Quoted: Quoted: Quoted: Quoted: Quoted: Can someone explain to me what the hell is going on? The economy is getting ready to implode because mortgage brokers were lending hundreds of thousands of dollars a pop to known deadbeats without making them verify their income. Now the deadbeats can't pay and the domino effect is under way. The mortgage holders can't get their money from the deadbeats and the major banks that loaned money to the mortgage holders can't get their money either. The mortgages themselves have become almost worthless because housing prices are falling through the floor. Basically, money is disappearing into thin air and no one can pay back what they owe everyone else. That's my understanding of it. Actually, Bear Stearns has been a bunch of shitheads for many years now.  They have had iffy business practices for at least 8 years.  I have first hand experience with this.  They are assclowns.  Let them go down the shitter. They flew me up to New York a few years ago for an interview for a regional sales  position (no kidding, about eight years ago, come to think of it). I got close. but no cigar. When the headhunter who sent me there, called me to tell me the other guy got the offer, I was ready for him. I told him in no uncertain terms "Actually, Bear Stearns has been a bunch of shitheads for many years now.  They're beginning some really iffy business practices that ought to last at least 8 years. They are assclowns.  Let them go down the shitter." At least I think I told him something like that. If you want to hear a really interesting story, I have one for you.  Myself and 12 others made Bear Stearns our bitch in court.  Fraudulant Fuckers.

It's Friday Night on ARFCOM, I already have a beer, so let's go....


And on a night when Bear Stearns is in the shitter, I own page five, Wall Street bitches!

Quoted: Quoted: Quoted: Quoted: Quoted: Quoted: Can someone explain to me what the hell is going on? The economy is getting ready to implode because mortgage brokers were lending hundreds of thousands of dollars a pop to known deadbeats without making them verify their income. Now the deadbeats can't pay and the domino effect is under way. The mortgage holders can't get their money from the deadbeats and the major banks that loaned money to the mortgage holders can't get their money either. The mortgages themselves have become almost worthless because housing prices are falling through the floor. Basically, money is disappearing into thin air and no one can pay back what they owe everyone else. That's my understanding of it. Actually, Bear Stearns has been a bunch of shitheads for many years now.  They have had iffy business practices for at least 8 years.  I have first hand experience with this.  They are assclowns.  Let them go down the shitter. They flew me up to New York a few years ago for an interview for a regional sales  position (no kidding, about eight years ago, come to think of it). I got close. but no cigar. When the headhunter who sent me there, called me to tell me the other guy got the offer, I was ready for him. I told him in no uncertain terms "Actually, Bear Stearns has been a bunch of shitheads for many years now.  They're beginning some really iffy business practices that ought to last at least 8 years. They are assclowns.  Let them go down the shitter." At least I think I told him something like that. If you want to hear a really interesting story, I have one for you.  Myself and 12 others made Bear Stearns our bitch in court.  Fraudulant Fuckers. It's Friday Night on ARFCOM, I already have a beer, so let's go.... And on a night when Bear Stearns is in the shitter, I own page five, Wall Street bitches!

http://www.stockfraudnewswire.com/articles/stearns-guilty-fraud.html

Quoted: Quoted: Quoted: If my bank is FDIC insured, why would it matter if my bank goes under? FDIC doesn't insure every depositor in the USA.  You know what a liability that would be?  They are actually able to insure a relatively small number of depositors, in order to instill confidence and security.  Banks are now more nation-wide and diversified so there's not as big a chance of a lot of them everywhere going under. But FDIC can only cover a small amount of depositors if they ever made a claim.  If it could for as many as 5% nationally, I would be amazed. Thanks for helping to cause mass hystaria.. My guess is after a weekend of this on arfcom, a total of 2000 checking acounts with a grand total of $200k will be closed. I still have some gold to sell if any of you guys are intrested.

If you think that we're all a bunch of misinformed, broke ass morons then why even come to the site?

Quoted: Quoted: Quoted: Quoted: Can someone explain to me what the hell is going on? The economy is getting ready to implode because mortgage brokers were lending hundreds of thousands of dollars a pop to known deadbeats without making them verify their income. Now the deadbeats can't pay and the domino effect is under way. The mortgage holders can't get their money from the deadbeats and the major banks that loaned money to the mortgage holders can't get their money either. The mortgages themselves have become almost worthless because housing prices are falling through the floor. Basically, money is disappearing into thin air and no one can pay back what they owe everyone else. To top it all off the feds are trying to encourage more borrowing by printing more money and lowering interest rates. That money is becoming worthless too because foreign investors are bailing on the dollar as if it were the Titanic, and domestic investors don't know whether to shit or go blind. That's my understanding of it. Try not to forget that the DEMOCRATS IN CONGRESS government got us into this by getting the banks to lend more to low-income people. Fixed.

The problem isn't the 'lending to low-income people'

It's the interest rate at which it was done...

The amount of such lending done at once...

And the impact that the above situation caused on the value of the collateral for said loans...

Remember: In a 'normal' market, if you walk away the bank gets your house, which they can sell & make their losses back...

Quoted: Quoted: Quoted: Quoted: You know it's hit the fan when the Federal Reserve pumps hundreds of billions of our dollars into the markets and financial institutions to prop them up artificially.  We already have a national debt that should be the largest in history.  This just digs the hole deeper.  Jeez,years ago it was my understanding that the U.S. was already in so much debt that we mathmatically could never pay it off(read Bankrupt).  So now I guess we are somewhere beyond bankrupt. Just more reasons to keep a strong military.  Letem come get their money !! Bush says it ain't so.  NanyNanyBooBoo.  Deficits Don't Matter. 5sub They won't have to.  They'll just stop loaning it to us and the nation will come to a grinding halt when there is no money to hand out. More like $10,000 for a cup of coffee, $100,000 for a tank of gas. No more Starbucks coffee while using up the minutes on the cell phone in the leased BMW, darn... You just described 99.9% of Washington DC.

Quoted: Quoted: Quoted: Quoted: If my bank is FDIC insured, why would it matter if my bank goes under? FDIC doesn't insure every depositor in the USA.  You know what a liability that would be?  They are actually able to insure a relatively small number of depositors, in order to instill confidence and security.  Banks are now more nation-wide and diversified so there's not as big a chance of a lot of them everywhere going under. But FDIC can only cover a small amount of depositors if they ever made a claim.  If it could for as many as 5% nationally, I would be amazed. Thanks for helping to cause mass hystaria.. My guess is after a weekend of this on arfcom, a total of 2000 checking acounts with a grand total of $200k will be closed. I still have some gold to sell if any of you guys are intrested. Thanks for having a brain raven makes an excellent point regarding the FDIC.  And IMO if you don't have a fair amount of cash on hand you are a fool; trusting a Bank to give you your entire account if you needed it is stupid.  Most banks will require a 2-3 day window to cash you out in good times if your account is large; just think if there were a real emergency.

That is the way my grandparents lost their farm during the great depression.  Bank went under, their cash went with it, people with money bought the bank debt/mortages and called the loans.  Good bye farm, land, home...

Quoted: Quoted: Quoted: Quoted: Quoted: Can someone explain to me what the hell is going on? The economy is getting ready to implode because mortgage brokers were lending hundreds of thousands of dollars a pop to known deadbeats without making them verify their income. Now the deadbeats can't pay and the domino effect is under way. The mortgage holders can't get their money from the deadbeats and the major banks that loaned money to the mortgage holders can't get their money either. The mortgages themselves have become almost worthless because housing prices are falling through the floor. Basically, money is disappearing into thin air and no one can pay back what they owe everyone else. To top it all off the feds are trying to encourage more borrowing by printing more money and lowering interest rates. That money is becoming worthless too because foreign investors are bailing on the dollar as if it were the Titanic, and domestic investors don't know whether to shit or go blind. That's my understanding of it. Try not to forget that the DEMOCRATS IN CONGRESS government got us into this by getting the banks to lend more to low-income people. Fixed. The problem isn't the 'lending to low-income people' It's the interest rate at which it was done... The amount of such lending done at once... And the impact that the above situation caused on the value of the collateral for said loans... Remember: In a 'normal' market, if you walk away the bank gets your house, which they can sell & make their losses back...

Yeah, banks came up with crooked ass loans to put broke people who were known deadbeats into houses they couldn't afford because the bankers had dollar signs in their eyes because of all of the profits they were going to make from charging enormous interest rates. Then the whole thing backfired. Now there are thousands of houses up for foreclosure in every market across the country, buyers are afraid to make a move because they see the whole house of cards falling apart, the banks are hoping to borrow their way out of this mess and the Feds are encouraging them. And when the banks who fucked themselves with greed can't pay back those loans other banks are going to start coming up short.

Quoted:
BEAR STEARNS GOES TANGO UNIFORM!! Contrary to what CEO said earlier in the week!!
DIDN'T THE CEO SAY JUST THIS WEEK THE RUMORS WERE "FALSE" THAT THEY WERE HAVING PROBLEMS? DIDN'T PAULSON SAY "It's contained"?? DIDN'T BIN BERNANKE SAY IT WAS CONTAINED??

Why does anyone believe anything else these smucks say? What a bunch of lying asshats.

--------------------------

Did you even read the article?  It says Bear Sterns is getting bailed out.  How does that equal Tits Up?

Quoted: Quoted: BEAR STEARNS GOES TANGO UNIFORM!! Contrary to what CEO said earlier in the week!! DIDN'T THE CEO SAY JUST THIS WEEK THE RUMORS WERE "FALSE" THAT THEY WERE HAVING PROBLEMS? DIDN'T PAULSON SAY "It's contained"?? DIDN'T BIN BERNANKE SAY IT WAS CONTAINED?? Why does anyone believe anything else these smucks say? What a bunch of lying asshats. -------------------------- Did you even read the article?  It says Bear Sterns is getting bailed out.  How does that equal Tits Up?

They are getting bailed out with a loan they aren't going to be able to repay. That is why the Feds are insulating JPMorgan.

Quoted: Banks only keep a small fraction of cash compared to total deposits.  There is no reason to anymore, or so I am told.

This is true--most banks of all types only keep enough cash on hand to buy out the CEO's stock options, in the event of an "unexpected situation".

~

Quoted: Two questions: 1.  What the hell do you THINK that the CEO of an investment bank should do when they are having financial trouble and the rumors start?  Just come out and say "Yeah folks, we're having trouble - please pull out all your money so that we'll go broke for sure?"      It's his JOB to try to maintain investor confidence.

Are you suggesting a CEO should lie about the status of his financial situation? I hope that's not what you're saying.

Quoted: Quoted: Quoted: Quoted: If you go get cash out of the bank before they begin to fail like the Bear/Stearn to bring home just make sure it is less than $5,000 per transaction as they call anything over that into the feds and they will probably call it drug money and come try and get you to slow down the withdrawals.It is not going to be people jumping out of windows this depression it will be two or three crooked fucks at the top of each company taking what is left.     I am going buying a gun or two and ammo tommorrow and some staple foods and bottled water,all on credit cards,if they are all busted who will they have to come collect the money?  Financial Armageddon.........I like that line just heard on Tv So your response to a credit crisis is to borrow more money? The only think worse that the hysteria in this thread is how misleading the title is. I beg your royal pardon, this week the CEO said it wasn't in trouble, they had money, didn't know where those false rumors came from blah blah blah and now they're tits up (effectively). GR Two questions: 1.  What the hell do you THINK that the CEO of an investment bank should do when they are having financial trouble and the rumors start?  Just come out and say "Yeah folks, we're having trouble - please pull out all your money so that we'll go broke for sure?"      It's his JOB to try to maintain investor confidence.   2.  If you have so much outrage at the "lying" CEO, I just find it funny that your thread title is incredibly deceptive.  The story here is actually about how Bear Sterns AVOIDED going "tits up" because they're being bailed out by the Fed and Morgan.  I have no idea why you would start a fear-mongering thread that basically says the exact opposite of what happened.    Wouldn't that be ... what's that word again?  Oh yeah, LYING?

1) In a free market, if their business model sucks, they should go broke. Maybe,just maybe, that would make the other people tighten things up.

2) If I don't pay my bills, or run out of money, and can't meet my obligations, and someone else comes to my rescue and I don't exist anymore after that, well...

3) I wonder who sold their shares in the last week or two. Just out of curiosity, not an accusation.

4) Title changed so I won't be a "liar".

GR

P.S. The "royal pardon" wasn't hard sacrasm, it was because you are a mod.--light sarcasm.

Quoted: Quoted: Two questions: 1.  What the hell do you THINK that the CEO of an investment bank should do when they are having financial trouble and the rumors start?  Just come out and say "Yeah folks, we're having trouble - please pull out all your money so that we'll go broke for sure?"      It's his JOB to try to maintain investor confidence.   Are you suggesting a CEO should lie about the status of his financial situation? I hope that's not what you're saying.

I wonder if there's a law against a CEO doing that....

GR

This is why people need some of their assets in precious metals.

Invest in Guns,Gas 'n Grub,cause if you ain't got it,you're shit outta luck!

Quoted: I fail to see the reason why Federal Government subsidies of the financial industry is good for a free market economy.

Hey, it works for farming, doesn't it?

Doesn't this create a situation where bad business practices are artificially protected by government subsidies, which in turn creates a "protectionist" environment for the financial industry?

Yes, but that's not the worst of it.

It also creates a moral hazard.

We will see more malinvestment [because of this], I'm afraid.

I tell my socialist friends/colleagues/coworkers/acquaintences this all the time when speaking out against [personal/individual] welfare:

What you subsidize, you encourage.

And this protectionist environment cannot be good for market forces which would allow bad businesses to fail and be replaced by upcoming competition that would be good for the general markets.

In a perfect world, yes.  Unfortunately, the sheer weight of overburdensome regulation in the financial services industry creates an artificial barrier to entry of "Great Wall of China" proportions.

So, whereas in a free (or free-er) market, actual *new* businesses might spring up to bet on this market share, in reality that slack will likely be picked up in one of two ways:

1) "consolidation" (not the right word, but I can't think this morning) by other/existing participants in this sector (such as we're already seeing by JP Morgan's "charity")

2) other fin srvcs companies who were previously unable to compete in this particular sector may finally stretch their wing a little

So my guess is that, at the end of the day, no truly new entrants.

Let the free market work. I can assure you that they wouldn't be bailing out Jake's Hardware Store on Main St. because he made bad choices on giving credit lines to his customers.

Have you been looking at my books and crunching my numbers?  I'm betting on a bailout!

Quoted: I fail to see the reason why Federal Government subsidies of the financial industry is good for a free market economy. Doesn't this create a situation where bad business practices are artificially protected by government subsidies, which in turn creates a "protectionist" environment for the financial industry? And this protectionist environment cannot be good for market forces which would allow bad businesses to fail and be replaced by upcoming competition that would be good for the general markets. Let the free market work. I can assure you that they wouldn't be bailing out Jake's Hardware Store on Main St. because he made bad choices on giving credit lines to his customers.

OH COMRADE!!! IT'S FOR THE PEOPLE!! AND THE FUTURE!! AND THE CHILDREN!!! YES COMRADES, YES!!

GR

Which bank is going to follow the Bear?
Suzy Jagger, Christine Seib and Miles Costello

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3556815.ece

So who is next? As advisers to Bear Stearns struggle to find a buyer or funding in the next 28 days, Wall Street, the City and the financial district in Tokyo were scrabbling to find out who is the most exposed to Bear Stearns, either through loans or trading positions.

Traders in all three centres were panicking even for those banks not directly exposed to Bear. They feared that the problems experienced at the stricken bank signalled that the credit crisis has deteriorated to a new level.

Yesterday, traders began to look anxiously at the robustness of Lehman Brothers, which, although bigger than Bear, is small compared with JPMorgan Chase, Morgan Stanley and Citigroup.

Shares in Lehman dropped 11 per cent yesterday, a far bigger fall than its other rivals, which saw their stock decline by about 3 per cent.

Although Lehman is more diversified than Bear, it has a similar investment profile, with huge holdings in mortgage-backed debt. Lehman sought to reassure the market when it said yesterday that it had secured a $2 billion (£1 billion) credit line with Paolo Tonucci, the bank’s global treasurer, calling it “a strong signal from the market and our key bank relationships”.

However, Chris Whalen, of the Wall Street consultancy Institutional Risk Analytics, said: “This is going to go all the way up the chain. There is a risk that all broker dealers are going to become an endangered species if the credit crisis is not sorted out. If they can’t fund themselves, they will have to shrink. All the other firms are in danger, too.”

He said that should the US Federal Reserve, the US Treasury and the Securities and Exchange Commission not devise a broad rescue plan to address the credit turmoil on Wall Street this weekend, “I would not be surprised to see an emergency bank holiday announced. That hasn’t happened since Roosevelt.” During the Depression, 75 years ago almost to the day, Franklin Roosevelt declared a four-day bank holiday, which stemmed a frantic run on banks. Mr Whalen added that should banks such as Lehman continue to be unable to sell the billions of dollars of mortgage-backed securities held, they were doomed. He said: “Broker dealers have to be able to get rid of assets. If they are illiquid, they die.”

Over the past ten years, global banks increased their issuance of mortgage-backed securities to feed a growing appetite for what investors believed were high yet stable yields. In 1998, banks issued $16.4 billion of the securities, according to calculations by Thomson Financial. By last year, the issuance figure had ballooned to $366 billion. Issuance so far this year is $4 billion.

The Royal Bank of Scotland was the world's biggest underwriter of mortgage-backed securities last year. An underwriting bank takes responsibility for selling the securities into the market.

RBS underwrote $44.7 billion of securities, taking a 12 per cent share of the market. Bear Stearns was the eighteenth-largest underwriter in 2007, underwriting $6.3 billion of the investments.

Fears of a UK financial casualty were also alive in the Square Mile, with banking stocks among the biggest losers on the stock market yesterday. HBOS, the UK’s biggest mortgage bank, led the sector down as the FTSE 100’s biggest faller, dropping more than 6 per cent to 528p a share, while Barclays closed down almost 5 per cent at 433p. Their shares fell even though British banks have tiny exposures to the American mortgage market in comparison with the big US and European investment banks.

Quoted: So, whereas in a free (or free-er) market, actual *new* businesses might spring up to bet on this market share, in reality that slack will likely be picked up in one of two ways: 1) "consolidation" (not the right word, but I can't think this morning) by other/existing participants in this sector (such as we're already seeing by JP Morgan's "charity") 2) other fin srvcs companies who were previously unable to compete in this particular sector may finally stretch their wing a little So my guess is that, at the end of the day, no truly new entrants.

Oh, and I almost forgot.....

"A man always has two reasons for doing anything: a good reason and the real reason."

Who said it?


(I swear, this shit almost writes itself!)

Quoted: Quoted: Quoted: Quoted: Quoted: If my bank is FDIC insured, why would it matter if my bank goes under? FDIC doesn't insure every depositor in the USA.  You know what a liability that would be?  They are actually able to insure a relatively small number of depositors, in order to instill confidence and security.  Banks are now more nation-wide and diversified so there's not as big a chance of a lot of them everywhere going under. But FDIC can only cover a small amount of depositors if they ever made a claim.  If it could for as many as 5% nationally, I would be amazed. Thanks for helping to cause mass hystaria.. My guess is after a weekend of this on arfcom, a total of 2000 checking acounts with a grand total of $200k will be closed. I still have some gold to sell if any of you guys are intrested. Thanks for having a brain raven makes an excellent point regarding the FDIC.  And IMO if you don't have a fair amount of cash on hand you are a fool; trusting a Bank to give you your entire account if you needed it is stupid.  Most banks will require a 2-3 day window to cash you out in good times if your account is large; just think if there were a real emergency.   Banks only keep a small fraction of cash compared to total deposits.  There is no reason to anymore, or so I am told.

That is correct.  If you request a lot of money, or close out your account (depending on size of course) you can get denied because they need to "order more money".  They don't keep 100% of deposits in the vault....to them that's a waste of money when it could be working for the bank...the point of them paying you interest to "borrow" it from you.  

No prob DKPROF.

Er, I mean COMRADE DKPROF.

GR

Quoted: Quoted: Quoted: Quoted: Quoted: Quoted: If my bank is FDIC insured, why would it matter if my bank goes under? FDIC doesn't insure every depositor in the USA.  You know what a liability that would be?  They are actually able to insure a relatively small number of depositors, in order to instill confidence and security.  Banks are now more nation-wide and diversified so there's not as big a chance of a lot of them everywhere going under. But FDIC can only cover a small amount of depositors if they ever made a claim.  If it could for as many as 5% nationally, I would be amazed. Thanks for helping to cause mass hystaria.. My guess is after a weekend of this on arfcom, a total of 2000 checking acounts with a grand total of $200k will be closed. I still have some gold to sell if any of you guys are intrested. Thanks for having a brain raven makes an excellent point regarding the FDIC.  And IMO if you don't have a fair amount of cash on hand you are a fool; trusting a Bank to give you your entire account if you needed it is stupid.  Most banks will require a 2-3 day window to cash you out in good times if your account is large; just think if there were a real emergency.   Banks only keep a small fraction of cash compared to total deposits.  There is no reason to anymore, or so I am told. That is correct.  If you request a lot of money, or close out your account (depending on size of course) you can get denied because they need to "order more money".  They don't keep 100% of deposits in the vault....to them that's a waste of money when it could be working for the bank...the point of them paying you interest to "borrow" it from you.

The POINT of banks is to borrow money from YOU and lend it to SOMEONE ELSE...

If a bank kept enough on hand to pay all deposits, they would be CHARGING YOU for vault space, not PAYING YOU interest...

Quoted: Did you even read the article?  It says Bear Sterns is getting bailed out.  How does that equal Tits Up?

The bailout was announced premarket on Friday, its stock closed down 47%, the smart money says this just delayed the inevitable.  Bear Sterns was leveraged something like 30-1, my guess, its biggest creditor (read, one who has the most to lose) tries to acquire it via stock dilution similar to the Countrywide - Bank of America deal.

Quoted: Quoted: Did you even read the article?  It says Bear Sterns is getting bailed out.  How does that equal Tits Up? The bailout was announced premarket on Friday, its stock closed down 47%, the smart money says this just delayed the inevitable.  Bear Sterns was leveraged something like 30-1, my guess, its biggest creditor (read, one who has the most to lose) tries to acquire it via stock dilution similar to the Countrywide - Bank of America deal.

So, if Bear Stearns lost half it's value in one trading day, is now a good time to buy into Bear?  

Quoted: So, if Bear Stearns lost half it's value in one trading day, is now a good time to buy into Bear?

I am considering it.

Crisis like this will ruin a ton of people, and many will profit greatly from the carnage.

Hopefully, I can be on the profit side.

It was quite the shocking information to get on Friday.  I was working on Bear Sterns trades at JPM when it came across the radio.  It was a pretty uneasy day.  There has been talk for a while about acquiring another firm.

Quoted: Quoted: So, if Bear Stearns lost half it's value in one trading day, is now a good time to buy into Bear?   I am considering it. Crisis like this will ruin a ton of people, and many will profit greatly from the carnage. Hopefully, I can be on the profit side.

Time to buy, unless it is time to short them.

Place your bets... place your bets...

Corporate welfare on the grand scale. Every American is paying for the greed of those irresponsible bastards.

Burn the dollar to save a bunch of greedy, short-sighted "capitalists" and their sub-prime "homeowners".

What's to stop the next bubble when Uncle Printing Press jumps in as soon as the fat cats start to wail?

Free market capitalism. Yeah, right.

Quoted: Quoted: Quoted: So, if Bear Stearns lost half it's value in one trading day, is now a good time to buy into Bear?   I am considering it. Crisis like this will ruin a ton of people, and many will profit greatly from the carnage. Hopefully, I can be on the profit side. Time to buy, unless it is time to short them. Place your bets... place your bets...

Yep, pretty much a crap-shoot.

Unless a CEO or big shot at firms (not just Wall St.)

March 15, 2008
News Analysis

F.D.R.'s Safety Net Gets a Big Stretch

By FLOYD NORRIS

It was an old-fashioned bank run that forced Bear Stearns to turn to
the government for salvation on Friday. The difference is that Bear
Stearns is not a commercial bank, and is therefore not eligible for
the protections those banks received 75 years ago when Franklin D.
Roosevelt halted bank runs with government guarantees.

Bear was, instead, emblematic of a financial system that grew up over
the last two decades, one that largely marginalized traditional
banking and that enabled lenders to evade much of the regulatory
framework that had also begun during the Roosevelt administration.

The new system enabled loans to be made by almost any financial
institution with the money coming from the sale of increasingly
complicated securities backed by the loans.

Regulators believed that the new system spread out the risk. Alan
Greenspan, a former chairman of the Federal Reserve, said the system
had transferred risk from banks — which he called "highly leveraged
institutions" — to "stable American and international institutions."

It turned out he was wrong. Much of the risk had remained with
commercial banks, but packaged in such a way that they were required
to put aside fewer reserves to protect against losses. Much of the
rest of the risk ended up with financial institutions that relied on
their ability to borrow at low rates whenever they needed it.

"A sizable fraction of long-term assets — assets with exposure to
different forms of credit risk—ended up in vehicles financed with very
short-term liabilities," Timothy F. Geithner, the president of the
Federal Reserve Bank of New York, said last week in a speech. "As is
often the case during periods of rapid change, more significant
concentrations of risk were present than was apparent at the time."

That risk has come to the fore in the last several months, as several
mortgage companies and smaller financial institutions have failed.
This week Carlyle Capital, a highly leveraged lender formed by the
Carlyle Group, a private equity fund, collapsed. It had borrowed more
than $30 for every dollar of capital, and it could not meet demands
from lenders that it put up more cash even after it got a $150 million
loan from the Carlyle Group.

Bear Stearns, which boasts that it has never had a losing year in its
85 years, was plagued by rumors that it owned securities it could not
sell and that it might be unable to borrow enough money to hold on to
the securities.

In a conference call Friday, Bear's chief executive, Alan D. Schwartz,
said that as rumors spread, customers became more nervous, "to the
point where a lot of people wanted to get cash out."

At first, Bear could meet those demands, he said. "But they
accelerated yesterday, especially late in the day, and as we got
through the day, we recognized that at the pace things were going,
there could be continued liquidity demands that would outstrip our
resources."

Overnight, the Federal Reserve and JPMorgan Chase arranged to provide
the cash Bear Stearns needed. Bear could not borrow directly from the
Fed because it is not a commercial bank.

The Fed had seen such problems coming, and had announced plans this
week to lend money to major dealers in Treasury securities — like Bear
— by taking in as collateral mortgage securities that are now hard to
sell.

By coincidence, the demands on Bear Stearns came on the 75th
anniversary of the day when American banks reopened after the holiday
declared by President Roosevelt when he took office. He assured
Americans that only safe banks were being allowed to reopen, although
there was no way he could really be sure.

The rescue of Bear is not permanent — the loans are for only a month —
and there is an expectation that authorities will seek to arrange for
Bear to be acquired, perhaps at a low price, or that it will be broken
up and sold to more than one buyer.

Such an outcome could avoid systemic risk while leaving Bear's top
executives without jobs and perhaps deflecting criticism that they had
not had to face the results of their mistakes. Bear stock fell 47
percent on Friday; all of the decline came after the rescue was
announced.

Deposit insurance largely ended runs at commercial banks, because
depositors with less than $100,000 in a bank believed they did not
need to worry even if they heard rumors of trouble.

But when investors do not have such confidence — as in Britain last
year, where deposit insurance covered only the first £2,000, or about
$4,000 — the rational response is to grab the money and ask questions
later. That was one reason Northern Rock, a British bank, saw its
depositors flee and in the end was taken over by the government.

Mr. Schwartz, Bear's chief, says his firm remains solvent. But such
assurances are seldom credited during panics. As Walter Bagehot, the
British financial journalist, wrote in "Lombard Street," a
19th-century book on the monetary system, "Every banker knows that if
he has to prove that he is worthy of credit, however good may be his
arguments, in fact his credit is gone."

At the bottom of the current crisis is a distrust of many financial
institutions and securities that goes beyond Bear Stearns.

"This is a credit problem, not a liquidity problem," said William L.
Silber, a finance professor at New York University who has written
about the 1933 crisis.

"The root question is," he said, "Will mortgage borrowers be able to
repay their debts? That risk and that uncertainty is still there, and
that has brought into question all sorts of credit exposure." He
argues that because that question cannot be resolved soon, in the end
the Treasury will have to do as it did in 1933, and issue broad
guarantees.

Whether or not that happens, the government may have to revise its
regulatory system, which, as Mr. Geithner noted, has "evolved into a
very complex and uneven framework, with substantial opportunities for
arbitrage, large gaps in coverage, significant inefficiencies and
large differences in the degree of oversight and restraint upon
institutions that engage in very similar economic activities."

He called for "a more uniform set of rules applied evenly across
entities involved in similar functions," and added that "institutions
that are banks, or are built around banks, with special access to the
safety net, need to be subject to a stronger form of consolidated
supervision than our current framework provides."

Friday's Fed move shows that investment banks have that "special
access to the safety net," a fact that may lead to more regulation.

March 16, 2008
Fair Game

Rescue Me: A Fed Bailout Crosses a Line

By GRETCHEN MORGENSON


WHAT are the consequences of a world in which regulators rescue even
the financial institutions whose recklessness and greed helped create
the titanic credit mess we are in? Will the consequences be an even
weaker currency, rampant inflation, a continuation of the slow bleed
that we have witnessed at banks and brokerage firms for the past year?

Or all of the above?

Stick around, because we'll soon find out. And it's not going to be pretty.

Agreeing to guarantee a 28-day credit line to Bear Stearns, by way of
JPMorgan Chase, the Federal Reserve Bank of New York conceded last
Friday that no sizable firm with a book of mortgage securities or
loans out to mortgage issuers could be allowed to fail right now. It
was the most explicit sign yet of the Fed's "Rescues 'R' Us" doctrine
that already helped to force the marriage of Bank of America and
Countrywide.

But why save Bear Stearns? The beneficiary of this bailout, remember,
has often operated in the gray areas of Wall Street and with an
aggressive, brass-knuckles approach. Until regulators came along in
1996, Bear Stearns was happy to provide its balance sheet and
imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R.
Baron, clearing dubious stock trades.

And as one of the biggest players in the mortgage securities business
on Wall Street, Bear provided munificent lines of credit to
public-spirited subprime lenders like New Century (now bankrupt). It
is also the owner of EMC Mortgage Servicing, one of the most
aggressive subprime mortgage servicers out there.

Bear's default rates on so-called Alt-A mortgages that it underwrote
also indicates that its lending practices were especially lax during
the real estate boom. As of February, according to Bloomberg data, 15
percent of these loans in its underwritten securities were delinquent
by more than 60 days or in foreclosure. That compares with an industry
average of 8.4 percent.

Let's not forget that Bear Stearns lost billions for its clients last
summer, when two hedge funds investing heavily in mortgage securities
collapsed. And the firm tried to dump toxic mortgage securities it
held in its own vaults onto the public last summer in an initial
public offering of a financial company called Everquest Financial.
Thankfully, that deal never got done.

Recall, too, that back in 1998, when the Long Term Capital Management
hedge fund required a Fed-arranged bailout, Bear Stearns refused to
join the rescue effort. Jimmy Cayne, then chief executive at the firm,
told the Fed to take a hike.

And so, Bear Stearns, a firm that some say is this decade's version of
Drexel Burnham Lambert, the anything-goes, 1980s junk-bond shop
dominated by Michael Milken, is rescued. Almost two decades ago,
Drexel was left to die.

Bear Stearns and Drexel have a lot in common. And yet their differing
outcomes offer proof that we are in a very different and scarier place
than in the late 1980s.

"Why not set an example of Bear Stearns, the guys who have this record
of dog-eat-dog, we're brass knuckles, we're tough?" asked William A.
Fleckenstein, president of Fleckenstein Capital in Issaquah, Wash.,
and co-author with Fred Sheehan of "Greenspan's Bubbles: The Age of
Ignorance at the Federal Reserve." "This is the perfect time to set an
example, but they are not interested in setting an example. We are
Bailout Nation."

And so we are. After years of never allowing any of our financial
institutions to fail, they have become so enormous that nobody will be
allowed to sink beneath the waves. Otherwise, a tsunami would swamp
the hedge funds, banks and other brokerage firms that remain afloat.

If Bear Stearns failed, for example, it would result in a wholesale
dumping of mortgage securities and other assets onto a market that is
frozen and where buyers are in hiding. This fire sale would force
surviving institutions carrying the same types of securities on their
books to mark down their positions, generating more margin calls and
creating more failures.

As of last Nov. 30, Bear Stearns had on its books approximately $46
billion of mortgages, mortgage-backed and asset-backed securities.
Jettisoning such a portfolio onto a mortgage market that is not
operative would, it is plain to see, be a disaster.

But, who knows what those mortgages are really worth? According to
Bear Stearns's annual report, $29 billion of them were valued using
computer models "derived from" or "supported by" some kind of
observable market data. The value of the remaining $17 billion is an
estimate based on "internally developed models or methodologies
utilizing significant inputs that are generally less readily
observable."

In other words, your guess is as good as mine.

To some degree, what happened at Bear, of course, was a classic run on
the bank — the kind immortalized in Frank Capra's homage to financial
responsibility, "It's a Wonderful Life." As fears about Bear's
financial position heightened, its customers began demanding their
cash and big hedge funds that were using the firm as an administrative
back office or lender moved their accounts elsewhere.

In addition, institutions that had bought credit default swaps from
Bear Stearns, insurance policies that protect against corporate bond
defaults, were scrambling to undo those trades as the firm's ability
to pay the claims looked dicier.

"For the government to print money at the expense of taxpayers as
opposed to requiring or going about a receivership and wind-down of
any insolvent institutions should be troubling to taxpayers and
regulators alike," said Josh Rosner, an analyst at Graham Fisher &
Company and an expert on mortgage securities. "The Fed has now crossed
the line in a very clear way on 'moral hazard,' because they have
opened the door to the view that they are required to save almost any
institution through non-recourse loans — except the government doesn't
have the money and it destroys the U.S.'s reputation as the broadest,
deepest, most transparent and properly regulated capital market in the
world."

And here is the unfortunate refrain. Investors, already mistrusting
many corporate and government leaders, were once again assured that
nothing was wrong — right up until the very end. So is it any wonder
investors react to every market rumor of an impending failure with the
certainty that it's true? In too many cases, the rumors turned out to
be true, notwithstanding the attempts at reassurance by executives and
policy makers.

Only last Monday, for example, Bear put out a press release saying,
"there is absolutely no truth to the rumors of liquidity problems that
circulated today in the market." The next day, Christopher Cox, the
chairman of the Securities and Exchange Commission, said he was
comfortable that the major Wall Street firms were resting on
satisfactory "capital cushions."

Three days later, it was bailout time for Bear.

HERE is the bind the Fed is in: Like the boy who puts his finger in
the dike to keep sea water from pouring in, the Fed finds that new
leaks keep emerging.

Regulators must do whatever they can to keep the markets open and
operating, and much of that relies upon the confidence of investors.
But by offering to backstop firms like Bear, who were the very
architects of their own — and the market's — current problems,
overseers like the Fed undermine a little bit more of that confidence.

Another worry? How many well-capitalized institutions remain at the
ready to take over those firms that may encounter turbulence in the
future? Banks just do not have the capital that is needed to rescue
troubled firms.

That will leave the taxpayer, alas. As usual.

 Bear Stearns Saturday Update

Bank Failure
Charlie Gasparino at CNBC reports: Bear Stearns Weekend Talks Reveal 2 Key Contenders (hat tip risk capital)
... potential bidders for Bear have been narrowed to ... J.C. Flowers and JPMorgan Chase

... bankers have now come to the conclusion that a deal must be done by Monday ...

If there's no deal Bear Stearns will have to file for bankruptcy, executives said.


-------------------

Margin Call!!!!!!!!!!!!!

Quoted:  Bear Stearns Saturday Update Bank Failure Charlie Gasparino at CNBC reports: Bear Stearns Weekend Talks Reveal 2 Key Contenders (hat tip risk capital) ... potential bidders for Bear have been narrowed to ... J.C. Flowers and JPMorgan Chase ... bankers have now come to the conclusion that a deal must be done by Monday ... If there's no deal Bear Stearns will have to file for bankruptcy, executives said. ------------------- Margin Call!!!!!!!!!!!!!

Wow!

My Bear Stearns teddy bear and Ace Greenberg 50th anniversity yo-yo and deck of cards will be worth a fortune on eBay.  j/k

I feel bad for the guys in the trenches that still work there.  Not all are making millions trading, a lot of very good IT people will suffer.

Quoted: Quoted: I fail to see the reason why Federal Government subsidies of the financial industry is good for a free market economy. Hey, it works for farming, doesn't it? Doesn't this create a situation where bad business practices are artificially protected by government subsidies, which in turn creates a "protectionist" environment for the financial industry? Yes, but that's not the worst of it. It also creates a moral hazard. We will see more malinvestment [because of this], I'm afraid. I tell my socialist friends/colleagues/coworkers/acquaintences this all the time when speaking out against [personal/individual] welfare: What you subsidize, you encourage. <snip>

Sec. Paulson was just on Stephanopoulos. He said they're "aware" of moral hazard, but emphasized that their primary concern at the moment is "stability" in the market.

<sarcasm>

You know, I always thought we were too dismissive of central planning, as a nation, and that we should give it a chance someday....

</sarcasm>

Stephanopoulos then asked him if there were any *other* banks about to go the way of Bear Stearns, and Paulson said that, of the various proposals he's seen that call for more gov't intervention in the marketplace, all seemed to do more harm than good.

So, it *sounds* like there was more than just the Bear Stearns deal on the table.... and it also suggests that now they're using a mere cost/benefit analysis to determine whether to intervene in the market.

Quoted: <snip>

Sec. Paulson was just on Stephanopoulos. He said they're "aware" of moral hazard, but emphasized that their primary concern at the moment is "stability" in the market.

<sarcasm>


In other words the taxpayer needs to bail out the billionaires instead of allowing poorly run businesses to go under.

Oh, teh noes.  It's all over.  Nothing like this has ever happened before, and we are all certainly doomed.  Say goodbye, all, it's done.

Quoted: Oh, teh noes.  It's all over.  Nothing like this has ever happened before, and we are all certainly doomed.  Say goodbye, all, it's done.

I was just looking at the historical numbers of the Dow index.  This is actually nothing compared to the selloff back in 2001-2003, but everyone thinks the sky is falling.  It's called perspective.  Some people have it, others don't.

Quoted: Quoted: Sec. Paulson was just on Stephanopoulos. He said they're "aware" of moral hazard, but emphasized that their primary concern at the moment is "stability" in the market. In other words the taxpayer needs to bail out the billionaires instead of allowing poorly run businesses to go under.

At least in this case, it would seem so.

Georgie [Porgie] followed up and asked him if now might not be the time to send a message and teach a lesson, especially since BS (giggle) has a "reputation" of being bullish and risky.

I can't remember what his exact (or even approximate) answer was.  It may be up on YouTube later.

Quoted: Quoted: Oh, teh noes.  It's all over.  Nothing like this has ever happened before, and we are all certainly doomed.  Say goodbye, all, it's done. I was just looking at the historical numbers of the Dow index.  This is actually nothing compared to the selloff back in 2001-2003, but everyone thinks the sky is falling.  It's called perspective.  Some people have it, others don't.

The sky falls all the time (at least to those with an economic long-run outlook).

The silver lining is that we always put it back up, and that creates jobs.

Quoted: Quoted: Quoted: Oh, teh noes.  It's all over.  Nothing like this has ever happened before, and we are all certainly doomed.  Say goodbye, all, it's done. I was just looking at the historical numbers of the Dow index.  This is actually nothing compared to the selloff back in 2001-2003, but everyone thinks the sky is falling.  It's called perspective.  Some people have it, others don't. The sky falls all the time (at least to those with an economic long-run outlook). The silver lining is that we always put it back up, and that creates jobs.

And everything is on sale now.  

Quoted: Oh, teh noes.  It's all over.  Nothing like this has ever happened before, and we are all certainly doomed.  Say goodbye, all, it's done.

Actually it has happened before...during the Depression.

Quoted: And everything is on sale now.

Yeah, that's what I told my wife yesterday.  It didn't have the desired effect.

Quoted: Quoted: And everything is on sale now.   Yeah, that's what I told my wife yesterday.  It didn't have the desired effect.

When there is blood in the streets is when a person should be buying.  And there is definitely blood in the streets with people freaking out.

Quoted: Quoted: Quoted: Quoted: Quoted: If my bank is FDIC insured, why would it matter if my bank goes under? FDIC doesn't insure every depositor in the USA.  You know what a liability that would be?  They are actually able to insure a relatively small number of depositors, in order to instill confidence and security.  Banks are now more nation-wide and diversified so there's not as big a chance of a lot of them everywhere going under. But FDIC can only cover a small amount of depositors if they ever made a claim.  If it could for as many as 5% nationally, I would be amazed. Thanks for helping to cause mass hystaria.. My guess is after a weekend of this on arfcom, a total of 2000 checking acounts with a grand total of $200k will be closed. I still have some gold to sell if any of you guys are intrested. Thanks for having a brain raven makes an excellent point regarding the FDIC.  And IMO if you don't have a fair amount of cash on hand you are a fool; trusting a Bank to give you your entire account if you needed it is stupid.  Most banks will require a 2-3 day window to cash you out in good times if your account is large; just think if there were a real emergency.   That is the way my grandparents lost their farm during the great depression.  Bank went under, their cash went with it, people with money bought the bank debt/mortages and called the loans.  Good bye farm, land, home...

There are *always* buying opportunities for people who do not lose their heads.  Always.  There were more millionaires made during the depression, then before.

Quoted: Quoted: Oh, teh noes.  It's all over.  Nothing like this has ever happened before, and we are all certainly doomed.  Say goodbye, all, it's done. I was just looking at the historical numbers of the Dow index.  This is actually nothing compared to the selloff back in 2001-2003, but everyone thinks the sky is falling.  It's called perspective.  Some people have it, others don't.

So I guess you're going to be one of the people participating in the sucker's rally?

Quoted: Quoted: Oh, teh noes.  It's all over.  Nothing like this has ever happened before, and we are all certainly doomed.  Say goodbye, all, it's done. I was just looking at the historical numbers of the Dow index.  This is actually nothing compared to the selloff back in 2001-2003, but everyone thinks the sky is falling.  It's called perspective.  Some people have it, others don't.

Yes, my thinly veiled sarcasm was an attempt to illustrate precisely that.