physical assets, you have value. Especially if those physical assets are in continuing demand. (Which data centers are in particular, because the Technology sector is doing quite well right now.)
The only difference is that companies rarely own their own spaces anymore. They sold them off to realty companies long ago, because they didn't want to be in the real-estate business. This sort of sell/lease arrangement is almost certain to become common with data centers in the future. CoLos are already the standard of the industry, and are going to take over increasing amounts of large corporate business in the future.
Re: (Score:3, Interesting)
Depends on what caused the panic. I wouldn't be surprised if the book value on many skyscrapers dropped significantly about 7 years ago.
Re: (Score:3, Insightful)
I am not, however, referring to money.
Re:Suprising? (Score:5, Funny)
That's true... Unless there's a real estate crisis coincident with the financial panic.
Sure, a sky scraper isn't going to lose all it's value, but it could be worth less than you paid for it - especially if companies are failing by the dozen and your prospects for new tenants aren't good.
Also from the irony department: Lehman didn't own it's London offices, and the rent Lehman paid for the space was 15% of the landlords total income. The landlord, thinking ahead carried insurance to protect against the eventuality that one of their major tenants would vacate. Their insurance company: AIG.
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Re:Suprising? (Score:5, Interesting)
I somewhat doubt Lehman is making a profit on their data centers, either. What they are doing is liquidating the assets that have value.
As amusing as it is, that's exactly why AIG is in trouble. Each tier saw the risk coming and tried to pass the risk upstream. The problem is that the risk was not isolated. With all these upstream pushes, the risk ended up concentrated in the largest companies in the market. It's no coincidence that AIG is one of the largest insurance underwriters in the world.
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What else is valuable? (Score:3, Funny)
Intellectual property. Why just last Friday I patented "A business process and related methods to leverage instability in financial markets and raid the US treasury."
I don't expect to deploy the process myself, but licensing should be worth a good bit.
Re:Suprising? (Score:4, Funny)
Come on now, you can't use Japan as an example when talking about real places.
Everyone knows Japan is from an alternate (cooler) dimension and is protruding into our world as a space-time anomaly.
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Re:Suprising? (Score:5, Interesting)
Indeed. It's one of the few sectors where rapidly rising oil costs and plummeting property values has little effect. As a result, the sector is one of the strongest in the market today. And not just because people must have the latest and greatest software and gadgetry. (Consumers actually have less money for that.) Instead, technology is seen as a possible solution to the problems plaguing other industries.
Real world example: UPS developed software to route their trucks through fewer left turns. This rerouting reduces fuel costs and thus produces tremendous savings for the company.
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Re:Suprising? (Score:4, Interesting)
Sorry, wrong building. This is the one [emporis.com] in the deal.
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Free (Score:3, Funny)
Using Linux could have saved millions. ;) :P
Re: (Score:3, Funny)
Saved millions of blue screens of death? :D
Not surprising, but not really about data centers (Score:5, Insightful)
Re: (Score:3, Insightful)
Real estate: billions
Data centers: couple million
This is a Fire Sale, Hard Assets Count Period (Score:4, Interesting)
First of all, these are unprecedented times in global financial markets. Once in 100 years is putting it mildly.
Second, a data center and a building are the only assets that can be valued with the shotgun marriages the Administration, Treasury, and Fed are making right **now.** By now, I mean no sleep, no one leaves until the deal is closed NOW.
BofA got a sweetheart deal with Countrywide, they are getting another sweetheart deal with whatever brokerage they acquire. The same holds true of JPMorgan Chase and Co.
The Fed has literally run out of money with the AIG nationalization and has asked the treasury to print more dollars NOW. http://www.ft.com/cms/s/0/271257f2-83f1-11dd-bf00-000077b07658.html [ft.com]
Once again, the losses are being socialized while the titans of financial executive management just walk away.
You would be wise to re-balance your asset pool to reflect coming inflation. And any pension holders out there should do your best to liquidate your pension today, that is, if your pension isn't underfunded already or if that is even possible.
Terrible Article & Summary (Score:5, Informative)
I am an investment banker and can say with confidence that the datacenters were an afterthought in this deal. Important? Certainly. The most important? a joke. Bob Diamond and Barclays have wanted to extend its US investment banking business for several years, and found an opportunity to grab one at a fire sale. But the true value of the deal is enormously larger than listed, as it involves taking on assets estimated (with confidence, I'm sure)at $72 billion and liabilities of $68 billion. I'd recommend reading http://www.ft.com/cms/s/0/5c9dcc26-83f1-11dd-bf00-000077b07658.html?nclick_check=1 [ft.com] to inform yourselves about the transaction.
As to the Bear Stearns datacenters comprising the bulk of the value - that is about as wrong as you can get. The breakup fee (the fee paid to JP Morgan if the deal did not go through) was the building. JPM could have walked from the deal and gotten the builing, so to argue that the deal was for the building/datacenter is absurd. Let's not forget that the Federal Reserve alone lent $29 billion for the transaction. Datacenters are valuable, but not worth that amount of money.
Re: (Score:3, Interesting)
I don't think it's so much the hardware. . . (Score:3, Interesting)
As the data which is stored on those servers. Don't you think the financial data for tens of thousands of customers is worth something? Also, physical facilities, HVAC, network infrastructure, etc. Also, a lot of the value of a data center, I suppose (I'm no expert in this field) might be less about the hardware itself, as the engineering that went into building up the data center as a cohesive, integrated system.
Re:Disgusting (Score:4, Insightful)
Picking up the spoils of a catastrophe they were instrumental in causing. What a bunch of dicks.
They weren't instrumental in causing it. They just chose not to rescue them out of fear of the damage that lehman's debt could cause barclays. And they had good reason. There was no way to evaluate the risk level or value of lehman's toxic debt. Their actions were just good business.
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