[whereagles]

So, the government stepped in and used tax payer's money (i.e. everybody's money) to cover up for Bear-Stearns management blunders.

irony Sounds fair to me... /irony

[barmar]

Is it really a BS management blunder, or a widespread economic problem that happened to hit BS especially severely. And perhaps if BS were allowed to fail, there could be a domino effect on the industry.

Is there much of a difference between this bailout and the Chrysler bailout 30 years ago?

[Winstonm]

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.

[hrothgar]

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

[Al_U_Card]

Well wasn't it old J.P. himself that insisted on buying low.....?

I wonder what the asset balue of BS is? Likely closer to $2 per share plus all of the CDO debt and foreign obligations plus a nice premium to JPMC for doing the paperwork.

What a country! What an economy! What a future!

[Al_U_Card]

hrothgar, on Mar 17 2008, 07:56 AM, said:

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]

Winstonm, on Mar 16 2008, 08:21 PM, said:

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]

mike777, on Mar 17 2008, 12:03 PM, said:

Winstonm, on Mar 16 2008, 08:21 PM, said:

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]

kenberg, on Mar 17 2008, 01:02 PM, said:

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]

Al_U_Card, on Mar 17 2008, 10:32 AM, said:

hrothgar, on Mar 17 2008, 07:56 AM, said:

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]

barmar, on Mar 17 2008, 01:17 AM, said:

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

[barmar]

whereagles, on Mar 17 2008, 03:10 PM, said:

barmar, on Mar 17 2008, 01:17 AM, said:

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

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]

barmar, on Mar 17 2008, 10:20 PM, said:

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]

mike777, on Mar 17 2008, 02:50 PM, said:

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]

Winstonm, on Mar 17 2008, 08:04 PM, said:

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

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.