Posted by guest , Mar 24, 2008 5:35PM

Something seems off about this whole situation. Bear has 110 million shares outstanding, about a third of them held by employees who are locked up from trading them. How is it that over 130 million shares of Bear were traded today? What is going on???

Posted by guest , Mar 24, 2008 10:01PM

You Wall Streeters are a bunch of punks. Whine enough, and the Taxpayer will bail you out. Tell me why 1). BSC is worth 5X what it was a week ago; 2). why you've been cashing big bonus checks for years when you're not actually taking any risk, and 3). why I, as a taxpayer, shouldn't cap your salaries. I mean, I'm paying to clean your ass whenyou crap yourself.

Pussies.

Posted by guest , Mar 24, 2008 10:31PM

guest @10:01pm -- (1) BSC employees owned 30% of BSC stock, and when the $2 a share price was announced, they (a) walked out, taking valuable expertise with them; or (b) called Jamie Dimon nasty things to his face, indicating they would never work with him. Jamie Dimon, having taken a thorough look at the books, decided the stock had more value then he had earlier supposed. (2) A lot of the bonus BSC employees received over the years was in the form of restricted stock, and employees who held the stock at the time of the $10 a share deal still took huge losses, so your point about not taking risk or suffering loss is bogus. (3) You, as a taxpayer, have paid NOTHING towards this deal. The Federal Reserve, through a fund already in existence, has guaranteed $29 billion, but has not paid a cent. It probably never will be called on to pay anything, and in fact, may make money on the deal.

So until you know what you're talking about, stop calling names, get your information from something other than television or talk radio, and shut up.

Posted by guest , Mar 24, 2008 11:00PM

@5:35 Cause the same share can change hands more than one time in a day. That's the idea behind day trading.

Posted by guest , Mar 24, 2008 11:18PM

@5:35 No doubt some naked shorting fun and games. Expect BSC to show up on the Reg SHO threshold list soon. Ask your seclending desk. BSC has a negative rebate if you can find it at all.

Posted by guest , Mar 24, 2008 11:20PM

@ 10:31pm

"(a) walked out, taking valuable expertise with them..."

their expertise obviously wasn't all that valuable or the stock wouldn't have gone to price of a large snickers bar. lol

otherwise, good points made.

Posted by guest , Mar 24, 2008 11:44PM

@10:31

A guarantee is worth nothing until the guarantor pays?

Great thinking skills. That would explain all the insurance I see people giving away for free.

So until you know what you're talking about, get your information from something other than drinking buddies, and shut up.

Posted by guest , Mar 25, 2008 12:01AM

@10:31

Had there been no deal last Sunday, BSC probably would have collapsed just like ENE on Monday morning. Now, BSC investors are trying to take advantage of the umbrella provided by JPM and taxpayers to re-trade the deal. No integrity.

BSC deserved to go bankrupt because it was run by idiots. I feel (a little) sorry for BSC employees, but they are collateral damage..not unlike millworkers or factory workers when the job goes to China.

Posted by guest , Mar 25, 2008 2:57AM

@ 11:20 pm: "(a) walked out, taking valuable expertise with them..."

your view: "their expertise obviously wasn't all that valuable or the stock wouldn't have gone to price of a large snickers bar. lol"

my view: "the million dollar signing bonuses top Bear Stearns people were commanding within forty-eight hours of the first deal being done speaks to the value of certain individuals within the Bear Stearns organization."

The Bear Stearns stock didn't drop because star performers didn't do their jobs, but because there was an irrational panic about liquidity.

11:44 pm. I never said a guarantee was worth nothing until the guarantor pays. It's obviously worth a great deal to have a reputable guarantor on the transaction. Private guarantors are paid fees for guaranteeing certain transactions, because their funds are put at risk. This happens to be a case where a public agency is serving as a guarantor, as part of its mission to safeguard the financial system. Money has been pledged, but not a penny of taxpayer money has been spent to date on the Bear Stearns / JP Morgan deal, and with any luck, none will ever be spent.

A taxpayer shouldn't complain that he's paying to clean up the messes by Bear Stearns, because as of this moment, he's not.

And @10:31pm, I respectfully disagree with your characterization of BSC investors as having no integrity. Under state, federal law and BSC operational policy, shareholders are entitle to vote on a proposal to sell Bear Stearns. If circumstances develop that it looks likely the shareholders will vote down an offer, it is perfectly acceptable for the bidder to decide to sweeten the deal. I pretty much unilaterally object to the fact that Bear shareholders should have their arms twisted behind their backs by federal regulators who are insisting on a deal going to a favored bank at a cut-rate price. I think, with all due respect, that calls into question the impartiality of the government.

Posted by guest , Mar 25, 2008 6:58AM

posted by guest

Mar 25, 2008 6:57AM

Noone can argue that the save of BSC had to happen for the "greater good" (funny how Ayn Rand capitalists change tune when their restricted stock is on the line). In my opinion an integral part of the deal to avoid moral hazard was setting a $2 share price to fairly compensate those responsible for bankrupting the company. To now say that these same people are worth $10 a share is somewhat disingenuous. This ignores the fact that without intervention bankruptcy would have occurred. I quite obviously don't spend my 60 hour work week on wall street, but where I am from mulligans are not granted on trades the day after you have stopped out.

Posted by guest , Mar 25, 2008 7:37AM

BSC is simply, a piece of shit.

The traders etc suck as defined by their needing a bailout. Needing to have access to the Fed's checkbook and JPM's checkbook proves it.

The argument that the fed has unique resources that do not belong to the taxpayer is a fallacy. Where do you think the money came from?

Posted by guest , Mar 25, 2008 7:37AM

@2:57

If you're scared to lose your job and you think the rules should be changed to protect you, have the integrity to say so.

The point I was trying to make is that, absent the guarantee (provided by federal regulators, and paid for by Main Street) there would have been no deal, for $2.00, $10.00, or $.01. Characterizing it as "arm twisting" is incorrect becuase you have arms only through the generosity of said regulators.

Do you doubt that BSC would be worth anything if the Fed pulled its guarantee?

BSC needs to be liquidated at $2.00 or at $0.00 to alleviate moral hazard. It is unfortunate that many will lose their jobs, but the important thing is for management to be wiped out to discourage future managements in other companies from thinking the taxpayer will bail them out with things you yourself admit are valuable.

The million dollar signing bonuses you mention are irrelevant. Any time a factory or mill closes, there will certainly be some pieces of machinery that are worth buying. There are certainly many good people at BSC, but the company still needs to go away.

Posted by guest , Mar 25, 2008 7:55AM

@7:37

Barings was a top UK domiciled "merchant" (read investment) bank for most of the past 200 years. Today, it doesn't exist. Why? One rogue trader managed to lose a great deal of money for the bank's account in the FX markets. Does this mean their risk management people "sucked" as you so eloquently put it? Yes. Does it mean the bank was a "piece of shit"? In the only way that counts, it wound up one. But if you actually think that every trader who worked at Barings definitionally "sucked" because the bank ceased to exist then you are a moron, and/or have never worked at any large organisation with a range of employee talent levels.

There are a significant number of guys at Bear with lots of opportunities. JPM would not be giving comp guarantees to targeted people and groups if they didn't think that there was talent worth paying for.

As for the Fed's source of funding, the Fed conducts open-market-operations daily in the course of interest rate targeting. Since they buy debt when the rate is above target and sell when it is below target, these operations are consistently profitable. The Fed is a very good proposition for its owners, the taxpayers. Liquidity provision usually is, if you have a long enough time horizon.

I don't understand why people with no knowledge of finance choose to comment on this website - surely there are better places to express your class anger?

Posted by guest , Mar 25, 2008 8:31AM

@7:55

I don't understand your argument: What should we do, have the taxpayers cover Leeson's losses, since it was just him?

There is no question there are valuable people at Bear, hence the retention bonuses to specific people. I don't see how this relates to the share price of the takeover.

I am not a Fed expert, but I would lean towards the bailout money being taxpayer money.

Really don't understand the last paragraph. You seem to be the one supporting the notion that people not directly related to the blowup deserve their jobs because they are "good" people". This does not sound like "the market is the best judge of value" ideals that wall street believes.

Back to the core problem (on which I am not an expert). But people bought products that paid 8% interest, hedged them with products that cost 5%, and then marked them flat. Anyone who believed this was a true mark to market deserves oh about $2. And to front run the "but the market valued these 8% products at 5% so it was correct mtm". Then idiot you should have hedged them with the market, instead of a proxy.

Posted by guest , Mar 25, 2008 8:51AM

@8:31

I'm going to assume from the fact that your post was coherent that you were the second poster at 7:37, not the first, which was the post I was objecting to. My last paragraph may make a little more sense to you in that context.

Having now read both of your posts, I can add that I completely agree with your view that Bear has to cease to exist as an independant institution. But the reality is that BSC DOES have assets that are worth something (example, 383 Madison). If the Fed took away its guarantee Bear would be insolvent on a cash-flow basis, but would still be worth a non-zero amount of money. This value would then be diminished through endless bankruptcy proceedings, while chaos reigns on the Street. Clearly that would not a first-best solution.

The Fed's role in this has not socialised Bear's losses - the taxpayer will most likely make on the deal, it seems generally agreed. It's POSSIBLE that the Fed will take a loss on the guarantee, but as the expected return is positive it would seem unreasonable to define it as the socialisation of losses given the lack of restrictions on the size of the Fed's balance sheet (and hence the lack of opportunity cost). I think a 90%+ haircut, which is what Bear people are taking on their restricted stock even with the deal at $10, is hard to describe as fostering moral hazard. The people who have profited meaningfully on the $2-$10 move are the bondholders and capital structure arb guys who bought when the stock was in the low single digits. I don't think there's any reason it's unfair for those guys to make money. Do you?

The only loser from the new deal seems to be JPM, and I don't hear them complaining about it.

Posted by guest , Mar 25, 2008 8:53AM

@7.55

BSC sucks and so do you! Heres why-

1. Barings was a quaint Brit bank which existed and worked off 200 year old relationships. It wasnt a big deal to anyone. That it went away, is not a big deal. Perhaps you'd like to discuss Montague, or Derby as well?

2. JPM is offering TARGETED deals to a very limited number of employees. JPM has already said, from Day 0, that at least 7,000 layoffs will happen - not exactly a ringing endorsement of the staff.

I, and many others, would hope that bear would have put their more talented employees in risk taking positions, so, again, by definition, their decisions were poor. No one is arguing who has the better janitor or driver here. Or are you?

3. Your own argument contradicts you. The Fed's ability to operate and maintain autonomy is based upon the US Treasury ability to collect taxes at then end of a gun, if necessary from its citizens. As such, all their funds belong to the taxpayers.

4. Calling me a 'moron' is a highly inappropriate way to argue. Or is that how you win arguments back home in Iowa?

Posted by guest , Mar 25, 2008 9:22AM

@8.51

Obviously you are not aware of how bankruptcy works - there is a well-defined tier of who gets paid what as the firm is liquidated. The argument that the building is worth X is meaningless if the portfolio has a negative 2X value. Get it?

Posted by guest , Mar 25, 2008 9:34AM

Unrelated question. But is there any restriction on employees short selling (or structuring collars) on restricted shares?

Posted by guest , Mar 25, 2008 9:38AM

8:51

How will the Feb net make on this? Because of the lack of chaos in the entire banking structure and more taxes?

(Serious question, I have no qualms about sounding dumb if I learn something)

Posted by guest , Mar 25, 2008 11:29AM

@9:38

The Fed is charging interest on the liquidity loan. Since its cost of funding is basically zero, this is a profitable activity.

@9:22

Yes, that must be right. Bankruptcies are always so simple and well ordered that the proceedings are instant and the lawyers work for free. There couldn't be ANY value destroyed in a Chapter 11 filing, could there?

Also, are you seriously trying to argue that Bear has negative book value? If that's the case, why would Chase pay anything for it, let alone raise their offer?

@8:53

1. The point I was trying to make was simply that if a bank is worthless as a going concern, that doesn't necessarily imply that everyone who works there sucks. The fact that you consider Barings minor is irrelevant.

2. 7,000 will be gone out of about 14,000. 50% is not equal to 100%. And a lot of those layoffs are going to be in areas where JPM is stronger, or where there are going to be/have already been layoffs everywhere (e.g. mortgages). And we were talking about traders, not senior management. Nobody is denying that senior management has to go. Guess what, they're going, and they've lost a LOT of money.

3. False. If the Fed doesn't make money on the loan, taxes need not rise to offset that because the Fed has its own balance sheet. Hence, the taxpayer is not on the hook.

4. I was born in New York and am currently based in London. Apart from when I was in school, I have never lived more than an hour from the center of one of those two cities. So play the "farmboy" card with someone else.

Posted by guest , Mar 25, 2008 11:44AM

7000 layoffs? That could more than DOUBLE the number of Fox Business News watchers!!!

Posted by guest , Mar 25, 2008 11:59AM

@11.29-

-If barings was such a valuable institution, why didnt the BoE step in and inject cash? or long term clients, eg, the Royal Family? because nobody cared if barings went down.

1. If the employees dont make meaningful contributions, it does mean the firm is worthless. If you are able to finance inventory at X, it doesnt mean it is worth X - which is why only the Fed, a not for profit, taxpayer supported organization can afford to finance bear's inventory. The market is saying the book is illiquid and has little value,
2. When 50% of the staff gets cut, AS A STARTING POINT, it probably means more like 90%. The traders went along blindly making trades? If they were making real cash and not some mark to imagination profit, bear would still be in business.
3. You so, so dont understand fed accounting. If you are correct, why does the Fed remit "profits" to the US Treasury yearly? or why is Bears book being put into a LLC, eg, off the fed's balance sheet?
4. Born in NY? Great argument to overcome your lack of understanding of how the world works. You probably lived in some West Side building where all the brokers and teachers live. Washington Heights?

Posted by guest , Mar 25, 2008 12:01PM

Perhaps y'all should read Punk Ziegel's note today about BSC

Posted by guest , Mar 25, 2008 12:09PM

really? what does the venerable bearded Dick X Bove have to say?

Posted by guest , Mar 25, 2008 12:44PM

@8:51

I’m the guy who wrote the second 7:37 comment.

“If the Fed took away its guarantee Bear would be insolvent on a cash-flow basis, but would still be worth a non-zero amount of money. This value would then be diminished through endless bankruptcy proceedings, while chaos reigns on the Street. Clearly that would not a first-best solution.”

No, if the Fed took away its guarantee, BSC would be unable to meet margin calls, which would be an “Event of Default,” which would do two things. First, it would trigger “Additional Termination Events” resulting in positions where BSC is the counterparty to be unwound and demands for Termination Payments would be made. Second, these Cross Defaults (presumably at least some of BSC’s counterparties were above the cross default threshold, usually a few percent of Equity) would trigger acceleration of Credit Agreements and Bonds. Any of the bankers, bondholders, or ex-counterparties could and would petition BSC into bankruptcy, and the equity would probably go to zero. Note: The preceding was based on the assumption that BSC’s ISDAs look like everyone else’s in most material aspects. I have not read any of their ISDAs.

I am torn between agreeing and disagreeing with your last statement. Arguably, people who extended BSC credit should take their lumps right along with the equityholders (the libertarian solution). However, few people could have predicted a run on the bank like the one BSC suffered. Unless people see that the Fed is willing to support them and, by extension, OTHER banks, there will be a significant de-leveraging and de facto increase in the reserve requirement, which would not be helpful to capital markets.

I think the original deal was a better solution, wipe out the equity holders, fire the staff, and support the creditors.

“The Fed's role in this has not socialised Bear's losses - the taxpayer will most likely make on the deal, it seems generally agreed. It's POSSIBLE that the Fed will take a loss on the guarantee, but as the expected return is positive it would seem unreasonable to define it as the socialisation of losses given the lack of restrictions on the size of the Fed's balance sheet…”

Nonsense. What has happened is the taxpayer has written a slightly-out-of-the money put on the crap on BSC’s balance sheet. JPM takes the first $1BB of losses, we take the rest….and there is no explicit expiry, so it’s a long dated option indeed. If you don’t think that has value, could you please give me some Dec 2010 $92 CL puts? They will most likely expire out of the money. It’s POSSIBLE that you will take a loss on these puts, but as the expected return is positive…

Posted by guest , Mar 25, 2008 1:00PM

@11:29

The Fed's balance sheet is not unlimited in size. Based on the declining dollar, weak economy, etc, I'm not sure I think bailing BSC out (even if BSC goes through serious pain anyway) is an appropriate use of the Fed's balance sheet. We might need that dry powder for something more worthwhile in the future.

Posted by guest , Mar 25, 2008 1:09PM

I wrote the @12:44 PM comment. Please change "Additional Termination Event" to "Event of Default" Brain fart.

Posted by guest , Mar 23, 2009 7:12PM

[quote]Money has been pledged, but not a penny of taxpayer money has been spent to date on the Bear Stearns / JP Morgan deal, and with any luck, none will ever be spent.

A taxpayer shouldn't complain that he's paying to clean up the messes by Bear Stearns, because as of this moment, he's not.[/quote]

Either you lied or you are incapable of sound fiscal analysis. This is why our system is melting down - purported financial experts with Series X getting it wrong over and over. Or lying to line their pockets.

Now we the Taxpayer have to pay for this, for the -$32B loss on the 3/17 $62B CDO purchase from AIG through Maiden Lane III, and the -$3.8B loss so far and more to come on BSC.

Certainly the bad asset $1T bailout will eventually end up with the FOMC and then the Treasury and Taxpayer.

Actions like this in other countries have usually led to revolution.