May You Live In Interesting Times

[Al_U_Card]

My understand is that J.P. Morgan is acting as an agent of of the Fed

 

I doubt that they would have wanted to buy Bear Stearns without some outside prooding

 

Krugman has a decent piece in todays NYT

I thought that JPMC had to be involved as they actually have depositors and are therefore part of the FR whereas BS is just that.

[Al_U_Card]

Look at what your "elected" reps have to say...

 

 

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

 

He would not say what might have happened had the government failed to step in.

 

"I'm not going to speculate about what-ifs," he said. "I'm just going to say our clear priority right now -- our number one priority, everything we're doing in the economic arena -- is to minimize instability, minimize spillover into the real economy."

 

So the money they used and then got as commissions and then spent was not "real"?

[mike777]

Holy Sh*t!  Reports are coming out that J.P. Morgan Chase bought Bear-Stearns for $2 a share and didn't have to take all the debt.

 

Assume crash postions.

It was worth around 20 billion bucks a very short time ago, sold for around 236 million bucks, but paid for it in Chase bank stock, not cash.

 

btw in 2007 made a profit of 233 million.

 

Fed is going to "fund" 30 billion. Not sure what "fund" means.

[kenberg]

Holy Sh*t!  Reports are coming out that J.P. Morgan Chase bought Bear-Stearns for $2 a share and didn't have to take all the debt.

 

Assume crash postions.

It was worth around 20 billion bucks a very short time ago, sold for around 236 million bucks, but paid for it in Chase bank stock, not cash.

 

btw in 2007 made a profit of 233 million.

 

Fed is going to "fund" 30 billion. Not sure what "fund" means.

So let's see. With about 300 million people in the US, $30 billion works out to around $100 apiece. The gov is going to send us $600 apiece. So maybe they can just divert the $100 and send us $500.

I suppose I am joking but not entirely. There must be some limit somewhere as to how much money the gov can give away. Oh. There isn't?

[Al_U_Card]

I suppose I am joking but not entirely. There must be some limit somewhere as to how much money the gov can give away. Oh. There isn't?

Only to whom they choose to give it.

[barmar]

My understand is that J.P. Morgan is acting as an agent of of the Fed

 

I doubt that they would have wanted to buy Bear Stearns without some outside prooding

 

Krugman has a decent piece in todays NYT

I thought that JPMC had to be involved as they actually have depositors and are therefore part of the FR whereas BS is just that.

I think JPMC is involved in two ways:

 

1) The Fed is using them as a conduit to loan money to BS. This is the part where JPMC (or some other bank like them) had to be involved.

 

2) JPMC has made an offer to buy BS. I believe this is independent of the bailout.

[whereagles]

Is it really a BS management blunder, or a widespread economic problem that happened to hit BS especially severely.

Well, as someone said, no one would invest into something called

 

"Unemployed man in the street big loans fund"

 

which is more or less what I was told the subprime is. Of course, if you call it

 

"Enhanced structured investment fund"

 

then it gets really appetizing B)

[barmar]

Is it really a BS management blunder, or a widespread economic problem that happened to hit BS especially severely.

Well, as someone said, no one would invest into something called

 

"Unemployed man in the street big loans fund"

 

which is more or less what I was told the subprime is. Of course, if you call it

 

"Enhanced structured investment fund"

 

then it gets really appetizing B)

But was BS the only one offering sub-prime mortgages? The way this has been talked about since last summer, I thought it was a something the entire banking industry has been doing.

 

I don't think you can blame the current mess on any single bank, any more than the Internet bubble a decade ago could be blamed on any particular investment firm. Sometimes entire industries, and the investment community as well, gets swept up in waves.

[hrothgar]

But was BS the only one offering sub-prime mortgages? The way this has been talked about since last summer, I thought it was a something the entire banking industry has been doing.

Bear Stearns didn't run into trouble because they issued CDOs

 

Bear Stearns ran into a lot of trouble because they were holding lots of CDOs on their balance sheet. (Recall my earlier comments about running a casino as opposed to placing bets in a casino)

 

I'm not precisely sure why Bear Stearns was so exposed. As I understand matters, some of the the CDOs that they issued had buy back clauses (If the values went too far out of whack, BS was forced to repurchase the CDOs at the issue price).

[mike777]

BS risked default on repo loans.

 

BS as all investment banks do borrow bilions and billions overnight from money market funds 7 days a week.

They put up securities as colllateral.

 

I do not know what securites or why ok one night and in default the next.

It appears the people who loaned money were grabbing assets out of BS as fast as they could. Why last week and not the week before, I do not know. But once a bank run starts it is hard to stop it without FDIC or the Fed.

 

 

The concern was if BS went under other banks could not borrow overnight and they would go out of business. Note they must be able to borrow billions and billions overnight everynight......Those who loan must feel they will get their money back.....

[Al_U_Card]

BS risked default on repo loans.

 

......Those who loan must feel they will get their money back.....

Kind of like those that borrow must feel that they will pay back what they owe????

 

BS is not part of the Fed as they have no depositors. A run on them would just deplete their portfolio and make a lot of very rich people a little less rich......oops, can't have that now, can we?

[Winstonm]

BS went under due to margin calls. When you borrow at 30:1 leverage and things go against you, it doesn't take much loss until your sponsors are on the phone wanting more dollars (collateral). Alt-A positions were the killer for Bear.

 

J.P. Morgan Chase could not possibly have had time to do due diligence of Bear's entire hedge book, so a deal was made (IMO) to undervalue the company at $2 a share to give JP a cushion against further losses, while the Fed stepped in with non-recourse loans (fact) to the tune of $30 billion (fact) - in other words, the Fed eats the the first $30 billion in losses while J.P. Morgan gets to own BS for $2 a share and own all risk above $30 billion.

 

That is some sincere panic maneuvering - mostly by the Fed. They must be terrified of something.

[glen]

That is some sincere panic maneuvering - mostly by the Fed. They must be terrified of something.

Do a news.google search on 1929

[mike777]

I note the building alone is worth a billion bucks...236 million may be the steal of this century. Add in the "prime broker" which is what Chase really wants....and..well 236 million in Chase paperstock sounds like a steal.....

 

Buy Chase????

 

I do not tout investments...just mark the price B)

 

May you live in interesting times.

[Al_U_Card]

You just have to look at the history of the "House of Morgan" and his financial "maneuvres" since his arrival from England at the turn of the last century.

 

He manipulated markets as well as inciting runs on banks and pressured competing financial institutions into insolvency. A very scurrilous yet profitable past.

[pclayton]

Someone high up in Detroit told me JEC's investment has shrunk to $10 MM from originally around $800 MM.

[jtfanclub]

I'm not precisely sure why Bear Stearns was so exposed.

I think it was because as a percentage of their total business they had very few liquid assets. In contrast, Countrywide (to name one) had just enough assets that the Saudis and others were able to keep it going with a more normal bailout.

[barmar]

Since I posted yesterday I've listened to some discussion of this on NPR. From what I gather, BS's problem is that when it became apparent last year that the housing market was declining, and subprimes would be especially hard hit, they didn't go looking for protection (i.e. loans from Saudis) like most other banks did. They assumed that they had enough assets to carry them through the crisis. But they were wrong.

 

But it also seems like they're not totally alone. I've been hearing Lehman Brothers is another bank that's in trouble. If the Fed and JPMC hadn't bailed out BS, they'd probably be next to tumble.

 

Some of the commentators have indeed suggested that this is not unlike the lead-up to 1929, and the Fed is worried that if they don't step in it could get almost as severe.

[Winstonm]

Some of the commentators have indeed suggested that this is not unlike the lead-up to 1929,

 

Actually, the amount of debt makes it much larger than what faced 1929.

[sceptic]

I'm not precisely sure why Bear Stearns was so exposed.

 

May be because he spent to much time playing bridge, when he should have been keeping an eye on his investments

[Aberlour10]

German public opinion is shocked since one of the state-owned banks Landesbank Sachsen stumbled totally by gambling with these high risk US-Investments. They lost about 3,5 billions of Euro, another state-owned bank had to save this institute before collapsing with anymore public money. More of these Landesbanken are involed, € -billions of tax money are burned on the run for these "easy and fast profits"

 

Robert

[helene_t]

I think it's ok that state-owned banks do high-risk investments. After all, the state is not particularly risk-averse - it has a large buffer. I would be more concerned about commercial equity funds or pension funds taking high risks.

 

Of course the expected gain should be larger than what could have been obtained by low-risk investments. Maybe that wasn't so in this case.

 

I've heard about equity funds that had a bonus structure that gave managers options, which means that they become risk-seekers since the bonus can never be negative, so any loss is no worse than a break-even. Of course such a scheme is very very bad.

[Winstonm]

The most interesting (or troubling, perhaps) part of the Fed solution has been to open its discount window to the Primary Dealers - this means that non-banks, non-depository institutions now have access to the lender of last resort, and the Fed has agreed to take all sorts of collateral for loans, including mortgage backed securities.

 

Trouble is these non-banks are non-regulated, so the Fed has no idea if they are lending to a solvent or insolvent institution.

 

For example, Bear Stearns was a primary dealer.

[Al_U_Card]

Back in the days of:

 

you deposit some money for which you are paid interest on your principle;

 

you borrow some money on which you repay the principle with some interest;

 

the bank makes money on the difference.

 

 

btw, when were those days anyway?

[Al_U_Card]

Big finance

 

Big pharma

 

Big manufacturing

 

Big military

 

 

Bigger is not necessarily better.