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Falcon84
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JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 1:19 am

http://money.cnn.com/2008/03/16/news...s/index.htm?postversion=2008031619

Shows just how shaky things are at this juncture in the U.S. economy. The bad news is i'll wager at least a few big banks or lenders won't get bailed out, and that the shockwaves will be pretty significant. This is a tip of the iceberg, with regards to the banks and lenders, I'm afraid.
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a380us
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 1:22 am

It really sucks for the stock holders.
www.JandACosmetics.com
 
comorin
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 1:49 am

This is happening at $2/share! At a market cap of just $236M - just unbelievable. I guess the SWF's took a pass. Who's next, AIG?
 
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stasisLAX
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 1:54 am

http://online.wsj.com/article/SB1205...08739825.html?mod=special_coverage

Fair Use:
"The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies' boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday's close, Bear Stearns's stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday. Bear Stearns shares, which traded as high as $170 in January 2007, fell 47% on Friday after the firm was forced to seek emergency funding from the Federal Reserve and J.P. Morgan to stay afloat amid a severe cash crunch."

Bear Stearns was a highly respected and well regarded institution that had been in business since 1923. Lehman Brothers is thought to be "on shaky ground" according the Wall Street Journal (see above link). Emergency meetings are taking place now with Lehman's executives.

The US dollar is currently trading at an 12 year low against the Japanese yen ; Spot gold prices are skyrocketing to $1025 on the Asian markets, along with a big increase in oil prices. Yikes!

This is going to be a VERY high drama week in the international financial markets. Let's hope that the domino effect does not take place with other institutions. Fasten your seatbelts, it's gonna be a bumpy ride

[Edited 2008-03-16 18:58:23]

[Edited 2008-03-16 19:06:10]
"Those who would give up essential liberty to purchase temporary safety deserve neither liberty nor safety!" B.Franklin
 
National757
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 1:59 am

Bear Stearns owns their HQ in New York outright. They must have had some significant losses because the JPMorganChase buyout doesn't even reflect the full value of their HQ, let alone the rest of their assets.

Deal of the century or the first in a series of events that lead to the downfall of JPMorganChase? Time will tell.
 
PPVRA
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:02 am

The Fed cut rates again, on a Sunday. Not looking good for tomorrow.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
National757
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:05 am

http://www.bloomberg.com/

Japan's Nikkei is down 515 points already.
 
comorin
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:17 am

Everyone at Bear will be fine except for the humble folk in the back office for whom their Bear-heavy 401K is probably their life's savings.
 
andrej
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:20 am

Well nothing surprising really. On Friday sh!t hit the fan for Bear Stearns. They received loan from JPMC on Friday that matured in 28 days. Most likely the fate of Bear was decided on that day. The company lost its liquidity in matter of days. I would like to know what caused such massive loss of liquidity. Was it rumors, fear from major investors, Geroge Soros?  mischievous  What other option they had?

It may seem as JPMC is getting bargain here, but it also suggest that Bear was in much more trouble then previously thought. The company was quick to sell itself for very little, suggesting that its investments and losses related to credit crisis are much larger than initially suggested?! It will be interesting day tomorrow, expect decrease in all major markets. Not only b/c of this news, but it will be weighted quite heavily on all major indecies.

Anyways I am really upset about this. I feel bad for those that will loose their jobs. But maybe I am little selfish, when I start to look for jobs, the whole financial industry must go through crisis!  hissyfit 

And the Fed yet again cuts the discount rates!  irked  Increased liquidity will not give jobs back to those that lost them and it will not help us rather I believe that it may hurt the economy. The Fed should increase the rates, punish those that made bad investments and help to decrease the impact of this recession on public. The Fed has been trying to prevent such move for some time, and when they think that they may have prevent one crisis, another one arouses.

Quoting Comorin (Reply 2):
Who's next, AIG

Anything to back this up? Maybe we should short-sell!  scratchchin 

Cheers,
Andrej
 
National757
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:21 am

Goes to show you no matter how financially sound you believe your employer is, having your entire 401(k) tied up in one security borders on insanity. I have little sympathy for these guys as the failures of Enron should have served as a warning call.

I have about $1 Million Dollars of buying power in my Stock Market Simulation game for one of my college classes, should I use all of it and short/purchase Put options on LEH, C, WM, and JPM?
 
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STT757
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:23 am



Quoting National757 (Reply 4):
Bear Stearns owns their HQ in New York outright. They must have had some significant losses because the JPMorganChase buyout doesn't even reflect the full value of their HQ, let alone the rest of their assets.

Their building is worth $1.2 Billion, so yeah they must have been pretty deep into the red.
Eastern Air lines flt # 701, EWR-MCO Boeing 757
 
PPVRA
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:36 am



Quote:
Fed acts Sunday to prevent global bank run Monday

WASHINGTON (MarketWatch) -- Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before.

. . .

[list of firms:]
BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC.

http://www.marketwatch.com/news/stor...77%2D55F05D859B76%7D&dist=hplatest
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
comorin
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:44 am



Quoting Andrej (Reply 8):
Quoting Comorin (Reply 2):
Who's next, AIG

Anything to back this up? Maybe we should short-sell! scratchchin

Sorry Andrej, nothing substantial (yet!)....I'm surprised that the CDS market hasn't clobbered protection sellers so far.

BTW Bear's employees lost about $300,000 per employee on average. A wipe-out for those in the back office.

I wonder if yesterday's crane collapse on the East Side was a harbinger of crashing real estate values in NYC!
 
ltbewr
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:56 am

Let us hope we are not seeing a partial replay of 1929. Over the last 15 years, yes back to the Clinton era, the Congress and Senate has done the bidding of the rich and powerful and did major deregulation of the financial services and many other industries. Now it is coming back to haunt all of us.
I hope JPMC fires the top 5% of BS tomorrow, sues them for the excess pay they made in the bad deals, and protects the jobs of the 95% of real workers there. JPMC is mostly buying BS for certain trading businesses they have long wanted and didn't have and that are still going to be profitable. It is also good that BS is going to an American based and largely owned company rather than a foreign one.
Bear Stearns has long been the highest risk and most controversial of the investment banks based in the USA. I guess their luck finally ran out.
 
Pyrex
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:16 am

Shoking, really, who would have guessed this scenario even a year ago? And again, it just goes to show you the effects a panicked crowd can have - one run on the bank and you're pretty much screwed. As an economics professor of mine says, a run on the bank is like a buffet line, no-one wants to be the last guy to get there.

I hope this finally teaches Congress the lesson that having the SEC regulate brokerage companies instead of the Fed is just bogus. I am sorry, but if you are operating at the levels of leverage these companies (and even some hedge funds) are you are a bank, no matter what the name on the front door says.

Once again JP Morgan comes to the rescue of the US corpoate world - they did it in1907, then again in 1929 and probably a few other times we have never heard about. At least no-one can accuse them of not being consistent.

Quoting Andrej (Reply 8):
But maybe I am little selfish, when I start to look for jobs, the whole financial industry must go through crisis!

Same here. Luckily I already got my offer for a summer internship, doing investment banking for FIG (financial institutions group) clients. One thing is for sure, given my industry group it is either going to be a very busy or a very slow summer.

Quoting Andrej (Reply 8):
The Fed should increase the rates, punish those that made bad investments and help to decrease the impact of this recession on public.

How much more do you want to punish the banks? They have already taken huge losses, wiped out all the shareholder value they created in the last few years and then some more... the last thing the US needs at this moment is to end up with a banking system like the Japanese one in the 1990's (and to this day, still).

Quoting Comorin (Reply 12):
I'm surprised that the CDS market hasn't clobbered protection sellers so far.

You mean more than the 90+% hit the bond insurers have already taken?
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Dougloid
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:21 am

Kind of nice that the Fed bailed them out.

One wonders what Marty, the guy down the block with the hardware store that's fallen on hard times since Home Despot set up out by the interstate can expect from the Fed.

They'll stand behind him and all the other schmucks all the way. They will FEEL it.
If you believe in coincidence, you haven't looked close enough-Joe Leaphorn
 
Pope
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:26 am



Quoting Comorin (Reply 2):
This is happening at $2/share! At a market cap of just $236M - just unbelievable.

Plus a couple billion of assumed debt and contingent obligations.
Hypocrisy. It's the new black for liberals.
 
comorin
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:28 am



Quoting LTBEWR (Reply 13):
JPMC is mostly buying BS for certain trading businesses they have long wanted and didn't have and that are still going to be profitable

And their much-vaunted Prime Brokerage business. But I wonder if JPMC can pull it out of a tailspin - people still remember REFCO and getting your securities out when your PB goes south.

Quoting LTBEWR (Reply 13):
t is also good that BS is going to an American based and largely owned company rather than a foreign one.

I've never really understood this well. BS is owned by its global shareholders, who could be domiciled anywhere on any given day. It's American only to the extent that it pays local taxes. It's operations at Canary Wharf are just as impressive, and it looks just like a UK company out there!



Quoting LTBEWR (Reply 13):
Let us hope we are not seeing a partial replay of 1929

I really hope so! but nobody knows. At least Bernanke knows more about '29 than anyone else. Once doomsday scenarios with finite possibilities get bandied about, it starts getting scary! The good news is that holders of Euro- , Petro- and Sino- dollars certainly don't want this to happen, and are in a position to assist.
 
Pyrex
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:37 am



Quoting Pope (Reply 16):
Plus a couple billion of assumed debt and contingent obligations.

More like several tens of billions in liabilities, if not more.
Read this very carefully, I shall write this only once!
 
andessmf
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:48 am



Quoting Pyrex (Reply 14):
Shoking, really, who would have guessed this scenario even a year ago?

Some of us around the world known as 'bubbleheads'.

Quoting Pyrex (Reply 14):
Quoting Andrej (Reply 8):
The Fed should increase the rates, punish those that made bad investments and help to decrease the impact of this recession on public.

How much more do you want to punish the banks?

The banks themselves were among many who played dumb and just simply f***ed up. No other ways of saying it. And now with another interest rate decrease, expect other commodities (like oil) to shoot way up high in price. How does that help the 'little' guys? You are right, it doesn't.

The amount of stupdity and outright greed that has affected the world thru now TWO bubble (dot.com and housing) are now having their full effects shown. The world would be better of in the long term than having the government react to this crisis. (During the depression, the gov also instuted policies that did not help the situation, and in some ways worsened it as well.)

Right now, the action of the Fed is essentially punishing those who behaved, and helping those who f***ed up. Let the chips fall where they may. Painful in the short term, better for the world in the long term.
 
NAV20
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 4:05 am

Quoting LTBEWR (Reply 13):
Let us hope we are not seeing a partial replay of 1929.

Share the hope, but not at all sure about your use of the word 'partial.'   So far it's just about an exact rerun - Joe Public falling in love with share speculation on the assumption that, because stocks in general had risen for the last five years, they would go ON rising for the next ten. Being 'old-fashioned' in most respects, I've been surprised on here that whenever investments are under discussion, most people have made it clear that they are (or were) investing not in the hope of high returns (i.e. good secure dividends), but in the hope and expectation of double-digit capital gains, year after year.......

Same thing happened in the leadup to 1929. And, then as now, the initial reaction of governments was to try to prop up the banks. Four horrible years ensued, after which it took Roosevelt to realise that what was needed was not to try to rescue the banks but to go over the banks' heads and guarantee people's savings:-

"Roosevelt's first act as president was to deal with the country's banking crisis. Since the beginning of the depression, a fifth of all banks had been forced to close. As a consequence, around 15% of people's life-savings had been lost. By the beginning of 1933 the American people were starting to lose faith in their banking system and a significant proportion were withdrawing their money and keeping it at home. The day after taking office as president, Roosevelt ordered all banks to close. He then asked Congress to pass legislation which would guarantee that savers would not lose their money if there was another financial crisis."

http://www.spartacus.schoolnet.co.uk/USARnewdeal.htm

Quoting Dougloid (Reply 15):
One wonders what Marty, the guy down the block with the hardware store that's fallen on hard times since Home Despot set up out by the interstate can expect from the Fed.

Agree entirely with that sentiment - in the end the health of any country's economy depends on the mindsets and circumstances of the 'Martys' of this world. Not the Home Depots, and certainly not the Bear Stearns.

[Edited 2008-03-16 21:13:24]
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
Pyrex
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 4:14 am



Quoting NAV20 (Reply 20):
Same thing happened in the leadup to 1929. And, then as now, the initial reaction of governments was to try to prop up the banks. Four horrible years ensued, after which it took Roosevelt to realise that what was needed was not to try to rescue the banks but to go over the banks' heads and guarantee people's savings:-

The Fed is not propping up Bear Stearns - BS shareholders were essentially wiped out. The Fed is acting to preserve health and liquidity in the financial system, which ends up guaranteeing people's savings.

Quoting NAV20 (Reply 20):
Agree entirely with that sentiment - in the end the health of any country's economy depends on the mindsets and circumstances of the 'Martys' of this world. Not the Home Depots, or the Bear Stearns.

But unfortunately the health of the economy is much more affected by whether Bear Stearns goes down or not. I don't get this backlash, though - isn't America supposed to be the land of free enterprise? Is the government supposed to stop HD from setting up a store so that Marty can sell his customers a lower variety of goods at a higher price?
Read this very carefully, I shall write this only once!
 
PPVRA
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 4:30 am

Quoting Dougloid (Reply 15):
One wonders what Marty, the guy down the block with the hardware store that's fallen on hard times since Home Despot set up out by the interstate can expect from the Fed.



Quoting Pyrex (Reply 21):
The Fed is not propping up Bear Stearns - BS shareholders were essentially wiped out. The Fed is acting to preserve health and liquidity in the financial system, which ends up guaranteeing people's savings.

"J. P. Morgan Chase & Co. said Sunday evening that it is buying battered broker Bear Stearns Cos. for $236 million in a Federal Reserve-backed bailout unprecedented in scope and execution."

http://www.marketwatch.com/News/Stor...85%2D4123%2DBB53%2DCB3E07A3CFCE%7D

Quoting Pyrex (Reply 21):
I don't get this backlash, though - isn't America supposed to be the land of free enterprise?

Free enterprise would have saved Bear Sterns if they were worth it. Seems like this wouldn't have happened were it not for intervention from the Fed.

[Edited 2008-03-16 21:54:03]
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
Pyrex
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 4:56 am



Quoting PPVRA (Reply 22):
"J. P. Morgan Chase & Co. said Sunday evening that it is buying battered broker Bear Stearns Cos. for $236 million in a Federal Reserve-backed bailout unprecedented in scope and execution."

That does not contradict my statement - $2 a share for a bank that has a book value of $85 a share and was trading at $170 a year ago is being essentially wiped out.

Quoting PPVRA (Reply 22):
Free enterprise would have saved Bear Sterns if they were worth it. Seems like this wouldn't have happened were it not for intervention from the Fed.

Again, the Fed is not saving Bear Stearns, BS is dead from now on. The Fed is intervening to salvage what is left of the financial system. As much as it costs to everyone and it perpetuates the feeling of moral hazard, the last thing America needs at this moment is for its banks to turn into the Japanese banks in the 1990s. A viable banking system is a fundamental piece in any modern economy and the reason banks are so highly regulated is because the collapse of one unvariably has ripple effects throughout the whole economy.
Read this very carefully, I shall write this only once!
 
andessmf
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 5:16 am



Quoting Pyrex (Reply 23):
the last thing America needs at this moment is for its banks to turn into the Japanese banks in the 1990s.

IIRC, the problem with the Japanese banks was that they held on to bad and underperforming loans for way to long, instead of clearing them out of the system. Essentially what the Fed is doing is the SAME that occurred with Japanese banks. BS should have failed.
 
Pyrex
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 5:30 am



Quoting AndesSMF (Reply 24):
IIRC, the problem with the Japanese banks was that they held on to bad and underperforming loans for way to long, instead of clearing them out of the system. Essentially what the Fed is doing is the SAME that occurred with Japanese banks. BS should have failed.

Well, they held on to them because writing them off would essentially wipe out the book value of the banks, forcing them into insolvency - they really didn't have much of a choice. Bear Stearn's problem was essentially different, it is not the fact that they have much to write off but the level of confidence in the system is so low it caused a run on the bank - no matter how well capitalized your bank is, if your customers all of a sudden decide they want their money back you're dead meat. The FDIC is there to prevent just that.
Read this very carefully, I shall write this only once!
 
N174UA
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 5:47 am

Quoting National757 (Reply 9):
I have about $1 Million Dollars of buying power in my Stock Market Simulation game for one of my college classes, should I use all of it and short/purchase Put options on LEH, C, WM, and JPM?

Considering it's "fake" money, go for it.   If you're interested in foreign currency trading, Oanda (http://www.oanda.com) has an "FX Game" that you can start, $100,000 of free money. I just finished an international finance class where we used it, and it was helpful to understand how the currency markets work.

In about two weeks, I'll start a class called "Financial Instiutions & Markets". Couldn't have timed that better....should be interesting to say the least.

Quoting LTBEWR (Reply 13):
Let us hope we are not seeing a partial replay of 1929.

I hope not as well, though I think we're closer to the S&L crisis and the problems Japan has been dealing (overvaluation of assets and the loans associated with those assets) with since the early '90s. They've had next to no economic growth ever since, and their interest rate is still about 1%) I do believe we're in a recession, and more specfically, stagflation. This one will last longer and be deeper than the the last two. Our economy has been built on credit, so imagine a big house of cards. Several floors have collapsed, though I think there's several more to go. Once things level out and calm down, the Fed will have to raise rates very quickly and dramatically, to offset rising inflation. We've been through this before, in the late '70s/early '80's, and we're there again now.

[Edited 2008-03-16 22:53:59]
 
Pyrex
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 6:01 am



Quoting N174UA (Reply 26):
In about two weeks, I'll start a class called "Financial Instiutions & Markets". Couldn't have timed that better....should be interesting to say the least.

Ha! Beat you to it! Tomorrow I have a seminar entitled "Crisis and Leadership: The Subprime Mortgage Market Gets a Hard Look".  Smile How's that for timing?
Read this very carefully, I shall write this only once!
 
andessmf
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 6:51 am



Quoting Pyrex (Reply 25):
Well, they held on to them because writing them off would essentially wipe out the book value of the banks, forcing them into insolvency - they really didn't have much of a choice

And what were the results? Anything to brag about? Japan is STILL dealing with the problems, 20 years after the fact. I would much rather have short term pain than go thru what is called Japan's 'Lost Decade'.
 
UH60FtRucker
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 8:12 am



Quoting Falcon84 (Thread starter):
he bad news is i'll wager at least a few big banks or lenders won't get bailed out, and that the shockwaves will be pretty significant. This is a tip of the iceberg, with regards to the banks and lenders, I'm afraid.

You do realize these types of market corrections are normal, from time to time, right?

In fact, there have been a number of financial recessions caused by banking issues, throughout the history of the United States. Look at the financial crisis of 1819, it is similar to today's current correction.

The notion that everything must always remain on the "up and up" is simply ridiculous.  Yeah sure

-UH60
Your men have to follow your orders. They don't have to go to your funeral.
 
Dougloid
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 2:03 pm



Quoting UH60FtRucker (Reply 29):
The notion that everything must always remain on the "up and up" is simply ridiculous.

I wouldn't say it's ridiculous, because it happens on a regular basis. I would say it's counter to what we know about bubbles and speculation, starting back in the days of the great tulip bubble and the South Seas Company bubble. Irrational exuberance, if you will.

I think that's what is qualitatively different in this bubble is that the middle class bought into the notion you speak of and backed it with their 401Ks and anticipated home equity values-which they happily went out and borrowed against to the hilt.

It is a correction, it's been a long time coming, and a lot of speculators are going to get wiped out. Flip This House nation, as we see, was not sustainable in the long term.
If you believe in coincidence, you haven't looked close enough-Joe Leaphorn
 
AGM100
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:13 pm



Quoting UH60FtRucker (Reply 29):
You do realize these types of market corrections are normal, from time to time, right?

Yep.... may want to be looking at picking up shares while they are this low. This has happened before and it will happen again.

This is a good example of why you should keep investment cash available (savings) Now is the best time to buy another house , or pick up shares of blue chips that are off the chart low.

I guess you have to ask yourself .. will is come back ? If you do not think it will then you may as well sell everything ..buy guns , gold and Crations.

Convenient though that it is happening just when the Democrats need it most ??? Tin hat on ... but really someone had to start the ball rolling on this sub-prime ..bad news train.
You dig the hole .. I fill the hole . 100% employment !
 
andrej
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RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 3:53 pm



Quoting Pyrex (Reply 14):

To answers how much more do I want the banks to be punished? Well to be honest all investors (not only investment banks) that entered into risky positions, deals or whatever should face the consequences. Bank (or any other investment firms) should have done their homework, determine what kind of levels of risk they can afford, do the VaR analysis, and other more complicated evaluation models. They should do their research and determine what they can afford and what is beyond their risk levels. Why then banks hire all the PhDs and other stat, physics and math gurus?

As in everything, there was one leader that entered into new markets, or popularized certain investment techniques. Rest followed and they got burned. There should be "big bath" effect, where everyone comes clean on the state of thier investments and finances. Weak ones (those that risk more than they could afford) should fail, and/or be absorbed by those that are more successful. Only thing that sucks about it is that many people will end up without jobs. And those at 'helm' will get their golden parachutes and move on to 'lead' another firm.

Quoting Dougloid (Reply 30):
I wouldn't say it's ridiculous, because it happens on a regular basis. I would say it's counter to what we know about bubbles and speculation, starting back in the days of the great tulip bubble and the South Seas Company bubble. Irrational exuberance, if you will

It seems as people tend to have short term memory on the bad times. There are many investors (in US at least) that have any real experience with recession or economic slow downs (on bigger scale then it was in early this decade).

I think that today that few stock indexes are in correction. (According to the technical analysis, stock index must fall 20% from its highest point to classify it as correction) But I fear that it is more then just correction, and rather recession.

BTW, I heard that it is not crazy to see gold to be traded at $1500 levels before this is over. So go for the commodities, but for many small investors its to late.  Smile

Oh and this is my favorite clip on BS fiasco:




Jim Cramer, you silly boy!  duck 
 
PPVRA
Posts: 8600
Joined: Fri Nov 12, 2004 7:48 am

RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 7:24 pm



Quoting Pyrex (Reply 23):

They are propping up the financial markets. If you want viable banks you let the bad apples die off and you don't bail them out when they make bad decisions.
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
andessmf
Posts: 5689
Joined: Wed Jan 25, 2006 8:53 am

RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 7:55 pm



Quoting Andrej (Reply 32):
It seems as people tend to have short term memory on the bad times

The just recently passed do.com bubble provides a great example of what happens when you allow irrational behavior to exist. That another bubble came up right after the end of the internet bubble is nothing short of amazing. That apparently few learned its lesson is just plain stupidity.

Quoting PPVRA (Reply 33):
If you want viable banks you let the bad apples die off and you don't bail them out when they make bad decisions.

You reward bad behavior by bailing out the banks and the people that made bad financial decisions. If you reward bad behavior, YOU GET BAD BEHAVIOR.

The banks were lending money to purchase way overinflated assets. These assets had prices that were nowhere near where their fundamentals called for the prices to be. The biggest example was with housing. Plenty, and I mean plenty, of people bought way overpriced assets (housing) in the incorrect assumptions that their prices 'never go down'. Banks assumed the same. My old house, valued at about $115K in 2000, shot up to $350K in 2005. Why? Irrational behavior when people were expecting that housing prices 'never go down'.

The same house now sells for about $230K. And at that price it is STILL unaffordable to its target audience. And there is NOTHING that can be done to make that house affordable, unless you get the price down. But someone has GOT to take the financial hit that comes with prices returning back to their historical levels. Propping up the banks does nothing when the value of their holding in the house is still way to high.
 
LON-CHI
Posts: 204
Joined: Sun Apr 08, 2001 5:31 pm

RE: JP Morgan Buying Bear Stearns

Mon Mar 17, 2008 8:00 pm



Quoting AGM100 (Reply 31):
Now is the best time to buy another house

So the real estate market has bottomed out and we can expect prices to start rising soon?
 
Falcon84
Topic Author
Posts: 13775
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RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 1:34 am

A few points.

There is no way all this, or even half of this is Bush's fault. It's been brewing for decades, this climate of letting business do whatever the hell it wants, answering basically to no one-no to even their stockholderss at times. But I do think the climate of greed and secretiveness that has been the hallmark of this particular administration has been a reason why we're in this mess.

Secondly, isn't it amazing that the government can arrange a bailout of a lender that helped fuck over homeowners in the subprime fiasco, in less than a day, but it takes them 3 months to get us our rebate checks?

And, lastly, isn't it deliciously ironic that this President can, with a straight face, back the bailout of a lender who, again, helped screw over homeowners caught in the subprime mess, but he publically says he's against the same balls-to-the-wall approach to keep people from being tossed out on the street due to foreclosure?

Again, Bush isn't to blame for this entire mess, but his hypocrisy and the fact he only cares for business and not for people, again, is another black mark on his black-marked-filled presidency.
Work Right, Fly Hard
 
Dougloid
Posts: 7248
Joined: Tue Jul 05, 2005 2:44 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 1:43 am



Quoting AndesSMF (Reply 34):
The same house now sells for about $230K. And at that price it is STILL unaffordable to its target audience. And there is NOTHING that can be done to make that house affordable, unless you get the price down. But someone has GOT to take the financial hit that comes with prices returning back to their historical levels. Propping up the banks does nothing when the value of their holding in the house is still way to high.

There are a lot of people around here hanging on all winter, hoping that something will come along to save their speculating, Flip This House raggedy asses, maxing out the credit cards and not paying their bills, and milking down their 401Ks when they should have bailed out last year.

I expect more major downward pressure. We're in the market right now to buy and most of the people around here are pegging their asking at the assessed value-I guess they haven't heard.
If you believe in coincidence, you haven't looked close enough-Joe Leaphorn
 
comorin
Posts: 3858
Joined: Sun May 29, 2005 5:52 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 2:13 am



Quoting Pyrex (Reply 14):
uoting Comorin (Reply 12):
I'm surprised that the CDS market hasn't clobbered protection sellers so far.

You mean more than the 90+% hit the bond insurers have already taken?

Bond Insurers provide credit enhancements for asset securitization, not for CDSs. CDS legs are entered into via counterparties - one sells protection and the other buys protection, much like a fixed and floating leg in a IR swap, and the basis point spread 'floats' depending on the risk of the reference entity.

While originally CDSs were just used as a way to offset portfolio risk, they are now also used by portfolio managers to have a synthetic long or short without holding the underlying credit. Their popularity led to a multi-trillion dollar market. When and if the defaults in non-housing debt occurs, Outstanding CDSs will have a multiplicative effect. Its like if you have ten people buying insurance on the same house, and a tornado hits, ten payments will need to be made.
 
andessmf
Posts: 5689
Joined: Wed Jan 25, 2006 8:53 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 2:22 am



Quoting Falcon84 (Reply 36):
helped screw over homeowners caught in the subprime mess

First of all Falcon, a lot of these homeowners are to blame as well. It is not hard to find stories about their implied greed. Do you feel sorry for a homeowner who 'liberated' $300K worth of equity, only to find out that they couldn't make the payment after all? Or those who bought multiple homes wishing to become real estate millionaires? Or those who willingly lied in their mortgage paperwork? There are plenty of guilty parties around, and plenty of those are the homeowners you cry about right now. Of course there are true cases of hardship, but they are not the majority. Greed caught many in this bubble with their pants down.

At the same time, are you going to cry when the 'rich' get their comeuppance for their greed as well? Should GWB bail them out, too? I mean, the 'rich' couple whose house we may buy are already $100K upside down. RIght now in the cycle, those with less financial means were the first to get hit. But it is already a fact that plenty of 'rich' people will also take a heavy hit.

I have already seen this happen.

Are you going to feel sorry for them, too?
 
Falcon84
Topic Author
Posts: 13775
Joined: Fri Sep 10, 2004 11:52 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 2:49 am



Quoting AndesSMF (Reply 39):
Quoting Falcon84 (Reply 36):
helped screw over homeowners caught in the subprime mess

First of all Falcon, a lot of these homeowners are to blame as well.

Not buying that one, Andes. If the banks and lenders don't put out what they knew, far more than those who were buying, very risky products, no one buys them. You're putting the chicken before the egg. The egg was the subprime loans, and you know as well as I do the banks KNEW folks would come running, while they knew how risky they were.

The product came first, not those wantaing to buy it.

Quoting AndesSMF (Reply 39):
At the same time, are you going to cry when the 'rich' get their comeuppance for their greed as well? Should GWB bail them out, too?

 rotfl 

The president already did that with that humongous takx break they got! You forget about that?

Again, you're blaming the victim in this whole fiasco, not the perp.
Work Right, Fly Hard
 
andessmf
Posts: 5689
Joined: Wed Jan 25, 2006 8:53 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 3:26 am



Quoting Falcon84 (Reply 40):
Again, you're blaming the victim in this whole fiasco, not the perp.

No, everybody is and was to blame. Being located in bubble central here, I know way to many people who gambled and lost. Everybody was greedy. The banks, the brokers, the agents, the sellers, and last but not least...your local government. Real Estate is the one transaction when everybody but the buyer is interested in getting the buyer to pay the most money. Greed and fraud permeated the whole transaction. Leaving the buyers out of the blame for what happened neglects a good chunk of those responsible. Have you not watched all those flipping shows on TV?

Quoting Falcon84 (Reply 40):
The president already did that with that humongous takx break they got! You forget about that?

When these Hollywood celebrities and the billionaire democrats decide to give a little bit more of their money to Uncle Sam, then we can talk.
 
L-188
Posts: 29881
Joined: Wed Jul 07, 1999 11:27 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 3:49 am



Quoting Falcon84 (Reply 36):
There is no way all this, or even half of this is Bush's fault. It's been brewing for decades, this climate of letting business do whatever the hell it wants, answering basically to no one-no to even their stockholderss at times.

Thank you for conceding that. Part of the problem is that nobody has wanted a "Correction" for the past 20 years, so now we need a more severe one to bring calm to the universe.

Quoting AndesSMF (Reply 39):
Do you feel sorry for a homeowner who 'liberated' $300K worth of equity, only to find out that they couldn't make the payment after all? Or those who bought multiple homes wishing to become real estate millionaires? Or those who willingly lied in their mortgage paperwork?

They are part of the problem also.

Quoting AndesSMF (Reply 41):
Have you not watched all those flipping shows on TV?

Some of what happens on those shows borders on fraud.
OBAMA-WORST PRESIDENT EVER....Even SKOORB would be better.
 
NAV20
Posts: 8453
Joined: Thu Nov 27, 2003 3:25 pm

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 4:02 am



Quoting AndesSMF (Reply 41):
No, everybody is and was to blame.

Agree in a general sense, AndesSMF; all of us together contribute to 'making the market,' to a greater or lesser degree.

This looks like the third major 'economic blizzard' I've encountered; the others being the 1973 oil crisis and the '87 crash. I was in business and in the thick of the earlier two, thankfully retired now so I don't have to worry too much about this one (apart from having to wonder how long my pension and investment income will remain sufficient to keep me eating  Smile).

Just a slightly odd-ball contribution, though; the guy I would blame the most for this latest mess is Milton Friedman. He was the guy who advised governments worldwide that their respective economies would run themselves; and that they didn't have to bother tinkering about with them, and taking responsibility for anything that went wrong.

Instead, he 'sold' them the idea that all they needed to do was hand responsibility over to their central banks, who would 'regulate' the whole economy just by meeting once a month, and very occasionally raising or lowering interest rates by a quarter of one per cent or so........

Friedmanism always struck me as being about as sensible as driving a car by using the accelerator only. And it now looks as if that view was right. The present situation - with the Fed in particular approaching a situation where it'll be lowering interest rates daily, and maybe twice on Sundays, in the vain hope that it will 'revive' the economy - just about proves the point.

Let's hope that one outcome of this latest mess is that governments have to come out of the closet and start running the economies of their respective countries themselves again - instead of leaving it to the bankers, which really IS a case of hiring a poacher as your gamekeeper.....
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
L-188
Posts: 29881
Joined: Wed Jul 07, 1999 11:27 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 4:08 am



Quoting Andrej (Reply 8):
The Fed should increase the rates, punish those that made bad investments and help to decrease the impact of this recession on public.

Agree completely but for different reasons. You want to increase the value of the dollar you have to shrink the money supply. That is what Volker did in the late-70's early 1980's. The problem is that you will cause economic hardships that are politically unpopular.

Quoting Comorin (Reply 12):
BTW Bear's employees lost about $300,000 per employee on average. A wipe-out for those in the back office.

Could be worse, Joseph Lewis is reportedly down a billion dollars. He had a 9.6% share of BS.

Quoting LTBEWR (Reply 13):
I hope JPMC fires the top 5% of BS tomorrow, sues them for the excess pay they made in the bad deals, and protects the jobs of the 95% of real workers there.

Not going to happen, early bets are that half of the BS employees are going to get sacked.
OBAMA-WORST PRESIDENT EVER....Even SKOORB would be better.
 
L-188
Posts: 29881
Joined: Wed Jul 07, 1999 11:27 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 4:15 am



Quoting NAV20 (Reply 43):
Just a slightly odd-ball contribution, though; the guy I would blame the most for this latest mess is Milton Friedman. He was the guy who advised governments worldwide that their respective economies would run themselves; and that they didn't have to bother tinkering about with them, and taking responsibility for anything that went wrong.

The problem isn't Milt.

The problem is that over the years that the governments would allow the economies to grow with the market but wouldn't let them shrink with it.

In many ways this is sort of like blowing air into a balloon but never letting it out before the next breath....Eventually it will fail massively
OBAMA-WORST PRESIDENT EVER....Even SKOORB would be better.
 
NAV20
Posts: 8453
Joined: Thu Nov 27, 2003 3:25 pm

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 4:30 am



Quoting L-188 (Reply 45):
The problem is that over the years that the governments would allow the economies to grow with the market but wouldn't let them shrink with it.

Agree entirely, L-188 - but the underlying reason for that is 'Friedmanism,' in my view. To slow a speeding car down in time you usually need to do more than just ease the pressure on the accelerator....
"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
 
PPVRA
Posts: 8600
Joined: Fri Nov 12, 2004 7:48 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 5:11 am

Quoting Falcon84 (Reply 36):
There is no way all this, or even half of this is Bush's fault. It's been brewing for decades, this climate of letting business do whatever the hell it wants, answering basically to no one-no to even their stockholderss at times. But I do think the climate of greed and secretiveness that has been the hallmark of this particular administration has been a reason why we're in this mess.



Quoting Falcon84 (Reply 40):
The egg was the subprime loans, and you know as well as I do the banks KNEW folks would come running, while they knew how risky they were.

The "egg" was avoiding a recession after GWB got elected in 2000 by dropping interest rates to ridiculously low levels and causing this whole new bubble now. The Fed is the main culprit on this one, it's the entity that made the environment possible for this nasty "egg" later turn into a chicken.

Here's an excellent (short) article on Forbes looking at a bit of history:

Quote:
Memo To The Fed: Stop Those Rate Cuts

Robert P. Murphy and Lee Hoskins 03.17.08, 6:00 AM ET

The markets rallied last Tuesday in response to the Fed's growing assistance to holders of mortgage-backed securities. Yet many onlookers are convinced that an aggressive cut in the federal funds rate at the upcoming March 18 meeting is still necessary to avoid a painful recession. In our view, further loosening at this time would be a mistake, and would also send an alarming signal regarding future monetary policy.

The Fed needs to quit chasing declining GDP growth and instead focus on curbing inflation and anchoring inflation expectations. Recent allusions to the stagflation of the 1970s are appropriate. Gold has been hitting all-time nominal highs, and oil prices have shattered the inflation-adjusted record set in 1980 during the Iranian hostage crisis. The dollar, meanwhile, is trading at all-time lows against the euro.

Continues. .
http://www.forbes.com/home/opinions/...oped-cx_rmlh_0317fedinflation.html

[Edited 2008-03-17 22:11:58]
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
andessmf
Posts: 5689
Joined: Wed Jan 25, 2006 8:53 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 5:36 am



Quoting PPVRA (Reply 47):
The "egg" was avoiding a recession after GWB got elected in 2000 by dropping interest rates to ridiculously low levels and causing this whole new bubble now.

There was pain to be had after the dot.com bubble bust in March 2000, and the 9/11 attacks. In their attempts to avoid the required pain, the Fed cut interest rates way too low and incited a much bigger bubble. If the markets would have been allowed to self-correct in the early 2000s, we would not be talking about this bubble now.

Again proving that sometimes a little short term pain is better than allowing this unwinding to cause uncertainty on the markets for a long time. And right now the consensus is that this cycle will be over in about 2011.
 
PPVRA
Posts: 8600
Joined: Fri Nov 12, 2004 7:48 am

RE: JP Morgan Buying Bear Stearns

Tue Mar 18, 2008 5:45 am



Quoting NAV20 (Reply 46):
Agree entirely, L-188 - but the underlying reason for that is 'Friedmanism,' in my view. To slow a speeding car down in time you usually need to do more than just ease the pressure on the accelerator....

The important thing is to avoid speeding too much to begin with. And that's another blow to central-banking as it is, which makes these economic cycles so much more visible/painful that we call bubbles. Economic cycle is one thing, bubbles that wipe out investors en mass is another. .
"If goods do not cross borders, soldiers will" - Frederic Bastiat

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