When Bear Stearns looked like it would go for $2 a share, there was a lot of sympathy for investors who stood to lose tremendous amounts. Employees—who own about a third of Bear—faced not only losing their jobs but their savings as well. So when they gnashed their teeth and hollered that their firm was being stolen by a conspiracy led by the Fed and carried out by JP Morgan Chase, it was just plain polite not to point out that their firm was on the verge of bankruptcy, that its failures had arguably put the larger financial system at risk and that what little they were getting was the result of a government-led bailout.
But now that the price of the deal has risen to ten dollars and shares are trading even higher than that, the backlash has begun. Writing for Smart Money, James Stewart writes that the protests against the rescue of Bear Stearns from insiders are “galling.” What’s more, it shows the Wall Street is all too willing to seek a government safety net when it stumbles on its free-market high-wire act, he argues. The profits from risk are private, but the losses are all too public.
Having artfully solved a thorny problem a week ago, the government has now embraced a deal whose terms reek of the bailout it was at such pains to avoid. If the government is willing to bestow such a windfall on a James Cayne, where will it it stop? Why should other financial firms reduce risk and shore up their capital? What discipline will the market ever be able to impose? Future disasters will only be worse, which will dwarf the immediate cost of the current rescue.
Yves Smith at Naked Capitalism is even more blunt, and he criticizes the media for being too sympathetic to Bear’s employees and investors. “Bear was going to fail as of Monday,” he writes. “Bye bye equity and many if not most jobs. How hard is this to understand? I thought anyone who was remotely financially literate understood what bankruptcy means. The employees should be grateful to get anything. But no, the media slavishly accepts their sense of entitlement.”
No Tears for Mr. Cayne [Smart Money]
Bear: Did the Fed and Treasury Push Too Hard? [NakedCapitalism]
Posted by guest , Mar 25, 2008 4:16PM
It is the magic of Wall Street. We privatize the profits while socializing the losses. That is why I got into this business to begin with.
Posted by Anal_yst , Mar 25, 2008 4:21PM
No one ever said "the media" was smart (or understood finance for that matter)...
Posted by Random Banker , Mar 25, 2008 4:32PM
Get the fuck out of here. Forget the media, even people on the street feel bad for the peeps at BSC for only one reason. They realize, there but for the grace of god go I.
Stating that Bear would have failed on Monday is presupposing there were any circumstance in which they wouldn't have been rescued. Those circumstance do not exist, at least not in a world where the market would still be open today.
Posted by guest , Mar 25, 2008 4:33PM
You know, I would expect better from James Stewart. Jimmy Cayne isn't exactly my favorite person, but he didn't exactly get a "windfall" from taxpayers. Instead, he lost perhaps half his fortune.
Jamie Dimon's bid went from $2 a share to $10 a share because his deal was going to be worth nothing if there was a wholesale insurrection among Bear Stearns employees. He was also facing a sure-fire shareholder revolt. Dimon had more than ten days of unfettered access to the Bear Stearns' books by Easter Sunday, so he knew (1) there was a lot of value there; (2) he needed the Bear Stearns' employees to mine it out for him, at least in the transition, and (3) he needed to close the deal fast, to preserve the value.
So, he put up an additional billion in guarantee, and more shares of JP Morgan in exchange for Bear's. And he got his lawyers to put in a few more provisions guaranteeing the deal would go through faster.
Three days was far too quick to make a fair deal; we'll see if ten days was enough.
I bet in two years' time, JP Morgan will be getting even richer off the spoils of Bear Stearns, and not a taxpayer dollar will have been spent.
Posted by guest , Mar 25, 2008 4:43PM
shareholders asking judge for an injunction on the share issue. yes we will see.
Posted by guest , Mar 25, 2008 4:45PM
Yeah it sucks for the Bear Stearns employees. But the systemic risk that firm posed placed more than just its own employees at risk in that sense that it threatened others in the system with collapse as well. Sorry but I think the lost savings of 14,000 is a fair price to pay to save maybe 1.4 million jobs.
Plus, any word who are these people who had 100% of their savings in BSC shares? I havent found any of them yet. If you are out there please speak up.
Posted by Onegin , Mar 25, 2008 4:47PM
@4:33 - Do you have any concept of risk?
Posted by guest , Mar 25, 2008 4:54PM
the answer is obviously "no"
Posted by ab , Mar 25, 2008 4:55PM
He should. As a taxpayer, he's bearing most of it.
Posted by Random Banker , Mar 25, 2008 5:04PM
@ab:
The next person I hear about complain about being a tax payer should get a hot poker up the ass. Who the fuck cares? Boohoo this cost the average american, what? $100 of tied up Fed capital per person? Conservatives are as gay about complaining about taxes as liberals are in complaining about the environment. I don't give a fuck about the fate of the spotted owl and i definitely don't give a shit about your taxes ab. Why don't you worry about something that actually fucking matters.
Posted by guest , Mar 25, 2008 5:05PM
James Stewart had auction rated ("ARS") securities in his account and thought he was in cash equivalent per his recent interview on CNBC. The guy can be rated with a fair degree of certainty as dumb. An opinion is as good as its source. Tip for the dumb: if you lost money in an ARS and you are in finance or write about finance keep your mouth shut.
Posted by guest , Mar 25, 2008 5:08PM
TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!TAXES!!!
Posted by guest , Mar 25, 2008 5:09PM
This is all such absolute bullshit. What Armageddon is their if BSC files bankruptcy? A judge Oks it, the world takes a deep breath and then everyone learns what it means to be an unsecured general creditor or to keep securities in street name. Big fuckin' deal.
BSC get to cherry pick which trades settle, others go into abeyance, their portfolios get valued, no biggie. If all these smart, hard workin' folks were in fact, hard workin' and smart, there is enough value to go around and everyone gets paid off and BSC emerges from bankruptcy, a bit smarter, a bit leaner, a bit less leveraged. This happens all the time.
Why should the public care if BSC sticks ML or C or anyone else with a multi-billion dollar loss on a derivatives deal? ATMs still work, the public's mortgage is still due.
I dont see the problem at all
Posted by guest , Mar 25, 2008 5:13PM
your story completely misses the point.
JPM did not offer the $10 to appease BSC insiders, they offered it because after the fact they realized they had made a lousy deal and there was a very real chance that after 1 year they would have to hand a repaired and righted BSC (albeit smaller) back over to the shareholders. it was JPM that wanted to renogotiate because they completely f'd the deal up.
that the board of BSC accepted the amended terms is a complete travesty, they had JPM and the Fed by the balls.
I fully expect the 39.5% provision will vigorously challenged in the Delaware courts and there's a decent chance it is blocked.
this is going to get ugly, Bernanke and Jamie Dimon will come out of it looking terrible.
John Dortmunder
Posted by guest , Mar 25, 2008 5:14PM
One legit complaint the shareholders may have is that the Fed seemed to hold back its discount window until the merger agreement was signed, and only then trotted it out. Perhaps if the window had been opened to Bear, Bear could have survived the panic, if only long enough to secure a real-world bid.
Posted by guest , Mar 25, 2008 5:15PM
@5:04 Dumbest post of the day. If you don't care about taxes, then you, sir, are either a moron or get paid way too much for gay sex and can shop all day and service guys all night. Obviously environmental matters are too complicated for your mental abilities, so I'll put it so even you will understand: if environmental conditions on Earth fail, the human race will ultimately fail to exist. That's why people care so much. I know we'll all agree, however, that hopefully your genes will cease to exist sooner rather than later. Luckily, I doubt we have anything to worry about.
Posted by ab , Mar 25, 2008 5:22PM
@RB
Great point. My money SHOULD be used to bail out private companies that fail. In fact, your idea probably should be expanded further. Why wait until a business fails? And why stop with JPM? We should just give every company that asks for it as much money as they need to keep them going. Shit, we could re-employ a bunch of those poor laid off factory workers in the Midwest for a few billion. And if you keep breaking it down to cost per taxpayer, its only a few g's a piece.
The point isn't that it cost me $100, the point is that the $100 of mine (combined with the money of millions of other Americans) might be better spent elsewhere. Education, infrastructure, saving spotted owls or even in my back pocket all seem like decent options. But I guess you prefer to give it to BSC shareholders, teaching them an important lesson in the values of socialism and creating a fantastic precedent.
Posted by guest , Mar 25, 2008 5:25PM
@ Random Banker 5:04:
"I don't give a shit about your taxes! Screw you!" Not nearly as important as saving your overpaid job, is it?
Proving once again that you Wall Street types are no better than your average welfare cheat or whining union member...(although you probably have better clothing and use better grammar).
The sense of entitlement is sickening.
Posted by guest , Mar 25, 2008 5:29PM
@4:32
Screw you. That is why you get salary and bonus more than an accountant in Sioux City, IA. Risk/reward.
Posted by Random Banker , Mar 25, 2008 5:31PM
@5:15
Yawn. I know why people care. The problem is people are stupid. 99% of species that have ever existed are now extinct. The earth will warm. The earth will cool. New species will evolve. We will go extinct.
As for taxes, the only time I care about taxes is when other people are allowed to make more money than me due to tax loop holes.
Money is just a means of keeping score, old sport.
Posted by guest , Mar 25, 2008 5:32PM
@ 5:13
I'm having trouble seeing how Bernake can look much worse than he already does.
Posted by guest , Mar 25, 2008 5:33PM
@5:25 Agreed. If Wall Street firms are dumb enough to pay execs billions of dollars in excess compensation and thus don't show a PROFIT, then they deserve to FAIL. Just like any other business in a capitalistic society. Making really bad decisions is not a natural disaster - it's stupidity. Is the Fed planning to bail out EVERY business that makes bad financial decisions? Is Uncle Ben gonna wipe everyone's ass? If BSC fails, would anyone really, really care? What about all those firms which failed in the mid '80s and in the '90's? Nobody misses ANY of them now financially speaking... Good riddance to bad apples.
Posted by guest , Mar 25, 2008 5:42PM
When using hindsight to look back at a shitty trade you are stuck in, there is/was almost always an opportunity to get out at a reasonable loss. Of course 90% of traders use the opportunity to convince themselves they were in fact right and stay in the trade. I think 1 month from now 90% of those whose life savings are tied up in BSC stock may be looking back to today.
Posted by NomadTrader , Mar 25, 2008 5:50PM
I hear Randolph & Mortimer Duke are hiring. Contact Mr Beeks.
Posted by Random Banker , Mar 25, 2008 5:50PM
@5:25:
Its usually people on wall street who complain most vociferously about taxes, so my comment was mainly directed there. But it isn't people on the street that have the most to lose by the fall of BSC. As liquidity dries up its people on the margin who will be first and hardest hit. To paraphrase Chris Rock if you're Jimmy Cayne and you lose 90% of your wealth no big deal, you're still worth $100mil. If you're Joe Six Pack and worth $150k and lose 90% of your wealth because financial system collapses then you're fucked. Do you have an pension? A 401k? do think you can't be Jimmy Cayne. While the average american loves to complain about "wall street bail outs" The average americans people own cars, houses, pontoon boats, ATVs while having little education. This is only possible due to a dynamic economy underpinned by modern finance. So I assure you this is not a matter of a sense of entitlement. As far as I'm concerned "let them fail" is the position of the entitled.
@ab: you're wrong. There's isn't a more effective use of tax payer capital than preserving a well functioning financial system. That's where i take issue. This has nothing to do with BSC's shareholders and everything to do with their counter parties.
Posted by diablo , Mar 25, 2008 6:02PM
There's another post by Yves that's really interesting, together with the comments there:
"Grim Outlook" for JP Morgan
http://www.nakedcapitalism.com/2008/03/grim-outlook-for-jp-morgan.html
This is going to get ugly in court.
Posted by guest , Mar 25, 2008 6:04PM
Random: You continue to drink the Kool Aid. The average American owns flat panel tv's, pontoon boats, etc. not because of a dynamic economy but because of a propensity to take on debt. Beginning in the 1980's in the form of an explosion of credit card debt and in the more recent past though home equity loans in various forms. Failing to adequately fund their 401k or IRS, given a decline in traditional pensions, is another culprit. And the day of reckoning has started to arrive.
Posted by guest , Mar 25, 2008 6:04PM
You are right the average american doesn't play bridge and has not studied magic.
What exactly has the "modern finance" education of the wall street savants brought us? Their option models failed, their correlation models failed, their CDO valuaton models absolutely failed. If they marked BSC stock to model they would probably come up with 171 per share....
Mark to model, the only system in the world where both sides to a trade can show a huge profit on the same deal.
Posted by JorgeCad , Mar 25, 2008 6:05PM
Folks,
Here is an interesting perspective on the mess that has transpired
http://www.reportonbusiness.com/servlet/story/RTGAM.20080324.wworld0325/BNStory/Business/
Posted by Random Banker , Mar 25, 2008 6:18PM
Riiight when I say "miracle of modern finance" i mean the ability to supply huge amounts of leverage to the average american. Where exactly do you think Americans borrow all the money from if not the financial sector? That's why you don't blow it up, otherwise no more 0.0% financing on those Ford F150's.
Posted by guest , Mar 25, 2008 6:40PM
The leveraging point is interesting. Maybe farmer Joe from Iowa was a little smarter than we thought:
"You mean you are going to loan me 100% of the cost of this house at 5%, interest only. You'll give me an atm put on the value of the house and just for grins throw in a put on the IR struck at 4%, free (embedded) as well. I get to deduct all the interest and inflation is 2.2%. Well gee sign me up, but maybe you should check your figuring, it sounds like this is too good to be true."
"Don't worry, we wouldn't touch this pig in a month of sundays, we're gonna put some lipstick on it and flip it to that guy from NY."
Posted by ab , Mar 25, 2008 6:45PM
@RB
I completely agree that preserving a well functioning financial system is a valid government objective, and should be accomplished with taxpayer money, if necessary. What I disagree with is bailing out companies and their shareholders who took on the risk willingly. If taxpayer money is needed to preserve the financial system, so be it, but wipe out the equity. If you don't, it's a just gift from the American people to the BSC shareholders.
Posted by Random Banker , Mar 25, 2008 7:19PM
@ 6:40
heh, what the farmer doesn't realize is that the "guy in new york" is managing the farmer's pension and its all one big game of hot potato. Fortunately, for us the Chinese are about to join in the Ponzi Scheme and all the old tricks will be new again.
Posted by guest , Mar 25, 2008 7:28PM
Question: Umair Haque - any of you Wall Street Warriors here reading him?
Posted by guest , Mar 25, 2008 7:42PM
Is it really preserving a "well functioning financial system" if the government has to bail out losses of private companies. Call me crazy, but it seems to me that the system function exactly as it was supposed to: Bear took on too much leverage, made very bad financial/economic decisions, and went broke. The system worked perfectly, you go broke, you declare bankruptcy, you go back to zero.
Putting any money into this is just messing with the free market. Let the bidders sort it out, let them declare bankruptcy, the market, if it really is well-functioning, will figure it all out in the end.
Posted by Random Banker , Mar 25, 2008 8:04PM
yawn. well functioning means providing us with the standard of living to which we (the american people) have be come accustomed. Just because something is the result of the free markets does not mean it is ideal. There's a reason we have a Fed, because when the banks are left to the their devices they fail and take the rest of us with them. Anyone remember the great depression. Anyone remember when JP Morgan (the person) had to bail out he federal government?
Its people like you who complain about the "interference" of the government up until you're sitting in government run soup line. The market is not efficient. It is not always capable of accounting for the interests of those who are stake holders in the financial system but who have no legal standing with regards to the actions undertaken by BSC.
Posted by guest , Mar 25, 2008 8:47PM
the government didn't fully fund the stakeholders of Enron or WorldCom, why is Bear special? And none of us are saying that the gov't shouldn't use its spending power to aid the public, we just don't believe it should be used, in the sole discretion of a non-governmental entity, to fund private business. I'm sorry you lost your job, but if you are really as smart as you think, you would have seen this coming ...
Posted by guest , Mar 25, 2008 8:49PM
our standard of living would not be diminished if Bear was allowed to go into bankruptcy, the only people that would suffer are those that work there, and when my whole family got laid of from Ford, the government didn't write them a big fat check to say they were sorry ...
Posted by Random Banker , Mar 25, 2008 9:15PM
YEAH the government would never bail out an automotive company in order to keep from devastating a frail economy! Its completely ludicrous....
Wait? What? The government bailed out Chrysler?
The issues is not that government should not allow businesses to fail. Its the speed of the failure that is the problem. The whole system can go under. I mean why should there be a bankruptcy process at all, based on your (retarded) standards? You know bankruptcy court government interference as well. The government intervenes in order to preserve as much value for all interested parties as possible. That's exactly what the Fed did because for a financial institution the act of filing bankruptcy destroys most of the value. As a financial institution your biggest assets can get up and walk away. The fiber Worldcom laid wasn't going to get out of the ground and walk away.
Posted by guest , Mar 25, 2008 9:20PM
But "your biggest assets" if they're really that valuable, will get swallowed up by other companies. If you are an asset, and not just a monkey with a computer, you don't lose value simply because BS & Co is no longer on your business card.
Posted by guest , Mar 25, 2008 9:32PM
The big difference between the Chrysler bailout and this is that with Chrysler, a democratically elected Congress passed legislation enabling loan guarantees by the government. There was no Fed action.
If we learn anything from Chrysler, it was done to protect the worker's jobs, and Chrysler fired over 20,000 people anyway, which, I hate to break it to you, is going to happen to BS employees regardless. JP doesn't need to bolster their employee ranks, and even if they keep some of you, it will just be at the expense of someone currently at JP, that didn't cause their company to fail.
Secondly, a major contributing factor to Chyrsler's survival was its ability to negotiate down all of its current liabilities. Its stakeholders got no more than 50 cents on the dollar for its debts when Congress passed the bill. So, the stakeholders didn't benefit from the bailout anyway.
So yea, let's repeat that, that makes a lot of sense. OH yea, it didn't happen all at once, it's been happening for 5 years. The problems is that IBankers have an infinitely short time horizon on their intelligence. You don't care what happens 2 years from now, you only care about booking it before closing date so you can get a bigger bonus. If you haven't saved enough by now, and haven't diversified your holdings to protect you, that's not the gov't problem. Goldman didn't have any troubles in this market you know.
Posted by Random Banker , Mar 25, 2008 10:00PM
Obviously I know the Fed didn't bail out Chrysler? Who cares? The government is the government. Now you say, the stake holders didn't benefit from the Chrysler bail out? Are you on crack? They didn't benefit as much as they would have liked is what you mean? Well ask the BSC share holders who have lost 75% since last Friday if they think they were "bailed out"
At any rate I wasn't defending the Chrysler bail out, only saying that the Auto Industry and average american has been recipient of many a government penny so don't tell me about the poor auto workers.
The issue as I've said 100 times is the danger the failure of a major broker dealer posses to the entire financial system.
Posted by guest , Mar 25, 2008 10:02PM
Surely this could have been the plan from the get-go. Rediculously small bid, rediculously large guarantee, get through the weekend. The deal's sure to be rejected by the shareholders, so the next week a re-shaped deal is put up at a whopping 5 times the price. Everyone's happy. . .
Posted by guest , Mar 25, 2008 10:46PM
The FED could care less about BSC, they sealed their fate during LTCM. The FED was looking out for the entire GLOBAL financial system. I am surprised so many here don't understand that.
Posted by guest , Mar 25, 2008 10:53PM
Hey Carney. So why do you have the Gasman's pic at the bottom of all your comment screens. You sucking his pussy?
Posted by guest , Mar 25, 2008 11:05PM
How does the loss of BS & Co hurt the GLOBAL financial system? Everyone else has the same crap products, and they all seem to be able to keep the lights on. If anything, this has taught us that "mark to model" is a joke and if this is a functioning financial market then clearly there needs to be more transperancy and regulation of the banking business.
Posted by guest , Mar 25, 2008 11:25PM
I think Gras won a bet, and Bess had to put up or put out... my guess is this is her payment...
Their war was heating up... and then silence... same kind of shit we got from 1-2 and Girl...
the Gras and Bess were tossen sparks and then his mug was on every post...
I figure she ate the meat but not his salami, so the rest of us have to look at his mug each time we post... because he won...
I don't know... but I am trying to cause a shit storm if I can... cause... why not...
Just Saying...
Posted by Random Banker , Mar 25, 2008 11:29PM
@11:05:
You don't seem to understand basic finance. The issue isn't the products. The issue is that their failure will cause other banks to fail and those banks will cause more banks still to fail. Like a rolling black out. One power station goes under and as other plants try to compensate for the grid the strain on them causes them to overload. And so on and so on, until the entire country is in black, like in the summer of 2003.
So too does instability at Bear cause counter parties to pull collateral from CIT and Lehman and they fail and lehman threatens national city and natcity threatens wells fargo. and next thing you know we're back to the feudal system.
Posted by guest , Mar 25, 2008 11:38PM
RB...
Long or Short Banking?
~Stupid Equity Guy
Posted by guest , Mar 26, 2008 12:08AM
Why? Why does a failure at Bear cause Lehman to fail, other than the fact that they are both very high holders of crap illiquid securities?
And JP is just going to break-up BS&Co and sell off the parts anyway, so why have all of the profit go to JP instead of producing money to be paid to the actual creditors of BS & Co? If i'm with BS AM, I still own the same things I owned before, I don't care that my statements now say JP on them. No difference to me.
Posted by Random Banker , Mar 26, 2008 12:30AM
No difference accept everything in the portfolio will be valued 50% less because all those companies will have no access to the financial markets.
This is seriously the point of absurdity. Any bank can fail if enough counter parties demand collateral. You don't let the snow ball start rolling down hill. Don't be a retard.
Posted by guest , Mar 26, 2008 1:13AM
If an I-bank failure can cause systemic meltdown of the financial system, they should be regulated like other banks. Right?
Posted by guest , Mar 26, 2008 1:23AM
In theory, which is definitely the realm you're talking about, all parties can't demand collateral, if they did, they would themselves turn into the creditors.
I will still have access to financial markets without BS & Co. If Bear goes under, there will be only a marginal affect on the nyse or any other listed exchange around the world. I may not have access if every financial company goes under, but hell, if they even started to, you can bet your ass a new company won't take more than 6 seconds to rise up and fill the void as a clearinghouse, because they know there's money to be made in doing it.
Plus, under your argument, if all of these counterparties started pulling their collateral from the non-failing institutions, it would only devalue their collateral by diminishing access to public markets. So why, why on Earth would you do that? Unless you thought the company was going under.
Their to leveraged. All of America is, because there's more money in issuing a loan than there is in helping someone pay one off. At least to a banker that isn't going to be working there in 18 months, like most of you.
Posted by Random Banker , Mar 26, 2008 1:26AM
what're you talking about? they are like other banks. Graham Leach Bliley, look it up.
Posted by Random Banker , Mar 26, 2008 1:44AM
yeah exactly everyone pulls out their collateral because they think the company is going under. They call it a panic for a reason, they try to get their money out before they turn into creditors and have ask for it in bankruptcy court.
It is completely rational for any one person to demand their collateral back. So everyone acting rationally in their own self interest in the time of panic can bring the system down.
You really don't have any understanding of finance do you?
Posted by guest , Mar 26, 2008 1:50AM
GLB didn't add regulation to IBanks, it loosened regulation on commercial banks by allowing any financial company to perform any type of financial transaction. There was never the regulatory safeguards on IBanks as there was in the old commercial banks (i'm assuming 1:13 is over 30). But, when they repealed Glass-Steagal (i believe) and replaced in with GLB they basically said "go ahead financial companies, do whatever" which opened them up into using otherwise inaccesible sources of capital as collateral for products.
Posted by guest , Mar 26, 2008 1:55AM
You give collateral to secure a loan. If I ask for my collateral back, that means I have to pay it off or get an alternative discharge of the underlying indebtedness. You can't take your collateral back just because you feel like it.
Posted by guest , Mar 26, 2008 2:11AM
It's like the attack of the killer bees. Go after the taxpayer-funded bailout of Bear Stearns! Charge!
Bear Stearns put up collateral for the $29 billion loan from the Federal Reserve. The collateral may be worth the $29 million; the Federal Reserve has ten years to determine that. In the meantime, it earns 2.5% on the loan. Taxpayers haven't spent a penny to date on the Bear Stearns deal. The money comes from the Federal Reserve, which is self-funding. (The Fed system makes money off interest on loans and services it performs for banks.)
A potential downside for U.S. taxpayers comes if both the loan goes bad and the underlying collateral is not worth the amount outstanding. Then the loss for the loan would come out of the Fed's surplus, which is normally poured into the U.S. Treasury.
But the Fed was not created as a money-generating machine for the U.S. Treasury. It was created to stabilize the U.S. financial system. So griping about potential losses to the U.S. tax-payers due to Fed action is putting the cart before the horse. Although the Fed's action during the Bear Stearns crisis was out of the ordinary, it was not out of sync with its mission.
No one at Bear Stearns got a "windfall" out of the deal. Executives and employees holding Bear Stearns stock lost huge amounts of money. Many of the people employed at Bear Stearns will lose their jobs. However, counterparties in complex transactions throughout the U.S. and Europe were protected, reducing the potential of international panic, and more runs on both retail and investment banks.
Posted by guest , Mar 26, 2008 2:25AM
I'm interested in the shareholder suit pending in Delaware. Is anyone knowledgeable about whether the circumstances qualify under Delaware law for an expedited ruling?
Posted by guest , Mar 26, 2008 3:13AM
Boo hoo hoo. Fuck BSC's counterparties. If they mispriced counterparty risk it's not my fucking problem. A "well functioning financial system" needs to properly price risk. These wankers need to learn what happens when you misprice risk and Uncle Ben's not around to make you whole.
Posted by diablo , Mar 26, 2008 8:52AM
Bloomberg story, today:
Taxpayers May Be Liable for Billions From Bear, Mortgage Rescue
http://www.bloomberg.com/apps/news?pid=20602007&sid=aNXDBlrk1H1s&refer=rates
"...American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.
History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns Cos., said Joe Mason, a Drexel University professor who has written on banking crises. Treasury's push to have Fannie Mae and Freddie Mac buy more mortgage bonds reduces the capital the government-chartered companies hold in reserve at a time when foreclosures and defaults are surging.
Regulators ``are playing with fire,'' said Allan Meltzer, a Fed historian and economics professor at Carnegie Mellon University in Pittsburgh. ``With good luck, none of these liabilities will come due. We can't expect that good luck, and we haven't had it.''
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson were forced to respond after capital markets seized up and Bear Stearns faced a run by creditors. In an emergency action that jeopardizes the dividend it pays the Treasury, the Fed authorized a $29 billion loan against illiquid mortgage- and asset-backed securities from Bear Stearns that will be held in a Delaware corporation. JPMorgan contributed $1 billion.
Dividend Jeopardized
The Delaware company will liquidate the assets over 10 years, with JPMorgan absorbing the first $1 billion in losses, with the Fed bearing any that remain. Any such losses would hurt the Fed's balance sheet, and ultimately the taxpayer, because they would reduce the stipend the Fed pays to the Treasury from earnings on its portfolio. The dividend was $29 billion in 2006. "
Posted by guest , Mar 26, 2008 10:09AM
Hi!
Lets take folks OUTSIDE-OF the felony called capitalism, instead of CONTINUOUSLY and EVERYWHERE talking about the arguing going-on inside. Can we? Or will I be censored? Lets find out.
Readers, you DO see the pyramid scheme symbol on the back of the USA one dollar bill, right? You DO see the servitude infestation in capitalism, right? And do you see the "pay up or lose your wellbeing" Chicago mob-like felony extortion widespread within capitalism? Do you see the "join or starve" felony extortion done to the 18 year olds... by this ugly competer's church called capitalism?
See how forcing competer's religions onto 18 year olds (get a job!!!)... kills membership in the cooperator's church (Christianity/socialism)?? Do you understand that AmWay (American Way) (New World Order) got "the exclusive" on the TYPE of survival coupons (money) accepted in supply depots (stores) and leverages 18 years olds into the organization via that felony activity as well?
Do you understand how farmyard pyramids work... from your childhood?? Remember?? Upper 1/3 are "heads in the clouds" while the kids on the bottom ALWAYS GET HURT from the weight of the world's knees in their backs? Still with me?
Do you see anything illegal, immoral, or just plain sick... in any of this pyramid scheme's activities?
Us American Christian socialists are still patiently awaiting the natural fall of the pyramid-o-servitude, or the busting of the free marketeers felony... by the USA Dept of Justice. Us Christians are VERY CLOSE to issuing a cease and desist order on capitalism... until the servitude and inequality goes away... which means it turns into a commune. Commune is a word we LOVE when used in the word "community"... but its one the caps HATE when used in the term "commune-ism". Go fig. PROGRAMMED!!
Time to level the felony pyramid scheme called capitalism. Abolish economies and ownershipism worldwide, and hurry. Economies just cause rat-racing, and rat-racing causes felony pyramiding. BUST IT, America! Look to the USA military supply/survival system... for socialism and morals done right. Equal, owner-less, money-less, bill-less, timecard-less, luxury-repositoried, and concerned with growth of value-criteria OTHER THAN money-value. There are MANY measurement criteria of "value"... not just dollars. Try morals, efficiency, discrimination-levels, repairability, etc etc. Economies are cancerous tumors, and to cheer for their growth... is just insane. Profiting causes inflation, so if capitalists LIKE inflation, and if caps LIKE a terrible time in afterlife when they meet the planet's ORIGINAL OWNER before SOMETHING tried to squat it all with ownershipism, then keep it up with the felony pyramiding. I dare you.
While us Christians are finally bulldozing that pyramid scheme back to level, lets ALL make servitude and "join or starve" illegal in the USA, and lets level the architecture seen in USA courtrooms, too. Right now, USA courtrooms are church simulators or "fear chambers", by special design. Sick.
Take care, everyone.
Larry "Wingnut" Wendlandt
MaStars - Mothers Against Stuff That Ain't Right
(anti-capitalism-ists)
Bessemer MI USA
Posted by guest , Mar 26, 2008 10:12AM
wow that was awesome. this guy should totally be the new guest editor instead of EP.
Posted by guest , Mar 26, 2008 12:44PM
Some financial commenters say the Fed will make money on the Bear Stearns deal. (WSJ) Some financial commenters say it's possible that the Fed will lose money on the Bear Stearns deal. (Bloomberg) Some senators say that Bernanke was "smart." (Senator Schumer) Some senators want to poke around in the deal, despite the guaranteed independence of the Fed. (Senators Baucus and Grassley)
The Fed has TEN years to collect on the Bear Stearns loan (with 2.5% interest) or recover on the collateral. At the end of the ten years, the public will be able to make a judgment about the wisdom of the loan and the value of the collateral.
Is anyone denying that the Fed action was consistent with the Fed mission? There was no money appropriated from Congress just for this deal; the money came from the surplus of the self-sustaining Fed. And the "loss" to the taxpayers comes if and when the Fed can't pour into the U.S. Treasury any portion of the $29 billion that was lent to Bear Stearns.
Mr. and Ms. U.S. Taxpayer, if you want to dismantle the independendence and financial structure of the Federal Reserve because you disapprove of "bail-outs" that give "windfalls" to Wall Street fat cats, please consider that the Fed Reserve system was a key reform in the U.S. banking system that has served us well for many years.
Posted by guest , Mar 26, 2008 12:54PM
Again, this is all fucking bullshit.
Armageddon was 9-11 when people died, buildings collapsed and this nation went to war. Some second tier broker royally fucks up, and the Fed steps up. Its just another bailout that shouldnt happen.
I really dont see the financial domino effect here. And even if there was, the Fed simply floods the system with cash as they did after 9-11.
Posted by guest , Mar 26, 2008 1:56PM
I'm buying a Lamborghini this week. Not the little one, either. the Murcielago. Fuck Bear Stearns. You work on Wall St., your savings end up gone? It's all your fault. Welcome to the NFL. You left the grocery store with your stomach growling. Fuck Bear's whining ass employees who had no brains and ignored the warning flags. Fuck its whining ass ownership/shareholders. Fuck our corrupt and misguided baseball-hearing holding, Bear Stearns-bailing-out government, who has now set a precedent that is sure to cause a rotten abscess of unchecked risk to form on Wall over the next 12 quarters.
And most of all, fuck the government for destroying my glee in Bear's demise. Upon news of $2 shares I had even gone so far as to very subtly vandalize the Wikipedia pages of both Stewart and Carney with a well-placed "doh" where their personal fortunes were mentioned. Fuck you, governments.
Also, fuck Hillary Clinton. I really wanted to vote for her because I thought she had come under sniper fire- sniper fire is my #1 campaign issue!
And in closing, also fuck Gallardo owners, the middle classes, and the poors.
Posted by guest , Mar 26, 2008 2:02PM
Also, Carney please write more articles about the poors. I will laugh and respond every time.
Posted by guest , Mar 26, 2008 2:05PM
I'd do Hillary just for bragging rights.
Posted by guest , Mar 31, 2008 8:56AM
Retraining scheme for Bankers?
Pole-Dancing Classes Lure Eager Women Bankers in City of London
http://www.bloomberg.com/apps/news?pid=20601085&sid=aEsJvl6JFCxc&refer=europe
Love the last paragraph
``We also teach lap dancing..."
Posted by guest , Apr 01, 2008 11:46AM
How come so many people at Bear wouldn't sell any shares during all those profitable years in order to diversify ? Had they done so, they would still be rich. But they didn't because they are arrogant assholes, that's why, they figured they were so smart that BSC could never, ever go wrong. It's the same bunch of stupid, self- interested arrogant assholes who wouldn't lift a finger for LTCM when markets were at stake in the last decade. When Jamie Dimon went to BSC for the first time, some pathetic, entitled executive demanded of Dimon "who will make us whole?" The answer: nobody. Sell your home in the Hamptons, eat at Burger King instead of Le Bernardin, send your kids to public school (gasp!!) and realize that nobody gives a fuck about your money problems, you Wall Street Whores.
Posted by guest , Apr 01, 2008 11:50AM
Le Barnardin is fish, you cretin. If you knew anything you would have said "Eat at Long John Silver's instead of Le Barnardin".
Posted by guest , Apr 01, 2008 12:48PM
Long John Silver's is too expensive for a former Bear employee.
Posted by guest , Apr 03, 2008 11:18PM
"Comedian" Carrot Top, John Holmes and the Jews are somehow responsible for the Zionist Pecker-Top Conspiracy. That's about as clever as anything said here. Thank God there's only one Socialist-Christian-Communist in the world, and he's underpaid.