Mel writes:
What happens if the Bear deal is ruled illegal--or, at least, against NYSE rules?
Mel | 03.25.08 - 8:57 am | #

Tanta writes:
Mel, I have no idea what you're even asking. NYSE rules? You're worried about what, exactly?

The Fed brokered the transaction. By definition it wasn't "illegal."
Tanta | 03.25.08 - 9:01 am | #

rsj writes:
I betcha if that happens JPM upchucks the re-chuck. hm, Maybe a large unchewed cube of bear gets lodged in their windpipe?

Eh, even if that happens I bet someone/thing is ready to do the heimlich on them.

Oh wait, but what if they hold back, and then roll the corpse, like rolling a drunk on the curb? Pigmen being pigmen, you never know.
rsj | 03.25.08 - 9:02 am | #

liberal writes:
I think, instead of all of us crying about getting screwed (as taxpayers and also as people who didn't make foolish home purchases), we need to organize.

There are certainly lots of folks that feel the way we do. Problem is that there's no "lobby" for us. (Homeowners have indirect lobbies, and Wall St clearly has a lobby.)
liberal | 03.25.08 - 9:03 am | #

Yearning to Learn writes:
I'm sorry.

I know people like ipodius will tell me how naive I am and how I really don't want this.

But I want Bear to fail. Hard.
Yearning to Learn | 03.25.08 - 9:04 am | #

Octavio Richetta writes:
Tanta you are way cool!

You and CR please keep the noise level up on this Bear thing. Don't let it die in the age in which we quickly embrace the latest news/posts, and leave yesterday's behind.
Octavio Richetta | 03.25.08 - 9:04 am | #

Yearning to Learn writes:
I've been watching CNBC and it's all about

"yeah, the fed and government are so silly... making that poor Jamie Dimon bid low for Bear Stearns. if they just would have stayed out of it Bear would be doing great and so would JP Morgan, but now look at the stain on Jamie, and it's all the Fed's fault"

Bear. down. Hard. Please.
Yearning to Learn | 03.25.08 - 9:05 am | #

tg writes:
Where is .communist?

http://www.sundayherald.com/ news..._red_menace.php
tg | 03.25.08 - 9:08 am | #

sam writes:
Junk Bond Losses Top $35 Billion, JPMorgan Sees More

http://www.bloomberg.com/apps/ne...Y9zQ& refer=home
sam | 03.25.08 - 9:09 am | #

Elvis writes:
Just wondering...If Bear Stearns was named Bull Stearns would the Fed have let it fail. I'm thinking that they wanted the negatively named IB out as it was hurting public perception. That, or someone at Bear made fun of Paulson when he was at GS once...
Elvis | 03.25.08 - 9:09 am | #

sam writes:
Merrill Lynch 2008 Profit Estimate Cut 45% at JPMorgan

http://www.bloomberg.com/apps/ne...CLAc& refer=home
sam | 03.25.08 - 9:10 am | #

Octavio Richetta writes:
watz the best way to let the FED/Congress/Government we, the people, vote they screwed up on the Bear deal?

Any petitions floating around?
Octavio Richetta | 03.25.08 - 9:10 am | #

sam writes:
Dimon `Pulled the Trigger Fast' to Win Bear Stearns Acquisition

http://www.bloomberg.com/apps/ne...pzPg& refer=home
sam | 03.25.08 - 9:11 am | #

Kp writes:
So will the game be to drag all of the dirty laundry on to the books of the clean moneycenter banks? Or is there little difference between the "regualted"...banks" and the un-regulated "non-bank" entities?
Kp | 03.25.08 - 9:12 am | #

S writes:
organize is an interesting idea. Give ad hoc "public led" consiortiums the opportunity to buy the assets of the broken banks at the said bid levekl - right of first refusal. Let the investment bank funds group organize the mail in campaign. With the investor class so touted mayube Cramer could do the due diligence on his show and then employ the greaasroots Obama fund raising internet machine. No doubt this would create a stir. half kidding.
S | 03.25.08 - 9:13 am | #

dryfly writes:
Either way you slice it, the very fact that he could say such a thing in public tells you how far down the wrong road we've gone. I vote for the leash and collar, pronto.

Radio controlled shock collars - like the ones you put on hunting dogs. That will aide in their training - believe me.

dryfly | 03.25.08 - 9:14 am | #

sam writes:
Thsi country is in trouble

Iceland Lifts Key Rate to 15% at Unscheduled Meeting

http://www.bloomberg.com/apps/ne...ZlTw& refer=home
sam | 03.25.08 - 9:15 am | #

Elvis writes:
Those shock collars hurt. I offered a friend about $5 once if he would get shocked. I think he cried. It was the hardest $5 he probably ever made. So, I agree with dryfly, it would likely be effective. Very effective.
Elvis | 03.25.08 - 9:18 am | #

ac writes:

We're going to have to change the name of the country to reflect this radical shift in ideology.

Maybe the United Socialized Corporate Entities of America would work?

ac | 03.25.08 - 9:19 am | #

Max writes:
I'm amazed at how fast the "moral hazard" problem manifested itself. Now you've got heads of FDIC insured banks yelling fire in a crowded theater, creating a market advantage? A bunch of worthless debt holders blackmailing the Fed over bailout terms? What madness is this???
Max | Homepage | 03.25.08 - 9:20 am | #

m writes:
Kp

seems to me ther is no more difference between the regualted and unregulated. The pending lawsuits that will last for years will challenge what the fed did with bear stearns and if it had the authority. But, does anyone really care. As long as they have their flat screen TV's and cold beer they are lulled into thinking everything is OK. I spoke to one of my neigbors who thinks Bear Stearns is a department store. Got to go buy My Escalade complete with putting green and swimming pool. The dealership is givine me an 8 year loan at 0 percent. How can I pass such a dela up.
m | 03.25.08 - 9:20 am | #

Tanta writes:
watz the best way to let the FED/Congress/Government we, the people, vote they screwed up on the Bear deal?

I am not entirely sure, personally, that the Fed did screw up the deal. At least, not the original deal. $2 a share was more than they would have gotten in BK, but it's close enough to wiping out the shareholders to fit my definition of how a bailout should work.

Now, letting themselves get taken by Dimon a week later might count as a screw-up. I don't give a rat's ass what Dimon wants to pay for Bear. The Fed should have made sure he couldn't pay more than $2.

But I'm going on record, at least, as being much more appalled by Dimon's and Cayne's behavior in this than the Fed's. And now I'm adding Stumpf to my list of so-called "capitalists" who are trying to rip off the government.
Tanta | 03.25.08 - 9:20 am | #

Max writes:
But I'm going on record, at least, as being much more appalled by Dimon's and Cayne's behavior in this than the Fed's. And now I'm adding Stumpf to my list of so-called "capitalists" who are trying to rip off the government.

It takes two to tango. Stumpf needs to be slapped down hard, and the rest of these clowns put in their place. It should be $2 or nothing. Why doesn't the Fed have the balls to take charge of this thing?
Max | Homepage | 03.25.08 - 9:23 am | #

m writes:
MAX

It was once madness, now its the new business model. We should have had at least one dozen bank failures already. One internet bank went down and a small bank in Missouri collapsed. SO the new rule is 3 balance sheets for the banks. The internal for banks eyes only, the one they file with the SEC and the doctored up FDIC one. Thieves all of them at our expense. Welcome to the new world disorder.
m | 03.25.08 - 9:23 am | #

Marcus Aurelius writes:
At what point do the RICO statutes kick in, or are we simply going to let these thugs continue robbing us?
Marcus Aurelius | 03.25.08 - 9:23 am | #

dryfly writes:
I spoke to one of my neigbors who thinks Bear Stearns is a department store

Should have told him it was... for financial institutions.

dryfly | 03.25.08 - 9:24 am | #

lama writes:
I was just on a job where I saw lists of hundreds of local and regional banks. There are also many national and international banks. Why is it such a tragedy to have a large bank fail? I hear columnists refer to "the system collapsing". Why wouldn't the other large and regional banks be able to fill in the services of the defunct bank(s)?
What wouldn't "the system" be able to retrieve?

PS: I love that word "nigh"; Reminds me of Dickens' novels.
lama | 03.25.08 - 9:24 am | #

m writes:
Marcus Aurelius

RICO was found floating face down in the east river last Sunday.
m | 03.25.08 - 9:25 am | #

dryfly writes:
Now, letting themselves get taken by Dimon a week later might count as a screw-up. I don't give a rat's ass what Dimon wants to pay for Bear. The Fed should have made sure he couldn't pay more than $2.

Or get backstopped by somebody else. Any deep pockets out there want to backstop this deal at $10? Let them step forward.

dryfly | 03.25.08 - 9:26 am | #

daveNYC writes:
The Fed brokered the transaction. By definition it wasn't "illegal."

Well the SEC would probably be interested too, but yeah, nobody in the government is going to stop the deal from going through.

Talk about Bear getting screwed over is great though. They were more than happy to play hardball with the rest of the street, this is just payback.
daveNYC | 03.25.08 - 9:28 am | #

Tanta writes:
Any deep pockets out there want to backstop this deal at $10? Let them step forward.

The best possible response to Stumpf would be for the Fed to announce it just set the NCC share price at 57 cents with a Fed guarantee, and 57 dollars without one.
Tanta | 03.25.08 - 9:28 am | #

eh writes:
Not at all an unreasonanble question:

Thus again the question to Fed of New York President Tim Geithner: Why was JPM involved in this transaction? Why not simply extend liquidity support to BSC as you now offer to every other primary dealer? As and when BSC shareholders litigate over this mess, Geithner et al may be forced to answer those questions in public.

So what was the real aim? To 'rescue' BSC, or to facilitate handing it over to JPM?
eh | 03.25.08 - 9:29 am | #

Bob Dobbs writes:
"Either way you slice it, the very fact that he could say such a thing in public tells you how far down the wrong road we've gone. I vote for the leash and collar, pronto."


We won't get the collar, we won't get the leash. The dog will be allowed to run wild, menace babies, and crap in people's yards. And then run out into the road and be flattened by a city bus, and we'll all have to peel what's left off the pavement.
Bob Dobbs | Homepage | 03.25.08 - 9:30 am | #

eh writes:
By definition it wasn't "illegal."

So you're saying if the Fed does it then it's legal? What (other) "definition" are you referring to?
eh | 03.25.08 - 9:31 am | #

Bob Dobbs writes:
"We're going to have to change the name of the country to reflect this radical shift in ideology.

Maybe the United Socialized Corporate Entities of America would work?"

How about "Banana Republics R Us?"
Bob Dobbs | Homepage | 03.25.08 - 9:31 am | #

Octavio Richetta writes:
Interest spin. "Bear got screwed!" They were bankrumpt!
Octavio Richetta | 03.25.08 - 9:31 am | #

ZackAttack writes:
What's going to happen here is that the bad paper will be sanitized by Blackrock.

http://www.thestreet.com/story/1...- mortgages.html

I think it's so cute they called it "Penny Mac."

While it makes me sick, Wall Street, Treasury and the Fed are going to paper this crap over.

Anticipating a pullback in the financials maybe Thursday-ish. You'll want to be a buyer on the second day of that.
ZackAttack | 03.25.08 - 9:32 am | #

sam writes:
Mutual Funds Abandon Stock Market as Volatility Jumps (Update4)

By Eric Martin and Alexis Xydias

March 24 (Bloomberg) -- Mutual funds are selling stocks and hoarding cash just as trading surges to a record and prices grow more volatile than at any time since the Great Depression.

Forty-three percent of managers surveyed this month by Merrill Lynch & Co. moved more money into cash than their funds stipulated, the highest percentage since the New York-based firm began compiling the data in April 2001. Their cash relative to total assets also rose to a five-year high as managers found fewer stocks to purchase and anticipated redemptions.

Investors who usually ``buy and hold'' are selling as price fluctuations get larger and less predictable. The swings are confounding valuation measures based on earnings after $200 billion of credit losses caused analysts to overestimate bank profits by more than 50 percentage points last quarter.

``If you've been out there playing in traffic trying to trade in this, you'll run out of money before the market runs out of time,'' said James Dunigan, 55, the chief investment officer at PNC Wealth Management, which oversees $78 billion.

Dunigan said PNC has been ``overweight'' stocks since late last year, ``although we would have liked not to have been.'' Mutual funds such as those sold by Philadelphia-based PNC don't employ strategies such as short-selling that boost profits for hedge funds when stock swings increase.

Most Since 1938

Daily changes of 1 percent or more in the Standard & Poor's 500 Index, the benchmark index for American equities, have occurred on 54 percent of trading days this year, according to S&P. That's the most since 1938, as hedge funds and other speculators use borrowed money to magnify returns from rapid-fire trading.

One consequence is that volume on the New York Stock Exchange has ballooned to an average 1.75 billion shares a day, the highest on record and 11 percent above last year. More than half of the 10 busiest days in U.S. options markets have occurred in 2008, fueled by strategies designed to profit from rising volatility.

The Chicago Board Options Exchange Volatility Index, a benchmark of price swings used to value options, is averaging 26.15 percent this year, its highest since 2002. Price swings in a gauge of bank stocks in the Standard & Poor's 500 Index surged to the highest since at least 1989, based on 10-day historical volatility, data compiled by Bloomberg show.

Bear Plunges, Surges

Lehman Brothers Holdings Inc., the world's fourth-largest securities firm, lost almost half its market value during trading on March 17 before surging by a record 46 percent the next day. The market value of Bear Stearns Cos., the second-largest underwriter of mortgage bonds, tumbled 84 percent to $655 million last week when JPMorgan Chase & Co. agreed to buy it after a Federal Reserve-led bailout. Bear Stearns rose 89 percent today after JPMorgan quadrupled its offer.

``Trading financial stocks on a daily basis is a very difficult, if not foolhardy, thing to do,'' said Edgar Peters, Boston-based chief investment officer at PanAgora Asset Management, which manages $25 billion. Peters, 55, said the firm's asset-allocation strategies have boosted cash to 10 percent of their holdings from zero at the end of last year. The last time the firm held so much cash was in March 1997, when the S&P 500 tumbled 9.3 percent in about a month.

Biggest-Ever Loss

Citigroup, which has fallen 20 percent since reporting the biggest quarterly loss in its 196-year history, may have writedowns of $15 billion in the first quarter, according to Merrill Lynch & Co. That would add to the $22 billion that Citigroup already lost because of the worst housing slump since the Great Depression. Citigroup, Bear and Lehman are based in New York.

Last week, Citigroup traded at 0.82 times its stated net assets of $113.6 billion, the cheapest since at least 1998. That suggests the biggest U.S. bank would be worth more if shareholders fired management and liquidated it.

Citigroup's book value exceeds its market price only if the bank's $133.4 billion in so-called Level 3 assets are being accurately priced. Those include loans, asset-backed securities and derivatives for which market prices are so scarce that companies use internal models to gauge their worth.

``Lots of people are arguing that stocks are cheap,'' said Philippe Gijsels, 37, senior equity strategist at Fortis Global Markets. The problem is that when estimates of earnings and asset values prove unreliable, ``those measures break down.''

March 2003

Mutual fund managers who invest for pension accounts, insurance companies and individuals raised the cash they held to 4.9 percent of client assets this month, according to Merrill. The last time the level was higher was in March 2003, after the S&P 500 had lost almost half of its value from its 2000 peak.

In the last U.S. bear market between March 2000 and October 2002, when the S&P 500 fell 49 percent, U.S. mutual funds lost 19 percent, including dividend payments, Bloomberg data show. That compares with a 5.6 percent gain for hedge funds, according to Bloomberg data.

Jeffrey Mortimer, chief investment officer of equities at Charles Schwab Investment Management in San Francisco, which oversees almost $40 billion, says investing in stocks now is worth the risk because prices are historically cheap. Companies in the S&P 500 trade at 14.03 times estimated profit, according to Bloomberg data. Index members last traded at a cheaper valuation based on historic earnings in October 1990.

``The price of admission for playing is that the market sometimes gets quite violent on the downside,'' said Mortimer, 44. ``If you're a long-term investor, you should welcome this stuff.''

Stefan Wintner, 25, who helps manage $4.6 billion at Kathrein & Co. in Vienna, disagrees.

``We'll wait for volatility to come down, prices to improve across the board,'' he said. ``Prices look cheap, but if earnings fall 20 percent, then they don't look that cheap anymore.''
sam | 03.25.08 - 9:32 am | #

ipodius writes:
I know people like ipodius will tell me how naive I am and how I really don't want this.

I know in your heart of hearts you want this in an emotional way. But in a logical way you don't. Unless, of course, you want to see the bulk of savings/401k/asset value vaporized before your eyes, massive unemployment as companies have to lay off to keep daily operations funded, and a whole host of other problems.

So yes, while my emotions say STICK IT TO THEM (as now my emotions run with Stumpff, the asshat), my logic tells me the Fed did the right thing.
ipodius | 03.25.08 - 9:32 am | #

ac writes:

How about "Banana Republics R Us?"

Oooo... that's much better.

ac | 03.25.08 - 9:34 am | #

dryfly writes:
I hear columnists refer to "the system collapsing". Why wouldn't the other large and regional banks be able to fill in the services of the defunct bank(s)?
What wouldn't "the system" be able to retrieve?

lama - it would be like turning the power company off of a few days or weeks while the 'other utilities' get in place to provide power. That would not be good.

It wouldn't just be Bear - it would be every counter-party and then all counter-parties would be suspect.

Seriously - I think the money center banks are more important to the economy that power companies... I can run for a few days on back up power but if a central financial institution fails and the transactions stop from counter-party lock up - then everything stops (like shipments to power plants and food to shelves since the transactions don't 'clear')... it is all done via electronic transaction through these banks. I deal with these things in my business - peripherally - and it is very important. Te accountants & engineers hardly matter - we are ants running around the control room floor.

Bear can fail - that's fine - but it has to be orderly & managed like transferring ownership of a utility. That was what the fed tried to facilitate and it appears the mechanism isn't in place to let that happen 'smoothly'.


dryfly | 03.25.08 - 9:35 am | #

eh writes:
...my logic tells me the Fed did the right thing.

So to you a $30b non-recourse 'loan' to JPM to cover junk assets is "right"?
eh | 03.25.08 - 9:35 am | #

Tanta writes:
Not at all an unreasonanble question

Well, frankly, I think it is. The stuff over at IRA is usually pretty thoughtful, but that's just glibertarianism, I think. The glib assumption that Bear could have "run itself" with some more money.

You can question whether JPM is the outfit to take over BSC's operations, but surely it's a bit of a stretch to suggest that no one had to?

The Fed needed a grownup to go in there and start managing the joint.

Personally, I'm thinking that JPM is proving it isn't the grownup of choice. The very fact that Dimon feels the need to up the chuck to $10 to "take care of" those poor Bear employees and managers--to keep them from walking off in a huff--tells you that he's planning on letting the inmates continue to operate the asylum.

But in my view it was waaaaay too late to just write some more checks to BSC.
Tanta | 03.25.08 - 9:36 am | #

mark sol writes:
This is the next disaster waiting in the wings for us. It may not be banking, but it sustains us. read the whole article. Scary...

http://www.cnn.com/2008/WORLD/ am...=rss_topstories
mark sol | 03.25.08 - 9:36 am | #

Missed Information writes:
I am not entirely sure, personally, that the Fed did screw up the deal.

Tanta, I thought better of you!
Are you like Cramer, thinking that it's okay to use taxpayer money because J6P is dumb and will never know?

It is not Fed's right to give multi-billion dollar gifts to JPMs of the world.
Missed Information | Homepage | 03.25.08 - 9:37 am | #

ipodius writes:
I don't give a rat's ass what Dimon wants to pay for Bear. The Fed should have made sure he couldn't pay more than $2.

Tanta, try thinking about it this way: JPM put aside 6B for litigation and other expenses on this deal. That's a lot of coin. If the shareholders had sued, and a fight ensued, how much do you think they would have spent on the battle? What sort of instability would it have lent to the market while all these assets were up in the air?

So, a smart CEO would take a look at all of this, call in his CFO and run the numbers on the costs, NPV of the money etc and figure out "hey, if we tossed 1B at this now and upped the share price, what does the deal look like in the end?" The answer was locking it down, not paying the lawyers, and getting it over with made more financial sense.

The actual spirit of the deal was not violated in any way. The costs were just pushed up-front.
ipodius | 03.25.08 - 9:38 am | #

eh writes:
Tanta,

The glib assumption that Bear could have "run itself" with some more money.

Point me to an analysis that shows BSC is insolvent, or more likely to become insolvent than any other investment bank. As opposed to suffering what was, in effect, a run (perhaps orchestrated) that the PDCF or the TSLF would have alleviated. I just have not seen that yet.

Will Citibank Survive?
eh | 03.25.08 - 9:40 am | #

ipodius writes:
So to you a $30b non-recourse 'loan' to JPM to cover junk assets is "right"?

Given the alternatives? Absolutely.
ipodius | 03.25.08 - 9:41 am | #

Angry Saver writes:
Ipodius,

The fed has been doing the "right" thing for far too long. Dollar cost averaging into a typical large cap mutual fund has yielded approximately 1.5% annually after fees and taxes over the last decade.

Returns on housing for the majority will likely be equally abysmal.

Surely a free market is better than this.
Angry Saver | 03.25.08 - 9:41 am | #

plschwartz writes:
There is an old Chinese story called four in the morning.
A monkey keeper was trying to trim costs so he started cutting back on the number of peanuts he fed them. Till finally it was just four peanuts in the morning and three at night.
The monkeys ranted. Cramer raved. So the monkey keeper relented and gave them three peanuts in the morning and four at night. Everyone was happy
plschwartz | 03.25.08 - 9:42 am | #

wally writes:
$10? I'd like some more, please.
wally | 03.25.08 - 9:42 am | #

eh writes:
Lehman got more leveraged, not less.
eh | 03.25.08 - 9:42 am | #

TheFinancialNinja writes:
Sarcastic Rant on Fannie and Freddie
TheFinancialNinja | Homepage | 03.25.08 - 9:43 am | #

Angry Saver writes:
eh,

Lehman is a "house" of cards.
Angry Saver | 03.25.08 - 9:43 am | #

eh writes:
Given the alternatives? Absolutely.

What were they? Lay them out for me.
eh | 03.25.08 - 9:43 am | #

rsj writes:
Shock collars and leashes reminds me of my divorce.

In the spirit of celebrating(my now ex and I had a better divorce than marriage) he gave me a gift. It was a book titled How to Train your Man in 21 Days or Less Using the Secrets of Professional Dogtrainers.

I figure the author could make a fortune retitling it how to train bankers in 21 days etc.
rsj | 03.25.08 - 9:43 am | #

Tanta writes:
The actual spirit of the deal was not violated in any way. The costs were just pushed up-front.

Yeah, that's why Wells Fargo is so desperately hoping it never shows up on the Fed's list of rescuers.

As I said, I don't give a rat's ass, particularly, about what Dimon wants to spend. (I'm not a JPM shareholder.)

I am concerned about who gets the money, not who pays it.

BSC management and a big shareholder just extorted that money from us.

If JPM didn't care for the litigation risk, it should have refused to do the deal. The whole effing point of the $30 billion backstop was to sweeten it sufficiently.

Jeebus. Is nothing ever enough for these guys?
Tanta | 03.25.08 - 9:43 am | #

mark sol writes:
Angry Saver

I wouldnt even call it a house, more like a shack, nut it too will be saved.
mark sol | 03.25.08 - 9:44 am | #

Anonymous writes:
"Why is it such a tragedy to have a large bank fail?'

Because then stocks go down and then people get all pissy and mony and don't want to spend money by taking on more debt then they can afford to prop up the rest of the banks that are in just as bad a shape as the one that failed and then it gets to be a mess. Kind of like what we have right now except now stocks are going up so it will be ok. Right?
Anonymous | 03.25.08 - 9:44 am | #

ipodius writes:
Surely a free market is better than this.

Angry saver, and if Bear had collapsed and the financial markets melted down, everyone here would have been screaming about why the Fed didn't step in. Monday morning quarterbacking at its best. And you really would have been angry if Bear went down and all the counter-party poo hit the fan...as you'd have to change your name to ex-saver.
ipodius | 03.25.08 - 9:44 am | #

Angry Saver writes:
mark sol,

LOL! Investment Shacks! Perhaps it's a new "cottage" indusrty.
Angry Saver | 03.25.08 - 9:45 am | #

lama writes:
Dry,
Thanks, I was factoring in some sort of takeover of the accounts and transactions. I'm just not convinced the entities need to survive in the current state.

OT: We recently hired a former CFO of a now defunct sub-prime lender (one you know) for a project. Got a question for him?
lama | 03.25.08 - 9:46 am | #

randy writes:
this is a bit ot but case shiller is out and it ain't good.tried to copy and paste the s&p site but no luck.
randy | 03.25.08 - 9:46 am | #

dryfly writes:
Tanta, try thinking about it this way: JPM put aside 6B for litigation and other expenses on this deal. That's a lot of coin. If the shareholders had sued, and a fight ensued, how much do you think they would have spent on the battle? What sort of instability would it have lent to the market while all these assets were up in the air?

ipod - the deal still isn't 'done' even at $10. Been no stockholder sign off that I can see. No guarentees there won't be lawsuits. So we still have all of that to look forward to except now it is starting at a $10 price.

And now Stumpf asks if he 'can haz sum too'?

If there is a flaw - it is that the fed did the wrong things for all the right reasons - as there isn't a mechanism in place right now to do it right.

Until those mechanisms are in place we need collars & leashes.

dryfly | 03.25.08 - 9:46 am | #

Nemo writes:
Tanta --

Now, letting themselves get taken by Dimon a week later might count as a screw-up.

All that happened a week later is Dimon paid $10 instead of $2. How does that qualify as Dimon "taking" anybody? The Fed wants the same thing Dimon wants; to see Bear taken over by JPM. If $2/share was somehow not going to suffice, that was a simply a miscalculation by the Fed, not a brilliant coup by Dimon.

But I still do not understand why $10 is enough when $2 is not. As Yves points out, the true value of the equity is almost certainly $0. If BSC shareholders have some huge bargaining chip -- say, the entire financial system under the gun -- why not hold out for $15, or $40, or $80? And why would their board accept the $2 offer in the first place?

Put another way, I could imagine the shareholders having no bargaining chip at all. And I could imagine them having a huge bargaining chip. But what could they possibly have that is worth more than $2/share (this week) but less than $10/share? These are not "nice guys"; these are the shareholders and their board. Wouldn't they demand whatever their bargaining chip is worth to the people desperate to close the transaction?

I still believe we are all missing some important piece of the story.
Nemo | Homepage | 03.25.08 - 9:47 am | #

Tanta writes:
Point me to an analysis that shows BSC is insolvent

Well, I just did. Did you read Yves's post?
Tanta | 03.25.08 - 9:47 am | #

Missed Information writes:
ipodius writes:
So to you a $30b non-recourse 'loan' to JPM to cover junk assets is "right"?

Given the alternatives? Absolutely.

There is a very wise saying: road to hell is paved with good intentions.
I don't doubt Fed meant well.

But road to hell is exactly where this is taking us.
Missed Information | Homepage | 03.25.08 - 9:47 am | #

Anonymous writes:
"Jeebus. Is nothing ever enough for these guys?"

"We make the rules - the news, war, peace, famine, upheaval, the cost of a paper clip... you're not naive enough to think we're living in a democracy are you? It's the free market."

Gordon Gekko
Anonymous | 03.25.08 - 9:48 am | #

ipodius writes:
BSC management and a big shareholder just extorted that money from us

Actually no tanta they didn't. At least not at this time. They just avoided a lot of legal fees and time value of money equations here. And I'm not sure I'm all that outraged at BSC stockholders getting $10 a share out of it. That's still a WHOPPING loss for them. And none of us are really sure what the assets of BSC will actually be worth in the end. Perhaps that's justified. I personally think it is, and that JPM will do very well with this deal.

But I do understand the emotion here. You just have to lose that as you go to the table to make the deal and let the numbers speak. Emotions screw up a negotiation faster than anything.
ipodius | 03.25.08 - 9:48 am | #

plschwartz writes:
Isn't it wonderful how well good cop works?
First Bernanke was good cop saving the world. Dimon was bad cop at $2. Now Dimon is good cop at $10. Bernanke is bad cop.
Theater of the absurd. Are you so sure when the Second Act was written?
plschwartz | 03.25.08 - 9:49 am | #

singe writes:
so will ayn rand be the next head of the fed and straighten this shit out or what?
singe | 03.25.08 - 9:49 am | #

Angry Saver writes:
ipodius,

America has become an "ex-saver." The largest debtor nation in history.
Angry Saver | 03.25.08 - 9:49 am | #

Tanta writes:
Nemo, to say it was about "shareholders" having a bargaining chip or not seems a bit misleading to me.

Most--or at least a huge minority, I haven't looked it up--of BSC shareholders were insiders: management and employees.

I thought Dimon made it quite clear he was trying to increase their payout to "keep them on board."
Tanta | 03.25.08 - 9:49 am | #

mark sol writes:
Angry Saver

we are becoming a country of payday loan companies sprouting up everywhere 800% interest on short term loans, no problem. Just see it on Wall Street. Golman sachs with a drive up window for payday loans. thats where the entry level MBA's so cocksure of themselves will start their careers. Not a bad fit.
mark sol | 03.25.08 - 9:50 am | #

dryfly writes:
Thanks, I was factoring in some sort of takeover of the accounts and transactions. I'm just not convinced the entities need to survive in the current state. - lama

I agree - and wipe out the stockholders & senior management that oversaw the creation of the mess.

The problem is it isn't just the static accounts... its the ongoing transaction transfer that is tricky... and those are far more important from a 'societal pain' factor.

That's why we need systems in place to step in and run these 'money utilities' while the ownership hassles are sorted out.

dryfly | 03.25.08 - 9:50 am | #

ipodius writes:
OT: We recently hired a former CFO of a now defunct sub-prime lender (one you know) for a project. Got a question for him?

Not really. Just walk up and slap him across the face for me and say nothing.
ipodius | 03.25.08 - 9:52 am | #

mark sol writes:
Singe writes:

so will ayn rand be the next head of the fed and straighten this shit out or what?

You dont get it Ayn Rand was channeling through that old fart Greenspan. Like most channelers you cant figure out what they are saying.

http://thinkexist.com/quotes/ala...alan_greenspan/

Tell me Greenspan wasnt channeling Ayn Rand? I rest my case.
mark sol | 03.25.08 - 9:53 am | #

Mook writes:
If JPM didn't care for the litigation risk, it should have refused to do the deal. The whole effing point of the $30 billion backstop was to sweeten it sufficiently.

Jeebus. Is nothing ever enough for these guys?

Short answer: No.

Look at the strings that prospective buyers of Northern Rock wanted attached to any deal - they basically wanted 100% of any potential profits (which they could then leverage into 1,000+%) while wanting Her Majesty's Government to volunteer to be on the hook for 100% of the losses.

The gub'mint said - rightly IMO - well, if that's your view, we'll just nationalize the thing and own the profits as well as the losses, thank you.

I get an eerie feeling we're heading down the same road here.
Mook | 03.25.08 - 9:53 am | #

Tanta writes:
They just avoided a lot of legal fees and time value of money equations here

That is precisely where the term "extortion" enters the discussion. Certain shareholders threatened to spend a lot of money suing JPM. JPM gave in and just gave them the money to save on litigation costs.

You seem to be assuming, if I read you correctly, that it's OK for Bear managment to run that baby into the ground and then get paid about $10 more than the shares were worth the day the deal was brokered to "go away."

Why is this not appalling?
Tanta | 03.25.08 - 9:53 am | #

eh writes:
Tanta,

Yes I did read the post. There is no demonstration of insolvency there. Only a flat statement that BSC was going to declare bk on Monday (maybe so), but the ostensible reason for this was the run -- they did not have, and could not get, the needed liquidity (in time) to meet the run. So why not put up that $30b as a loan to BSC to help with that problem?

I still think that in the short term the most important thing was to prevent asset liquidation or bk so that things would not get marked to market, since so many other Wall St players hold similar assets.
eh | 03.25.08 - 9:53 am | #

dryfly writes:
OT: We recently hired a former CFO of a now defunct sub-prime lender (one you know) for a project. Got a question for him?

Ask him if we can help us all put a bid in for Bear - its probably not too late. He know anyone at the fed?

dryfly | 03.25.08 - 9:53 am | #

ipodius writes:
I thought Dimon made it quite clear he was trying to increase their payout to "keep them on board."

CEO-speak for "getting the deal done as quickly as possible". Frankly, I think it was brilliant. He just locked down the shareholder vote for 1B of the 6B he thought he'd spend leaving him 5B to unwind and take losses on. People can sue, but they can't stop the deal and it can get done quickly. I know you're going to hate me for saying it, but from a management perspective, it was a high-five move. I got a little misty-eyed thinking about it ;)
ipodius | 03.25.08 - 9:55 am | #

w writes:
“It has been my experience that competency in mathematics, both in numerical manipulations and in understanding its conceptual foundations, enhances a person's ability to handle the more ambiguous and qualitative relationships that dominate our day-to-day financial decision-making.”
Alan Greenspan quote
w | 03.25.08 - 9:55 am | #

ipodius writes:
Why is this not appalling?

I'm more appalled spending the money on wall-street lawyer types...this seems to be less evil to me somehow ;)
ipodius | 03.25.08 - 9:56 am | #

dryfly writes:
Note to fed - next time let them declare BK first. Just be prepared to move the window operations out back where the loading docks are... and make sure your tellers know how to drive fork trucks.

dryfly | 03.25.08 - 9:56 am | #

Tanta writes:
Emotions screw up a negotiation faster than anything.

Sigh.

The Fed is obligated to deal with the moral hazard problem.

That means being a hard-ass in the negotiations when it comes to how well the existing shareholders and management do in the deal.

It has nothing to do with being "emotional." It is hard-nosed cold calculating necessary line-drawing. And it appears they weren't quite cold and calculating enough.
Tanta | 03.25.08 - 9:56 am | #

eh writes:
I got a little misty-eyed thinking about it ;)

I guess you're not a BSC shareholder then. (I'm not either.)
eh | 03.25.08 - 9:56 am | #

ipodius writes:
he, i just held some for a short time while this was playing out :) i may be many things, but stupid i ain't :)
ipodius | 03.25.08 - 9:57 am | #

dryfly writes:
I'm more appalled spending the money on wall-street lawyer types...this seems to be less evil to me somehow ;)
ipodius | 03.25.08 - 9:56 am | #

That comes in phase two regardless. You really think lawyers haven't targeted some of that fed backed $10?

Lawyers don't go away until price equals zero... you just have to plan to fight the lawyers no matter what the price is.

dryfly | 03.25.08 - 9:59 am | #

Tanta writes:
but the ostensible reason for this was the run -- they did not have, and could not get, the needed liquidity (in time) to meet the run.

You're saying they weren't really insolvent, they just needed another loan?

What's your definition of "insolvent"?
Tanta | 03.25.08 - 9:59 am | #

plschwartz writes:
Another Chinese story the Midnight Scholar is about how a magician took pity on a poorly endowed student and grafted inches on with a dog penis.
Not my thing, but several times I have seen Wells Fargo on the short shite list with WaMu.
Maybe Stumpf visited the same magician and got his stumpf elongated with said dog penis. No longer the hare, he became the hound
plschwartz | 03.25.08 - 9:59 am | #

ipodius writes:
The Fed is obligated to deal with the moral hazard problem.

I agree. Which is why Stumpff should be treated by the Fed as if he were radioactive. The same goes for other banks. He's now the poster-boy for moral hazard...the corporate equivalent to a house owner maxing out the refi and then asking for a bailout for the loan from the government.
ipodius | 03.25.08 - 9:59 am | #

w writes:
“Anything that we can do to raise personal savings is very much in the interest of this country," Greenspan said.”
Alan Greenspan quote

get thyself to an old age home
w | 03.25.08 - 10:00 am | #

sk writes:

What's your definition of "insolvent"?
Tanta


When even your own rich mother won't give you a loan, you are insolvent.
When people say: "I'm love to man, but I got some stuff to take care of myself" then you are illiquid.

-K
sk | 03.25.08 - 10:02 am | #

mark sol writes:
I am new to this baord so bear my ignorance. who is Stumpf.
mark sol | 03.25.08 - 10:02 am | #

ipodius writes:
Lawyers don't go away until price equals zero... you just have to plan to fight the lawyers no matter what the price is.

By doing what they just did, the legal case is very difficult. The majority of the shareholders will vote for it. Some legal clean-up is inevitable, but not money and time wasting. They knew what they were doing. And as far as I can see, no one stepped up to the plate to make a better offer.
ipodius | 03.25.08 - 10:02 am | #

Nemo writes:
Tanta --

Most--or at least a huge minority, I haven't looked it up--of BSC shareholders were insiders: management and employees.

I thought Dimon made it quite clear he was trying to increase their payout to "keep them on board."

Yes, I have read this, but it really does not make any sense. Even if the majority of the shares are held by employees -- I have not looked it up either -- it could not be a huge majority. So if employee retention is the goal, increasing the takeover price is a very inefficient way to achieve it. Why not just offer the employees you want to keep direct compensation? Particularly direct compensation that takes a while to vest... Offering a higher take-out price (1) directs a lot of money to non-employees; and (2) pays off right now, which does not provide any new incentive to stay on board.

If you want the employees to stick around, you offer them something in exchange for sticking around. At least, that is how it has always happened where I have worked.

So again I ask: What could BSC have, exactly, that is worth more than $2/share but less than $10/share?
Nemo | Homepage | 03.25.08 - 10:03 am | #

Tanta writes:
Note to fed - next time let them declare BK first.

Now they're going to have to.

Some people are never going to give up on the mythology that Bear coulda beena contendah if the Fed had just slipped them one more loan.

Plus outfits like WFC are lining up to be the next "rescuer."

It'll only get worse until someone gets shot as a deterrent.
Tanta | 03.25.08 - 10:03 am | #

w writes:
Analyst Sees Peril for JPMorgan in Bear Buyout

http://www.cnbc.com/id/23792652
w | 03.25.08 - 10:06 am | #

Nemo writes:
Also, part of this new $10 deal involves a new share issuance to JPM where they get to buy 40% of the voting power and push the takeover through.

OK great. But Why didn't the Fed and JPM include that provision in the deal last week?

This whole story is just mighty peculiar. What we have read so far does not add up, at least to me.
Nemo | Homepage | 03.25.08 - 10:06 am | #

mark sol writes:
who is stumpf?
mark sol | 03.25.08 - 10:07 am | #

Max writes:
It'll only get worse until someone gets shot as a deterrent.

And there you go. Not only is the Fed capital constrained itself, the moral hazard problem raised its ugly head at light speed, and the perception of the Fed as a weak player is now in the minds of the public (and the world) at large.

Bernanke's Box indeed.
Max | Homepage | 03.25.08 - 10:08 am | #

bZb writes:
Now they're going to have to.


You think Bernanke has the guts for it?
bZb | 03.25.08 - 10:08 am | #

jd writes:
the market is quite red. what happened?
jd | 03.25.08 - 10:09 am | #

Tanta writes:
Even if the majority of the shares are held by employees -- I have not looked it up either -- it could not be a huge majority. So if employee retention is the goal, increasing the takeover price is a very inefficient way to achieve it.

Per Reuters 1/3 of shares were held by employees. I'm still not sure if that includes Cayne or not.

The rank and file would have done much better in BK, I suspect, from the "retention payment" perspective.

But they didn't get to go to BK.
Tanta | 03.25.08 - 10:09 am | #

mojo writes:

I am new to this baord so bear my ignorance. who is Stumpf. ~ mark sol

According to a Chinese proverb, that's the guy with the dogs penis.
mojo | 03.25.08 - 10:09 am | #

Russ writes:
Which is why Stumpff should be treated by the Fed as if he were radioactive.

WTF? If Bernanke's dropping cash out of a helicopter, you'd be a fool not to try to pick up a few pieces of currency.

If this means the Fed chopper won't fly over Stumpff's house, then W-F might be the only one not a party to the moral hazard created by the Fed.

Whatever your opinion of the Fed's actions, the Fed has expanded it's influence beyond it's mandate.
Russ | 03.25.08 - 10:10 am | #

eh writes:
What's your definition of "insolvent"?

What is the purpose behind the PDCF and TSLF? Are institutions that use it just as (technically) insolvent as BSC then?

Tanta, you have come nowhere close to resolving or explaining the glaring 'peculiarities' around this JPM/BSC deal.
eh | 03.25.08 - 10:11 am | #

RayOnTheFarm writes:
OT

Bloomberg : S&P/Case-Shiller Home Price Index Falls Record 10.7%
RayOnTheFarm | 03.25.08 - 10:11 am | #

Tanta writes:
I am new to this baord so bear my ignorance. who is Stumpf.

He would be the guy identified in the news report I quoted from in the post as "Wells Fargo CEO John Stumpf."

I have no idea why our resident wags want to keep giving him another F. Well, OK, I do, but that's a joke. The name is "Stumpf."

Anyway, if you're new here, you may not have encountered "RTFP" yet. So I'll let you off the hook this time.
Tanta | 03.25.08 - 10:17 am | #

Harsh Realty writes:
The Fed brokered the transaction. By definition it wasn't "illegal."

What an odd statement, at least by an American.

We're all Third World now.
Harsh Realty | 03.25.08 - 10:17 am | #

Angry Saver writes:
We should have a contest to see who can most accurately forecast when the mortgage mess will be "officially" nationalized.
Angry Saver | 03.25.08 - 10:17 am | #

dryfly writes:
It'll only get worse until someone gets shot as a deterrent.
Tanta | 03.25.08 - 10:03 am | #

Makes me want to buy them a gift certificate at Cabelas... only they'd probably use it to buy campfire song books instead of bullets. [Everyone now sing 'Kumbaya'].

dryfly | 03.25.08 - 10:17 am | #

mark sol writes:
tanata thanks... whats rtpf?
mark sol | 03.25.08 - 10:18 am | #

NSA writes:
Chinese Bear Story:

A bear has been ravaging a local village, so a bear hunter named Bernanke is called upon to kill the bear. He goes out into the woods hunting for the bear, but the bear is smart, ambushes the hunter and bends him over a stumpf, and has his way, violating the hunter, then runs off.

Enraged, the hunter goes back to his village, finds his biggest rifle and again stalks the bear in the woods. The hunter is once again ambushed by the bear; the bear grabs the rifle, flings it away, turns to Bernanke the hunter, and says:

"You didn't come here for the hunting, did you?"
NSA | 03.25.08 - 10:19 am | #

Anon writes:
STUMPF is an acronym.
Anon | 03.25.08 - 10:20 am | #

efr writes:
What's with all the righteous indignation at Stumpf's comments?

He wants what everyone else in the financial markets wants: a bargain price for a valuable business franchise.

What better way to get that than to buy from a distressed seller?

Sign me up. The next time the Fed wants to sell an attractive, never-available business franchise at a distressed price, I'll take it.
efr | 03.25.08 - 10:21 am | #

Tanta writes:
What is the purpose behind the PDCF and TSLF? Are institutions that use it just as (technically) insolvent as BSC then?

Well, I hope not.

The story we are confronted with seems to be that the Fed only let the other primary brokers in on the Fed borrowing game after it had disposed of the corpse of BSC. To keep them solvent.

This line of thought suggests that the Fed does not want to use borrowing facilities to keep insolvent institutions on life-support. It wants to use borrowing facilities to keep basically solvent institutions from being dragged down with the busted ones.

You may or may not agree with that. But I quoted Yves' analysis at length because I thought it was fairly convincing. It is at least worth considering, not just contradicting.
Tanta | 03.25.08 - 10:23 am | #

dryfly writes:
He wants what everyone else in the financial markets wants: a bargain price for a valuable business franchise.

I.E. - free lunch. But they usually aren't so brazen to come out and actually say it unless they are in agriculture or military-industrial-complex.

dryfly | 03.25.08 - 10:25 am | #

Tanta writes:
tanata thanks... whats rtpf?

That's "Tanta" and "RTFP."

There's a "Read" and a "the" and a "Post" in there. I'll let you guess what the other word is.
Tanta | 03.25.08 - 10:25 am | #

robster writes:
Why are you guys pissing on Stumpf? He runs a bank that happens to be solvent (or at least "more" solvent) than most others. If the fed is looking to "broker" deals to help the system survive, why shouldn't Stumpf step up and volunteer his organization, provided the deal meets other WFC metrics?
robster | 03.25.08 - 10:26 am | #

eh writes:
Another POV (not that I necessarily agree with it in all aspects):

Paulson's gift to his bankster buddies
eh | 03.25.08 - 10:26 am | #

dryfly writes:
There's a "Read" and a "the" and a "Post" in there. I'll let you guess what the other word is.
Tanta | 03.25.08 - 10:25 am | #

Oh my [gasp] I thought it meant 'read the fine print'...

;)

dryfly | 03.25.08 - 10:28 am | #

m writes:
U.S. March consumer confidence down, outlook grim
By Ruth Mantell

WASHINGTON (MarketWatch) -- Continuing its downward slide, U.S. consumer confidence fell in March, the Conference Board reported Tuesday, as expectations hit a 35-year-low, reaching levels not seen since the oil embargo and Watergate. The March consumer confidence index fell to 64.5 from a revised reading of 76.4 in February. Economists surveyed by MarketWatch had expected a March reading of 73.3. "Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon," said Lynn Franco, director of consumer research at the private Conference Board.


Stoopid, ungratefull consoomers. Can't they see that everything is well and under control. Pfff, sheeple...
m | 03.25.08 - 10:28 am | #

Tanta writes:
He wants what everyone else in the financial markets wants: a bargain price for a valuable business franchise.

Sure he does. And a back-channel discussion with the Fed might, I suppose, in some possible world be considered acceptable.

But he just branded his acquisition targets as "Fed-assisted bailout material."

It's one thing to want a bargain. It's another entirely to start a run on an insured bank so that you can get it on the cheap.

I'm sorry, but in the days of my youth we were required to talk more circumspectly in public about the extent to which our competitors or acquisition targets were or were not bailout material.
Tanta | 03.25.08 - 10:29 am | #

dryfly writes:
Why are you guys pissing on Stumpf? He runs a bank that happens to be solvent (or at least "more" solvent) than most others.

His mistake - next time he'll know better.

dryfly | 03.25.08 - 10:29 am | #

Missed Information writes:
Oh my [gasp] I thought it meant 'read the fine print'...

Tanta posts in fine print, otherwise her posts don't fit in the browser.
Missed Information | Homepage | 03.25.08 - 10:30 am | #

dryfly writes:
m - its not just consumer confidence either...

Delphi Needs More Time... and probably some friends over at the fed.

dryfly | 03.25.08 - 10:30 am | #

Tom Stone writes:
Tanta,be careful about mentioning dog collars and leashes around wall street folk unless you want a LOT of marriage proposals.
Tom Stone | 03.25.08 - 10:31 am | #

Sniglet writes:
If there is so much concern about creating "moral hazard" why is the Fed bailing out Bear Stearns customers? Wiping out Bear shareholders doesn't do anything to instill a sense of responsibility amongst banking customers to choose prudent, or "safe", financial institutions to do business with. If the Fed guarantees that every derivitaves contract, or deposit, is always honoured then customers have every incentive to seek out the shakiest banks there are if they happen to be offering the sweetest deals.

Does anyone stop to think that there might be a reason some banks are offering better interest rates, or are willing to be counterparties to derivative contracts that no one else will touch?

Until we put the fear of God into banking customers, and the realization that they might lose all their investments if their bank goes bust, we will never be able to put the financial system on a sound footing. As long as the government continues to bail customers out we will always have a race to the bottom. Prudent banks will find it hard to keep customers since everyone will always prefer to do business with the shakiest, yet best-priced, bank there is. Why pay higher fees just for the privilege of working with a bank that has a sound balance sheet and reserve ratio so long as the government has your back?
Sniglet | 03.25.08 - 10:33 am | #

m writes:
Tanta..

In Jewish circles Tanta is a name given to a grandmother as In Tanta Esther. Just an Fyi.
m | 03.25.08 - 10:34 am | #

eh writes:
The run on Bear began around midday on Wednesday, when a series of banks and hedge funds started a whisper campaign against the firm. The firm was doomed, they said. It was almost broke. But some of the money managers were clearly talking their book. They were obviously shorting Bear’s stock, betting it would decline...How do I know? Because I was on the receiving end of a handful of phone calls from the Gang of Wall Street Whisperers. All of them offered a variation on the same theme: Bear Stearns is toast; no one is trading with the firm; clients are pulling their money out.

Is this more or less what happened? The 'orchestration' (my word earlier). If so, couldn't the same thing happen to other vulnerable (liquidity) investment banks? Lehman, for example, was, until earnings came out (they fell by more than half, but that got short attention), strongly rumored to be next. And isn't this what the PDCF and TSLF are designed to combat?
eh | 03.25.08 - 10:34 am | #

randy writes:
i try to be a silent observor here,but some times i can't help but vent.some of you obviously don't get out in the real world.sympathy for wall street and avoiding the big melt down,give me a break.these people would eat their children for breakfast if they thought they could make a dime.the melt down happened twenty years ago with the dismantling of our manufacuring base.no one gave a shit about the millions of people (ya'll call them joe six-pack)who lost good jobs to 10 cents a day asians.so what if joe and jane went out and borrowed way to much, so what if they walk away and don't pay? maybe there not as dumb as you think. pay backs a bitch.
randy | 03.25.08 - 10:37 am | #

w writes:
RANDY
AMen, bravo and well said.
w | 03.25.08 - 10:38 am | #

plschwartz writes:
Well I think the devil is in the details.
First the Fed ain't fools Maybe since they are all Bushies some of the ivouGov'ners are but not the Sherpas. Fed does get to keep any profits same as UK-Northern Rock. Fed Sherpas gets to price assets IIRC as of March 14, and Morgan sold them 1Bil insurance.
Don't know about the deal for JPM but since 30% of BSC stock owned by employees and JPM will keep half maybe 150 mil goes to as a signing bonus.
And JPM if I understur and it gets BSC assets way earlier. Is this worth big bucks?

There was a recent story in NYT about some kid down south who kept getting beaten up. Somehow he had gotten "in play" and nothing can stop the other kids fists. (The same behavior has been seen in chimps.)
Tag, Monkey in the Middle, etc are kids games with this theme. The one in play is simply called "It"

We have all seen decent firms "in play", who become It.
BSC was cut out of the herd and was dead meat. Logic and Finance wither in the face of atavistic aggression

Stumpf seems to be trying a defensive move to get away from being It.
Won't work if its WFC's time
plschwartz | 03.25.08 - 10:40 am | #

Tanta writes:
Is this more or less what happened? The 'orchestration' (my word earlier). If so, couldn't the same thing happen to other vulnerable (liquidity) investment banks?

I am not really willing to claim that is or is not what happened in this case.

BUT YES, the same thing could happen. Like, if the CEO of Wells Fargo casually announced that he wouldn't object to a "Fed-assisted deal" at the same time he is known (or at least strongly suspected) of being in the process of kicking Nat City's tires.

That was kind of like, you know, my point. Whether BSC went down because somebody pushed it down or not, we don't need it to happen again.
Tanta | 03.25.08 - 10:43 am | #

Tanta writes:
Stumpf seems to be trying a defensive move to get away from being It.
Won't work if its WFC's time

I admit, I really didn't follow your comment at all. I'm not familiar with your code.

But for the love of Peat, you don't think WFC is saying it doesn't want to be Bear???

WFC is volunteering to be JPM!
Tanta | 03.25.08 - 10:46 am | #

dryfly writes:
We are all Fed Assisted Now - or Wannabees.

Probably need to add a 'Fed Assisted' tag here pretty quick - just to keep track you know, file management.

dryfly | 03.25.08 - 10:47 am | #

Andrew Foland writes:
So the "punishment" for bad behavior involves Tanta, a collar, and a leash?

I can see that this might end up as entirely the wrong incentive structure.
Andrew Foland | Homepage | 03.25.08 - 10:47 am | #

Nemo writes:
From Willem Buiter's FT blog:

Moral Hazard, here we come!
Nemo | Homepage | 03.25.08 - 10:47 am | #

sam writes:
Dimon's dog
Commentary: New deal for Bear Stearns turns CEO's victory into defeat.It's hard to think of a Wall Street executive with more hype to live up to than Jamie Dimon.

http://www.marketwatch.com/news/...& siteid=yahoomy
sam | 03.25.08 - 10:48 am | #

Missed Information writes:
1. Agree with Randy.

2. The fact that even seemingly reasonable people think that Fed did the right thing with BSC shows where the true priorities of most people lie. The only thing you are all worried about is that your precious market doesn't stop functioning for a single day, like that would be the end of the world or something. Volcker was right, it takes a lot of courage to do the right thing, and this country has
no spine left. All it wants is to make sure the creature comforts keep coming in a steady stream.
Missed Information | Homepage | 03.25.08 - 10:48 am | #

Zero writes:
If the Fed and Treasury lose too many political points over this BSC bailout they will hesitate to jump in early next time.

Wall Street CEOs beware. You are rocking the lifeboat pretty hard.
Zero | 03.25.08 - 10:49 am | #

sam writes:
Missed Information

you can speak for me , too.
sam | 03.25.08 - 10:52 am | #

Shnaps writes:
love of PEAT? Who is this Peat fella?

I can't blame Stumpf, btw. They say a closed mouth don't get Fed. Ben opened up this can o'worms by bailing out the firm that was 'too entangled to fail' (props to the Economist for that one).
Shnaps | Homepage | 03.25.08 - 10:53 am | #

plschwartz writes:
From Bloomberg
""Medvedev said that Russia's economy was ``insured'' against fluctuations on the commodities and financial markets by its vast currency reserves, the world's third largest.

``Our financial and reserves, our gold and currency reserves, are higher than ever before and reflect the state of the Russian economy,'' Medvedev said.

However he warned that the country wasn't ``closed off'' completely from the turbulence. ``Russia has an open economy today and we have to think about this, he said."
First major retreat from global economy?
plschwartz | 03.25.08 - 10:55 am | #

Dr. N writes:
"WFC is volunteering to be JPM!"

yes, and perhaps by doing so hoping everyone is persuaded it is not Bear.
Dr. N | 03.25.08 - 10:55 am | #

LJ writes:
The No Income, No Assets, No Employment mortgage programs are now creating an America with people that have No Income, No Assets, and No Jobs.
LJ | Homepage | 03.25.08 - 10:57 am | #

sam writes:
plschwartz

And we Americans think we won the cold war? sheesh. Russia has the largest gas deposits and the 2nd largets oil reserves behind Saudi Arabia. We won the cold war alright. ALot of us will be freezing in the years to come. I am so damn mad
sam | 03.25.08 - 10:58 am | #

burnside writes:
Then my comment yesterday was simply wrong.

Bear Stearns wouldn't have been helped by access to the discount window, and a BSC bankruptcy - and the attendant panic - was imminent.

So 'level playing field' arguments are null and void.

It was and remains a matter of priorities and of damage control.
burnside | 03.25.08 - 10:59 am | #

t writes:
Money-Market Rates Rise, Defy Central Bank Measures

``There's really only a handful of banks that are offering cash,'' said Ronald Tharun, a Mainz, Germany-based money-market trader at LRP Landesbank Rheinland-Pfalz, a unit of Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank. ``Everyone is just waiting for the next bank to go down. There is no trust in the market. They're very afraid.''

http://www.bloomberg.com/apps/ne...5k7Q& refer=home
t | 03.25.08 - 11:05 am | #

t writes:
off topic
India and derivatives next to blow?

http://news.google.com/news?clie...atives&ie=UTF- 8
t | 03.25.08 - 11:09 am | #

Marcus Aurelius writes:
ipodius writes:
Surely a free market is better than this.

Angry saver, and if Bear had collapsed and the financial markets melted down, everyone here would have been screaming about why the Fed didn't step in. Monday morning quarterbacking at its best. And you really would have been angry if Bear went down and all the counter-party poo hit the fan...as you'd have to change your name to ex-saver.
ipodius | 03.25.08 - 9:44 am

_______

Ipodius:

You sound like you're rationalizing the robbery of your own house to your family.

"Don't worry, kids, once the furniture and valuables are gone, and the bank accounts are empty, these bad men will go away, and that's better for us than trying to stop them."

You think BSC is the end of it? Stumpf thinks differently. You think there will be anything left for you when it's over? Which bank did you say you owned?

At what point will it occur to you that the banks are running the show, and that such a situation isn't legitimate under our Constitution? Our forefathers warned us about fiat banking. Hell, the Bankers themselves have made their intentions clear. In the end, your dollar will be worthless and they will come for your gold (if you have any).

You know what's coming, we know what's coming, everybody knows what's coming. Why cower? Why cave?

Do you think it's better to be tortured slowly and have certain death, or to put up a fight and possibly get killed in the process?

The appropriate response to this act of Fascism is outrage - not rationalization and capitulation.

Go along to get along is an inappropriate response to this continuing plunder of our Treasury. Go along to get along is how you end up in a cattle car.
Marcus Aurelius | 03.25.08 - 11:11 am | #

ipodius writes:
It's one thing to want a bargain. It's another entirely to start a run on an insured bank so that you can get it on the cheap.

And it's another thing to come out and say you're looking for a bailout in public. When you are the CEO of a major company (ESPECIALLY) a bank, there are some rules of decorum. One of them is you NEVER comment on your stock price. Ever. The second is that, even if you are looking for a deal, you never admit to it until it is in play.

Now, I could forgive Stumpff (yes the two f's are a joke :) if this were a sarcastic quip. You know, I might say something like this if I were tossing a barb at Jamie, as if to say "Yeah, well, I'd do a deal like this too if the Fed lent me 30 big ones". But somehow I didn't get the sense of irony here. Unless I missed it.
ipodius | 03.25.08 - 11:11 am | #

sam writes:
Go along to get along is an inappropriate response to this continuing plunder of our Treasury. Go along to get along is how you end up in a cattle car.
Marcus Aurelius | 03.25.08 - 11:11 am | #

so true, so true. We forget past history. My parents, grandparents and many other family members were in those cattle cars.
sam | 03.25.08 - 11:14 am | #

ipodius writes:
You sound like you're rationalizing the robbery of your own house to your family.

This is no sense to go along to get along Marcus. I have every reason to believe that the Fed just averted something that you didn't want to see happen no matter what you post here. Your assessment might be different, so be it. But mine was flashing DEFCON 3 on the screen in vivid red at the possibility of BSC BK.

You say you want these things to fail, but I don't think many of you understand the true implications of what you are suggesting. Because from my understanding of all of this, the direct analogy would be what happens after the first nuclear bomb is tossed.
ipodius | 03.25.08 - 11:16 am | #

BG writes:
Tanta,

I just read Yves' post and he offers no further proof of BSC's insolvency that the following:

"If bondholders, as rumored, were buying shares to make sure the JPM deal went through (and thus would take losses on their stock purchases when the deal closed), that meant that they thought their bonds were worth well under 100 cents on the dollar in a bankruptcy."

There are multiple problems with this. To begin with, he's relying on rumors of bondholder purchases to hedge against a BK. However, at the time there were also rumors that Lewis was gonna vote "no" and speculators were buying in hopes of a better deal (as actually came to pass, BTW), that CDS holders were buying so they could _scuttle_ the deal, etc, etc. Why does Yves' chosen rumor get the benefit of the doubt, particularly given that the actual outcome doesn't make any sense if it was true?

Further, it's difficult to judge the difference between insolvency and illiquidity for an institution levered up this much and holding basically illiquid instruments. The worth of that "backstop" will depend on just how badly BSC's assets end up performing over time. Which, if Merton-style "ruthless" default remains rare (as you've argued to date to my satisfaction), shouldn't be all that badly.
BG | 03.25.08 - 11:17 am | #

Tanta writes:
love of PEAT? Who is this Peat fella?

This is an old joke of Tanta's that involves accountant humor. Old accountant humor, because you have to have been around long enough to know who Peat Marwick was.

You'll just have to take my word for it that it's funny.
Tanta | 03.25.08 - 11:19 am | #

Markel writes:
I love when people write things like if the financial markets had melted down when they really mean if the Fed hadn't forcibly transferred money from your bank account into the pockets of ultra-rich Bear executives.

Saving the financial system, and saving the imprudent shareholders of a reckless corporation, are not the same thing.

We used to know this, during previous failures of financial institutions.
Markel | 03.25.08 - 11:20 am | #

Marcus Aurelius writes:
I think you miss my point: We are beyond what we "want". The outcome will be worse in the end if we don't take the hit. Do I "want" to get hit? Hell no! But I refuse to be robbed AND beaten without resistance. DEFCON 3? WTF? This ain't a Tom Clancy novel, it's a back-alley mugging.
Marcus Aurelius | 03.25.08 - 11:20 am | #

Tanta writes:
BG, Barry Ritholtz made the bondholder argument, quite persuasively I thought, some time ago. I don't think this is just a "rumor" Yves picked up, I think it's an analysis that a lot of people came to.
Tanta | 03.25.08 - 11:20 am | #

Malaclypse writes:
Isn't Peat Marwick technically a what, not a who?
Malaclypse | 03.25.08 - 11:22 am | #

Insurance Guy writes:
People have a problem with Stumpf's comment? Really? What did the Fed expect?

Every bank CEO has to be salivating at the thought of a $30BN subsidy for taking over a weak participant. Talk about socializing losses and privatizing gains. The Fed is letting Bear shareholders walk away with cash, is letting Bear bondholders walk away unscathed, is taking the first $30BN in losses and is giving the entire upside to JP morgan. Sweet deal. Nice to be a taxpayer.
Insurance Guy | 03.25.08 - 11:23 am | #

sam writes:
Thornburg Offers $1.35 Billion of Debt Paying 18%

http://www.bloomberg.com/apps/ ne...refer=bondheads

an 18% yield? can someone explain this to me. How do they make it with 18%. Why not just go out and get some credit cards?
sam | 03.25.08 - 11:28 am | #

ipodius writes:
The outcome will be worse in the end if we don't take the hit.

So you say. Obviously the Fed thinks differently and so do I. And if you don't like the reference, you can call it FEDCOM 3 if you'd like. And I might point out to you that beaten and robbed leaves you alive. You are still alive. It could have been worse, as my grandmother would have said.
ipodius | 03.25.08 - 11:30 am | #

plschwartz writes:
Tanta
Yeah. Thats about right. When my son was in Grade school I often picked him up to walk home. When he was about eight or nine he had play-yard last period. Now my son is visually handicapped. It was a good school so the other boys let him run around with them, but obviously not as a peer.
One day they were getting ready to play some variation of tag with a ball. Where It would have the ball thrown at him. Joe who had the ball and declared the game was getting ready to declare Sam It by throwing the ball at him. Sam ran over and grabbed the ball from Joe and ran toward my son. "Raphy is It."sam cried.
Didn't work as the gang wouldn't accept Raphy as It. Sam was It and got hit with harder thrown balls then usual.

Anyways thats what I thought of about when I read of Herr Stumpf's move. Tried to pull a Sam. Since no Raphy it had to go"It to be named later"
IMHO won't work.
If you think the playground analogy is absurd, think of the common gossip that BSC was being punished by Wall St. for not joining the gang to bail out LTCM
plschwartz | 03.25.08 - 11:30 am | #

Ralph Cramdown writes:
Wow, an awful lot of "Shoot the Bear" and "shoot the banker" mentality here.

I do wish people had a better grasp of history. America went through several decades with periodic waves of bank failures. It wasn't a happy time and the first wave didn't, somehow, lead to everybody smartening up and not failing again, as evidenced by the word 'periodic.' Just because it didn't happen in YOUR lifetime does not absolve you of the responsibility to know about it, if you're going to say "maybe some banks should fail as an example." I get a similar feeling now as I got when Shrub promised us a quick, clean war. I thought of Shakespeare, and his "Cry 'Havoc!' and let slip the dogs of war." If the bard knew of unintended consequences from his study of history, how come Shrub didn't, and how come YOU don't?

I read something interesting on gCaptain (maritime blog run by a ship's master) last year. Some captain of something really big had erred in judgment and stranded it. gCaptain's take was "I hope they don't fire him, now that he's got experience." This was NOT how I'd looked at situations like that. Basically, he was asking "Who do you want at the controls, someone who's been in a really tough spot before and knows the dangers, or a new guy who hasn't yet been given an opportunity to screw up?" I think many of our financial system's problems are due to inexperience - the young traders in red suspenders who've never been through a bust before. I hope a lot of the senior folk at Bear work in the industry until they're 65 or 70. They won't need to be reminded of history.
Ralph Cramdown | 03.25.08 - 11:30 am | #

BG writes:
ipodius,

You write "Now, I could forgive Stumpff (yes the two f's are a joke :) if this were a sarcastic quip."

Why is the sarcasm necessary? If Stumpf thinks Dimon managed to get a good deal out of this, even at $10, why wouldn't he try to get the same? That doesn't mean the Fed has to backstop every banker coming to the door looking to get a better return. BSC was a biggie in a number of markets, broader in scope than NCC. At the same time, NCC has a deposit base and a backstop on it in the form of the FDIC. Maybe Ben says "no".
BG | 03.25.08 - 11:34 am | #

warlock writes:
Assuming that the eventual losses are less than $30 billion.

Anyone want to speculate that the final result of this is that both Bear & JPM get taken out?
warlock | 03.25.08 - 11:34 am | #

Insurance Guy writes:
Ralph,

I get that allowing Bear to fail may have caused panic and further runs on other institutions - and such an outcome is to be avioided.

But if the Fed is going to put $30BN at risk anyway, why didn't the Fed just provide the guaranty to Bear counterparties? Allow the Bear shareholders and bondholders to cushion the losses (instead of just taking them first dollar) and hold on to the upside?

Because we live in a world that is dominated by an ideology that protects the wealthy at the expense of evryone else. Its ridiculous.
Insurance Guy | 03.25.08 - 11:36 am | #

Tanta writes:
Isn't Peat Marwick technically a what, not a who?

I guess, technically, it was a "them." Mr. Peat and Mr. Marwick.

Who unloosed legions of gum-snapping 22-year-olds with the ink still wet on their CPAs on a thrift I used to work for.

One year, the most impressive "accomplishment" of the outside auditors was that they built a ceiling-high pyramid of Pepsi cans in one of the conference rooms.
Tanta | 03.25.08 - 11:36 am | #

ipodius writes:
why wouldn't he try to get the same?

Because to get the same would require him keeping his trap shut. You really don't think that the Fed can now touch anything to do with him with a ten foot pole, do you?

So that's why I said it was either incredibly, monumentally stoopid, or he was taking a swipe at Jamie, as if to say "what idiot couldn't make this work with a 29B cushion from the Fed?".
ipodius | 03.25.08 - 11:37 am | #

Insurance Guy writes:
Or taking a shot at the Fed.
Insurance Guy | 03.25.08 - 11:39 am | #

m writes:
Tanta

Have you forgotten Mr. Mitchell?
m | 03.25.08 - 11:39 am | #

m writes:
TANTA

Peat Marwick and Mitchell had offices on 345 Park Park Avenue In Nyc. My office (FDIC) was just above their floor.
m | 03.25.08 - 11:40 am | #

Tanta writes:
Every bank CEO has to be salivating at the thought of a $30BN subsidy for taking over a weak participant.

I'm sorry, but that isn't what I see here.

Whether anyone else agrees with that assessment or not, the Fed decided a week ago Sunday that BSC was not "weak." It was "dead." As in, a share price of $0.

The rules--at least for public consumption--are supposed to be that the Fed doesn't "assist" in this kind of transaction unless the transactee is "dead." Not "weak."

There is absolutely NOTHING stopping Stumpf from making an offer on NCC at a discounted price, if he thinks the bank is weak (which it probably is) and he can turn it around or get value out of it (who knows). It's not like any old acquisition of a weak competitor is a "Fed-assisted bailout."

Again, some people like to think BSC wasn't worth $0 on Deal Day. Sure, some people are still claiming that they should get what their houses "used to be worth" instead of what they're worth today. Whatever.

But I'm still in shock that anyone thinks NCC is a "bailout target" today. Or would say so!

In other words, if people acted on the implication of Stumpf's comment, NCC would be having its doors taped shut by the FDIC as we speak.
Tanta | 03.25.08 - 11:43 am | #

Shnaps writes:
ipodius - I'm still trying to figure out why you're so shocked and outraged about Stumpf's comment? He wasn't saying WF is looking to be bailed out, if that's how you interpreted it. The other way around; they (WF) would "not be averse" to a Fed-assisted acquisition.

Why WOULD he be averse to that? Let's say the gov't starts handing out $600 checks and all you have to do to get it one is file a tax return, what would you do? I don't know about you, but John Stumpf fires up his TurboTax.
Shnaps | Homepage | 03.25.08 - 11:45 am | #

Insurance Guy writes:
My understanding is that the Fed doesn't have a mandate to help the "dead" - only the "weak", by providing liquidity support.

Does the Fed actually have a mandate to bail out the "dead"? If so, its news to me.
Insurance Guy | 03.25.08 - 11:51 am | #

ipodius writes:
Well Shnaps, right up front I'm shocked at the bad grammar as the word is "adverse" not "averse". Secondly, it's just bad judgement as the CEO of a bank to hint that you'd like the same deal, unless done sarcastically. Or it admits that he had no idea what was actually going on here in terms of counter-party default prevention, and smacks of asking for assistance which, as Tanta points out, he doesn't need if he were looking to acquire a weaker bank.

There are so many levels as to why I'm outraged at this it would take a whole post to go through them all. UNLESS it were pure snark at Jamie. Then it'd be worth the chuckle.
ipodius | 03.25.08 - 11:56 am | #

Insurance Guy writes:
I don't see how it could be snark at Jamie. Snark at Bernanke, maybe.
Insurance Guy | 03.25.08 - 11:59 am | #

Tanta writes:
Does the Fed actually have a mandate to bail out the "dead"? If so, its news to me.

To my knowledge, this is the first time the Fed ever brokered the corpse of an iBank. I guess 2008 is the year of the "unprecedented."

But it has certainly brokered the corpses of thrifts before. I worked for one that got "sold" to a stronger commercial bank, with the "assistance" of federal regulators. It was either that or let the taxpayers own it.

My thrift was really only very nearly dead, not deader than a doornail. But then again, this wasn't at the beginning of the S&L crisis, it was well into it. The feds were past the point of giving anybody much of a chance to make it on their own.

And of course the RTC did take over loads o' thrifts. It was just simply willing to tie a porkchop around the necks of some of the "stronger dead" to let them be acquired rather than shut down.
Tanta | 03.25.08 - 12:02 pm |