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Bear Bailout, and What It Really Means

Location: Blogs Bob O'Brien's Sanity Check Blog    
Posted by:   bobo 3/15/2008 11:12 PM

UPDATE 3/16: BEAR TO BE BOUGHT BY JP MORGAN FOR COUPLE BUCKS PER SHARE, FURTHER VALIDATING THE SPECULATION THAT JP MORGAN WANTS BEAR OUT OF SCRUTINY BY ANYONE ELSE. THEY KNOW WHAT THEIR EXPOSURE IS, AND THEY BASICALLY ARE UNWILLING TO PAY MORE THAN A TOKEN TO OWN BEAR - AND BEAR IS HAPPY TO GET THAT TOKEN. HOW MUCH SCARIER DOES THIS NEED TO GET?

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

So, the government has stepped in and orchestrated a bailout of a for-profit broker/investment bank that is not a member of the Fed, nor a bank - and yet the Fed is now acting as though they are. This sort of brings us full circle to where we were several years ago, when I predicted that the dangerous risks and illegal behavior of the Wall Street predators gets passed off to the taxpayer, at a level that makes the S&L crisis look like jaywalking.

And here we are.

But what is significant is not so much that, but that JP Morgan is in the mix. Why is that significant? Because JP Morgan does a lot of clearing for Bear, which means that the massive NSS exposure Bear has would then likely take down JP Morgan, in a heartbeat, as it became obvious that Morgan's assets were also dwarfed by off balance sheet liabilities (if I'm right, which I believe I am). Because if BS went onto the auction block, then potential buyers would get a good look at all its assets and liabilities, which would then give visibility to JP Morgan's exposure, which I'm guessing is considerable.

You think a $500 billion or so drop in asset value is bad? Try what I'm guessing could be multiples of that number in off balance sheet liabilities arising from massive counterfeiting of securities, spanning decades. How would you like that to come out? Nope, best to bring in the government, circle the wagons, and prop up a for-profit player who got caught with vapor assets.

In the real world, if you take outsized risks, you get slammed when you lose. On Wall Street, you pocket billions in bonuses every year, even as you're aware that your paper is worthless crap, and then call in the cavalry when you get caught - because you are too important to fail.

This is the first of the events I predicted, as to how this plays out. The cover-up continues, any discussion of the actual crimes gets sidetracked by arguments about the importance of stability in the financial markets. and the next 3 generations get to pay for the cover-up.

Here's an idea that will never be discussed in the mainstream press: If you and I have to work for the next decades to pay for the Bears of the world, how about now that we are sponsoring them, we get a look at how our newly-subsidized wunderkind have run their business, specifically, what are the level of fails, ex clearing fails, repo-agreement fails, etc.?  Mary pointed out correctly in the last blogs' comments that we still were never told what the size of the Refco fails were - that just sort of got swept under the rug. Hey, if you can kill all the companies shorted, problem solved, right? But now that we are footing the bill for Bear's mismanagement or larceny, how about we get some scrutiny of what it is we're sponsoring?

That will never happen. JP Morgan can't afford it. The political system can't afford it. The financial system can't afford it. Byrne and I have been talking systemic meltdown arising out of this sort of arrogant trampling of the 1934 Act for years, and here we start seeing it, in slow motion.

You think lying about what your paper is worth sucks? How about carrying a liability that is so large that there isn't enough money in the system to cover all the counterfeited stock?

Which is why the country will now have its standard of living reduced by a significant amount, to protect the criminals who operate the system. That's how it played in 1929 - we got a paper tiger regulator created to appease the outrage of a country, run by one of the biggest crooks of the era as his personal retribution machine, and the rest of the population got the dust bowl. History has a way of repeating.

Kiss any value of the dollar goodbye as the printing presses go into maximum overdrive. Kiss confidence in the markets goodbye. Kiss the housing values of the nation goodbye. Start scouting good locations for soup kitchens and public works projects, because that's where this is headed now that the country pays the chit for the worst offenders, just as it did in the S&L crisis. Not surprisingly, many of the guys now running the system made fortunes stuffing junk down the S&L throats, and trading on inside info, lo, 20 years or so ago. So they know the trick - when the jig is up, foist it off on the country, keep the bonuses, and buy assets for pennies on the dollar.

Why is JP Morgan bailing out Bear with the Fed? Because the cancer Bear has is rotting Morgan, and it can't afford the size of the decay to be known, or tomorrow morning, there won't be any market.
Copyright ©2008 Bob O'Brien
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Comments (44)
Re: Bear Bailout, and What It Really Means By bobo on 3/16/2008 12:01 PM
And the Fed decision to finance a bailout for a non-bank takes its first hits. Of course, nothing will change, however it is interesting that at least some are paying attention.

http://uk.reuters.com/article/marketsNewsUS/idUKN1630454820080316?rpc=401

Also, a great recap of the current situation:

http://www1.investorvillage.com/smbd.asp?mb=3532&mn=15484&pt=msg&mid=4342726
Re: Bear Bailout, and What It Really Means By ted on 3/16/2008 4:20 PM
Must read

http://tinyurl.com/2w2x38

1998 Bear Stearns knowingly clears for introducing brokerage committing fraud.

http://tinyurl.com/2dva3k

Here's another old one - note they allowed an introducing brokerage to sell twice as many shares as were outstanding. I've been told that Randolf Pace (mentioned in this article) and the mob are behind much of the current naked shorting of penny stocks.

http://tinyurl.com/29wx4w

http://tinyurl.com/3xxf6n
Re: Bear Bailout, and What It Really Means By captdale on 3/19/2008 3:32 PM
Bobo - Check this out. I can hardly believe it. The "taxpayers" are to bail out the subprime mess ? Oh say it isn't so............ Oh wait, you already said that was what was going to happen.
-----------------------------------------
White House, Lawmakers Ponder Housing Bailout
by Chris Arnold

All Things Considered, March 19, 2008 · On the heels of federal intervention following the Bear Stearns collapse, there are fresh indications that the Bush administration and House Democrats are willing to negotiate a plan to use taxpayer money to stem the flood of foreclosures.
Re: Bear Bailout, and What It Really Means By Mike on 3/22/2008 10:37 PM
http://www.cnbc.com/id/15840232?video=690802125&play=1#
Re: Bear Bailout, and What It Really Means By New sheriff in town on 3/22/2008 10:39 PM
Let me get this right. Instead of getting the DOJ to replace the SEC, we're going to get the privately owned federal reserve to do the regulating? Aren't these the same thieves (Nazareth and co.) that caused the problem?

http://cryptogon.com/

Read further on that page about special drawing rights. Their whole world view is about creating level after level of IOU's with no intention to ever back them with anything of substance. They have an elite view of the world where the rules don't apply to them and that they don't have to listen to the "little people" that control this "democracy".

“There is a new sheriff in town,” said a senior banker. “The Bear situation changed everything: people saw death before their eyes. The Fed and Treasury are in charge now and are not going to let go”.

Their stance has triggered talk of new financial services legislation, with bankers and politicians, including Barney Frank, House financial services committee chairman, asking whether investment banks should be regulated by the SEC or the Fed.

The SEC said different agencies were functioning as “equal partners at the regulatory forefront”.
Re: Bear Bailout, and What It Really Means By All Primes Insolvent? on 3/22/2008 10:41 PM
http://www.marketoracle.co.uk/Article4074.html
Re: Bear Bailout, and What It Really Means By Tom on 3/28/2008 4:44 PM
They claim that DTC is being unfairly supported by the SEC in the action and in relation to short selling stocks.

http://www1.cchwallstreet.com/ws-portal/content/news/container.jsp?fn=03-20-08
Re: Bear Bailout, and What It Really Means By vote sham on 3/28/2008 4:47 PM
Creditors and other interested parties can buy a share, buy a put and sell a call, then vote to ensure that the Bear Stearns deal goes through at ANY price.

http://www.iht.com/articles/2008/03/23/business/deal24.php

Derivatives, including calls, puts and more complicated repos and swaps ensure that Wallstreet never loses as they can always manipulate derivatives and other forms of fiat stock ownership on the backs of mainstreet.
Re: Bear Bailout, and What It Really Means By Republicrat on 3/28/2008 4:48 PM
Wallstreet gets their bonuses out before the layoffs and shyte hits the fan. Once the money has been pulled out of the system and the prime brokerages have all merged or gone bankrupt, who honors the IOU's in my account?

http://www.reuters.com/article/ousiv/idUSN2434786820080324?pageNumber=3&virtualBrandChannel=0

What a fun game. You can get rewarded for taking as much risk as you want as you take the gains and the taxpayer eats the losses. If it isn't a direct tax subsidy, it will be inflation after the election and a massive devaluation in the dollar. One of three ways for you to find it harder to make ends meet when they jack up your overdue credit card to 26% as they tell you they don't want to renew your mortgage loan as you are bad risk.

Most people have their life savings in their home. Will this make house prices go up or down? Who will buy your house at pennies on the dollar if you are forced to sell?

The printing presses are running day and night as helicopters dump cash onto Wallstreet to stem their losses. Inflation of the money supply always proceeds price inflation, which implies that both interest rates and inflation rates could be in the teens after the election (six month lag). The smartest thing to do right now is go to cash in resource currencies or the Euro.

The head fake on resources / gold going down before the long weekend is just the plunge protection team central / communist style government intervention into the markets to try and trick you into complacency so they can transfer their losses into your brokerage or bank account. (Communist and monopoly capitalism are the same and are not opposites, both with a large private central bank and coerced taxation - it's different than socialism where people vote whether to help each other as a group and decisions are distributed to the voters or true capitalism where any business can survive on its merits without being naked shorted into oblivion.)

I predict there will be bank failures and it will get harder and harder to get your money out. The first sign is they will lower your daily withdrawl limit at the bank machine, increase the hold time on drafts and checks from other institutions and increase waiting periods for wires.

The choice of republican or democrat is fake as they both work for the banksters that print our money and control our democracy.

Check your wallet. It says "US Federal Reserve Note" which means the privately owned US Federal Reserve owes you a dollar (the note is their IOU). If you demand payment, they give you another note. They want to do the same thing with shares. They want to ban stock certificates. If you demand your share, they will give you another electronic IOU.

Check your brokerage account. It means the depository trust owes you a share.

When they say the government is trillions in debt, who do you think they owe it to? The interest on the debt exceeds all income tax from every citizen. Those interest payments go to the royal banksters the serfs pay tribute to from their homes. The serfs are in indentured servitude, working 25 years, paying an average 35% of the income as tribute to their royal bankster masters.



Good thing they've decided to let the privately owned Federal Reserve bumped out the captured SEC to regulate the prime brokerages. Us electorate, who think we live in a democracy would hate to have the department of justice or the congress involved.



Things can change really quickly, as soon as in 24 hours, but they never change until the majority want them to change.

Right now, the majority believe the shyte they hear on TV and think Bugs Easter Bunny is the looney toon.
Re: Bear Bailout, and What It Really Means By hedgie on 3/28/2008 4:50 PM
You can imagine how that went over with the country’s biggest short-seller, Jim Chanos. He sent me a very brief email that said, “The Pecora Hearings in 1933-34 in the US Senate COMPLETELY exonerated short-sellers of any wrongdoing (”bear raids”, etc) in the 1929-32 Crash.”

http://blogs.marketwatch.com/greenberg/2008/03/memo-to-cramer-about-bear-raids/?mod=MWBlog
Re: Bear Bailout, and What It Really Means By Sean on 3/28/2008 4:50 PM

Less than 2months ago, these "Prime Brokers" distributed A record $38 billion in Bonuses to their rank and file and now the devastation that is Wall Street is now going hat in hand to the "Fed" for a bail out of $30 billion for Bear Stearns and JP Morgan. How could so much go so wrong so quickly? Or did it? Do you think these CEO's who left(Prince, O'neill et al) with their Golden Parchutes" knew what was coming and left with their hefty severance packages to avoid additional scrutiny? I hope everyone realizes that Capitalism works only one way on Wall Street, when they are making money, because when they lose and they are losing badly right now they go to the Goverment better know as the Lender of "FIRST " resort the Fed and cry liquidity issues. As Bobo has been saying folks, the System is rigged and they have made it very obvious that they only care about the Ultra rich and investment banks. I say let them get that 38 billion dollars back and support themselves. Then if they need money go to Exxon Mobil and borrow some of that 40 bill plus in Profits that they made last year. That should be of help. What do you think?
Some year and a half ago I wrote about the FED, Greenspan et al illegally usurping powers specifically not granted to it, the By hwh on 3/28/2008 4:51 PM
I am trying to locate a piece I wrote around the time of Rod Young's SEC appearance where the FED & Greenspan were usurping powers specifically not granted to them, the implications and rationalle for which they were doing so.

You nailed this piece beautifully. Can hardly wait to read the extrapolations. hwh
Re: Bear Bailout, and What It Really Means By davidn on 3/28/2008 4:52 PM
Netted NSCC fail data available from the SEC.

http://www.sec.gov/foia/docs/failsdata.htm
Re: Bear Bailout, and What It Really Means By Bushco on 4/3/2008 9:03 PM
WASHINGTON - The Bush administration is trying to confront the credit crisis that has rattled nerves from Wall Street to Main Street by proposing wholesale changes in how Washington oversees the financial system.
ADVERTISEMENT

A plan set for release Monday would give new powers to the Federal Reserve so that the central bank serves as the system's overarching protector of stability.

The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.

When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s.

The Associated Press obtained a 22-page executive summary of the proposal. It seeks to make sense of the mishmash of overlapping oversight in which an alphabet-soup roster of agencies regulates banks, thrifts and credit unions.

Under the current hodgepodge, institutions that take deposits and are federally insured face multiple regulatory bodies. By contrast, hedge funds, private equity firms and investment banks endure substantially less regulation.

The credit crisis that has rocked Wall Street and made credit hard to get on Main Street has highlighted that discrepancy in regulation.

Many financial institutions have declared billions of dollars in losses stemming from soaring mortgage defaults caused by prolonged housing troubles.

In an unprecedented move designed to get credit flowing again, the Fed is allowing investment banks to borrow directly from the Fed, something only commercial banks had the power to do before.

That decision came as part of a rescue effort for Bear Stearns Cos., the nation's fifth largest investment bank. It nearly failed earlier this month before the Fed rushed in with a $30 billion line of credit to facilitate the sale of Bear Stearns to JP Morgan Chase & Co.

The Fed's moves have put public money potentially at risk and increased calls for greater regulation of investment banks and other institutions.

The Paulson plan is expected to generate intense debate in Congress, which would have to approve the changes.

Some top Democrats, including Rep. Barney Frank, the chairman of the House Financial Services Committee, are pushing competing ideas that would streamline oversight but also impose new controls beyond those in Paulson's plan.

Sen. Charles Schumer, a leading voice in the debate, said he did not think Paulson had gone far enough in dealing with some of the new complex types of investments heavily featured in the current financial crisis.

"Very complex financial instruments have evolved in recent years," said Schumer, D-N.Y. "The Treasury Department should address these issues as well."

David Nason, Treasury's assistant secretary for domestic finance, said the administration's primary goal is to get through the current credit crisis with officials understanding that the debate over an overhaul plan this far-reaching could last for years.

"These are very complex issues that require a serious amount of debate," he said in an AP interview Saturday. "It is going to take time to play out."

Business groups on Saturday generally voiced support for Paulson's approach and said there would be significant debate over the details.

"The current crisis just shows in a very stark way that ... you need a regulatory structure that is simple, nimble and modern and ours does not meet that test," said David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

Tim Ryan, president of the Securities Industry and Financial Markets Association, a big lobbying group for Wall Street, said there was "universal agreement that it is time to modernize and revitalize the current system."

The Paulson plan would:

_designate the Fed as the primary regulator for market stability, greatly expanding its ability to examine any financial institution deemed to pose a risk to the stability of the system.

_shift the functions of the Office of Thrift Supervision to the Office of the Comptroller of the Currency, although ultimately the plan envisions just one banking regulator.

_merge the Securities and Exchange Commission with the Commodity Futures Trading Commission.

_create a national regulator for insurance companies, which now are largely regulated by the states.

_establish a commission to address the abuses exposed in the current tidal wave of mortgage defaults.
Re: Bear Bailout, and What It Really Means By Ozzy on 4/3/2008 9:04 PM
Naked short firm goes under in Australia.

http://www.abc.net.au/7.30/content/2007/s2203968.htm

We really have no idea of the size of naked short sales. However, I notice that ASX released a paper on Friday in which they suggested that 40 50 per cent or about $70 billion, billion with a B is currently short sold in the market.

As Mr Peacock avoided media questions on Friday, stockbroker Opes Prime was placed in administration, leaving 1200 investors with debts of up to $200 million. Opes Prime specialised in share financing and lending for a fee
Re: Bear Bailout, and What It Really Means By ozzy on 4/3/2008 9:06 PM
Why is the private federal reserve that allowed this to happen replacing state regulators and the SEC?

http://globalresearch.ca/index.php?context=va&aid=8493
Re: Bear Bailout, and What It Really Means By Sean on 4/3/2008 9:07 PM

Naked Shorting does not exist. Illegal manipulation does not exist, That is why Lehman Brothers CEO today announced that he has proof that shortsellers in Hedgefunds destroyed Bear Stearns. This occurred today on CNBC and Herb Greenburg was there doing his Hedgefund and shortselling protection skit. IT WAS BEAUTIFUL!!!!

Now take a gander at this VIDEO

http://sec.gov/news/speech/2008/video0030408cc_short.wmv
Re: Bear Bailout, and What It Really Means By rosa on 4/1/2008 5:15 PM
I am a 24 year old Icelandic girl and law student:)

I´ve been reading this site after wathcing and listening to "the dark side of the pool" at businessjive.com. I can see that there are many people in here with great knowledge of investor protection. That´s why I decided to comment here, because I was wondering if you could help me. I have been looking for books, articles and almost everything on investor protection in usa and europe. 1. The history, purpose and background of investor protection in usa. 2. Difference and simalirity between usa rules on investor protection and european rules. and if anyone in here knows anything about ISD and MIFID then all information would be highly appreciated.
you can comment here if you have informations or send me email to lagadisin@hotmail.com
Re: Bear Bailout, and What It Really Means By open letter to on 4/3/2008 9:05 PM
... Barney Frank, Chris Dodd, Schumer, Grassley & all others who control the strings...

I’m an outraged taxpayer & investor who feels we have just experienced taxation without representation due to the tyranny of the Fed Reserve. Under cover of 1 quick weekend these unelected (and hardly accountable) Fed elites put American taxpayers on the hook for $29 BILLION to bailout the creditors of Bear Stearns. This is a free market capital system??!…what a cruel joke! This is what will decimate US capital markets in the eyes of world investors… not “over regulation”. Our effective oversite of this industry gone wild is all hat, no cowboy. Let’s face it, Lord Greenspan hoodwinked all of you into signing on to all these “brilliant” leveraged synthetic trading structures in the name of flexibility, competitiveness and a new “dynamic”. Investment bankers, hedgefunds, private equity ran amok creating endless leverage & engaging in quid pro quo trades with each other. So now the debt market has seized up & these trading parties have gone to the mattresses.
WSJ editorial correctly questioned this Bear/JPM bailout on the backs of taxpayers. But the financial press also wore rose colored glasses saying... “free??” markets don’t need no stinkin oversite and saying “this decade’s experiment” was very efficient & benefits were real… NOT TO THE TAXPAYERS! So rolling totally dissimilar quality assets risks into bundled tranches & labeling them all triple A is now “efficient”???! When did false labeling become efficient? Maybe the same time that monoline insurers heeded the call for quarterly profit returns at all costs & bought into insuring asset backed securities labeled triple A by ratings agencies that really were conflicted & not independent. This free market call for everyone generating their own profit machine while calling themselves independent oversite is just more false advertising. THIS is why the US markets are NOT RELIABLE. We are now like some backwater country selling unqualified castoff airplane parts to Boeing.
Can a citizen get represented here. I vote NO to this taxpayer bailout. Now how about using some investigative power to drill down into these Bear Stearns counter-party trades & detail what really went wrong.

1 more thing... what the hell IS the best purpose of the Federal Reserve Central Bank. Europe says it's stability...clear & simple. According to "informative" business media their "mandate" keeps changing with the price swings.
Where is this published authority. Seems to be helluva shadow gubmint!
Re: Bear Bailout, and What It Really Means By GJW46 on 4/5/2008 2:23 AM
I just had to add this. The latest in securitized vehicles "Fed Credit Obligation". Thirty billion per day is flying out of the discount window for investment bank use and who is pulling the funds is being kept under tight wraps. This is not free market forces in action. G
Re: Bear Bailout, and What It Really Means By Sean on 4/5/2008 6:19 PM
In response to GJW46:

The number is 37billion perday not just the 30 anymore, even scarier huh?
Re: Bear Bailout, and What It Really Means By hwh on 4/7/2008 12:33 PM
The conflicts of interest involved with the fer and financial markets are extreme. Not to mention the governors are not required to place their assets in blind trusts as are all elected officials. Greenspan was invested in bonds for most of his tenure, note the biggest bond bull market ever.

The simple fact that bonds and stocks are driven by interest rates should preclude the fed from such manipulation.

It is impossible for the fed to remain objective with regard to ploicy.

No one ever imagined giving the sole right to decide who profits and loses in the markets to a sole UN-Elected body or entity. hwh
Re: Bear Bailout, and What It Really Means By mhelburn on 3/16/2008 4:20 PM
Bobo,

I couldn't figure out why BSC going down wouldn't be a good thing for the others and why the members of the Fed would be willing to go this route instead of stealing the business as happens in other BK's. I think you have it nailed. There are so many funny transactions that if the truth came out, people responsible would lock themselves in jail rather than be cruxified by the populace. Phantom shares would probably cause BSC's liabilities to be be so much greater that the purchaser would have to be paid to take them over. There isn't enough money in the system to buy back all the fails. There wasn't enough 4 years ago when the SEC orchestrated Reg SHO.

It seems to me that some of these outside accounting firms have completely failed.. Do we have some more Arthur Andersons in the wings? If the accountants couldn't grasp it, they should have let the cat out a long time ago. Someone had to know the liabilities were sitting there.
Re: Bear Bailout, and What It Really Means By rtway on 3/16/2008 4:21 PM
Again you come to our aid with words that the rube can understand instead of Wall St. phrases which have their own special meaning. You have been the the valiant leader in this cause with Patrick and it is time for you to gloat. You are one bad ass rabbit. Thanks Bob.
Re: Bear Bailout, and What It Really Means By mhelburn on 3/16/2008 4:21 PM
JP Morgan Offering $15-$20 A Share for Bear Stearns
9 hours ago | Source: CNBC.com
JP Morgan Chase is offering to buy Bear Stearns for between $15 and $20 a share, CNBC has learned. Bear's board is currently meeting to discuss the proposal

That is another 50% drop in price....
Re: Bear Bailout, and What It Really Means By bobo on 3/16/2008 4:23 PM
No, it is worse, Mary. Much worse.


Press Release Source: JPMorgan Chase & Co.
JPMorgan Chase To Acquire Bear Stearns

Sunday March 16, 7:05 pm ET
NEW YORK--(BUSINESS WIRE)--JPMorgan Chase & Co. (NYSE: JPM - News) announced it is acquiring The Bear Stearns Companies Inc. (NYSE: BSC - News). The Boards of Directors of both companies have unanimously approved the transaction.

The transaction will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock. Based on the closing price of March 15, 2008, the transaction would have a value of approximately $2 per share.
Re: Bear Bailout, and What It Really Means By Lets see. Two bucks on 3/16/2008 5:46 PM
Building is worth a bill. that's about 3.2bb gone since Friday. Ouch. where's Anette Nazarath. I want to hear what that rocket scientist has to say.

The SEC ought to be disbanded at dawn tomorrow, and they shoiuld bring in the Sheriff from Maricopa Cty Ariz. It couldn't be worse.

The Investors' Advoctate. Too funny.
Re: Bear Bailout, and What It Really Means By Blackbart on 3/16/2008 5:47 PM
Any bets on how many shares of Bear were naked shorted on Friday by those in the know? Will they ever be tried for their crimes? Nope.

We will now see all of the responsible parties "dealing with the problems" while the stolen loot is never returned. Ever.
Re: Bear Bailout, and What It Really Means By bobo on 3/16/2008 5:53 PM
Think it can't get any worse? Bear at $2, the Fed behaving in a manner it was never intended to behave (or authorized to)....

Check this out.

http://www.federalreserve.gov/newsevents/press/monetary/20080316a.htm

Press Release
Release Date: March 16, 2008

For immediate release

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

Second, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective immediately. This step lowers the spread of the primary credit rate over the Federal Open Market Committee’s target federal funds rate to 1/4 percentage point. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.

The Board also approved the financing arrangement announced by JPMorgan Chase & Co. and The Bear Stearns Companies Inc.
Re: Bear Bailout, and What It Really Means By mhelburn on 3/16/2008 8:03 PM
JPM is just throwing some money at Bear to make it look like it is worth something. Truth will never be known how much less than zero it is really worth. It is worth 236 million to cover it up for a while. This has got to be investigated... Does the SEC have the cahones to look?
Re: Bear Bailout, and What It Really Means By bobo on 3/16/2008 8:06 PM
236 million is chump change to avoid the recognition of how badly raped the system has been by the lords of Wall Street.

My prediction is that this is going to be the week where it becomes obvious that a systemic shock of crisis proportions is in the making. The problem isn't a 3.6 percent foreclosure rate. It is that the only way out for the banks is an epic crisis where their misdeeds take a backseat to the need to stabilize the global financial system. So right on queue, here it is.
Re: Bear Bailout, and What It Really Means By Adminral Ackbar on 3/16/2008 9:29 PM
Isn't Bear the major clearing firm suspected of looking the other way to Naked short sellling?
Re: Bear Bailout, and What It Really Means By lenofus on 3/17/2008 8:02 AM
The building was valued as high as 1.5 billion. Figure 1, since NYC is now a third world country. Fed backed them with 30 bb. It was basically, "here's the keys to vault. Help yourself, just mark it down on a post it when you leave.

But hey. Geo Bush and Paulson signed off on it. So I believe it's in our best interests.

And yes. They would clear for Bin Laden if he posted a security deposit. Well, that's a bit harsh. He wouldn't need to post security. Let's put it this way. Remember "Boiler room", the movie? Bear Cleared for JW Marlin.
Re: Bear Bailout, and What It Really Means By Indian Giver on 3/17/2008 8:47 AM
I believe the banks are massively exposed to equity swaps.

The typical swap would be the bank credits Mr. Short with an effective "call" on XYZ stock. In exchange, he pays interest on the value of the XYZ stock he never received. This is a no tax off balance sheet transaction as the value of the two legs of the swap are equally valued and cancel out. The prime pays him upside on the stock that he doesn't own and he pays them interest on the money they never lent him.

This allows him to heavily short the underlying stock, knowing that for the nominal interest on the money, he is protected if the bet trades against him.

The prime brokerage doesn't bother hedging and the whole position is naked. The prime is basically renting their ability to go naked to the short hedge fund. They can do this because of their ability to net repurchase and reverse repurchase agreements between the other members of their prime cartel.
Re: Bear Bailout, and What It Really Means By Davidn on 3/17/2008 12:51 PM
The difference between owning an asset under custody and owning a promise from the fractionally backed chit system we refer to as the stock market.

http://goldmoney.com/en/commentary.php#current

With stocks, you are not the owner. Unless you own your stock certificate, you relinquished your ownership to your brokerage who then relinquished it to the clearing brokerage who relinquished it to the depository who relinquished it to the DTC who relinquished it to Cede & Co, a private partnership of unknown ownership dating back as early as the 1970's predating the DTCC by 25 years.
Re: Bear Bailout, and What It Really Means By pjstevenson on 3/17/2008 12:52 PM
Great one!I love David's comment at the end. He posted on DIGG.
Pete

ELIOT'S GAL A SHARED ASSET TO SHORT SELLER
http://www.nypost.com/seven/03162008/news/regionalnews/eliots_gal_a_shared_asset_102203.htm

ELIOT'S GAL A SHARED ASSET

By LUKAS I. ALPERT and SAMUEL GOLDSMITH

March 16, 2008 -- The high-priced hooker who sunk Gov. Spitzer's political career was a party pal of one of his top financial backers, boozing it up with him at clubs and his palatial Hamptons mansion.

James Chanos, 50, a billionaire hedge fund manager who runs Kynikos Associates in Manhattan, says he met Ashley Alexandra Dupre - the girl at center of the gov love scandal - at a nightclub several years ago and often invited her to parties, But he denied introducing her to Spitzer.

"I know her. She's a nice person," Chanos said by phone from the Bahamas late Friday night. "She is one of many young ladies I have spent time with around town. I have had her to my home [in the Hamptons], but I never dated her and I never introduced her to Eliot Spitzer. I had no idea she was a high-priced call girl."

Chanos, who was called "Uncle Jim" by Dupre, pumped close to $100,000 into Spitzer's campaigns over the past five years. He is well known on Long Island's East End for hosting weeklong Fourth of July beach parties, to which he invites scores of sultry young women.

Read the NY Post Article through Investigatethesec.com
http://investigatethesec.com/drupal-5.5/node/238

Opinion: I can only wonder if when Attorney General Eliot Spitzer confronted with the issue of abusive short selling he declined to take action on the subject because of such close ties to the interested parties. Eliot once claimed he could not take action because the people involved were "his constituents" whom he needed if he were to become Governor. We now see to what lengths this man would go for the position - even to sacrifice the safety of public investors.--Dave Patch
Re: Bear Bailout, and What It Really Means By Cramer on 3/17/2008 12:53 PM
http://cryptogon.com/?p=2226

Dear Jim: Should I be worried about Bear Stearns
Bear Stearns Co Inc in terms of liquidity and get my money out of there? –Peter

Cramer says: “No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.”

JPM paid $2/share for Bear.

I’m trying to get my head around that.

You know how the theory says that “the market” is best at pricing in news…

But “the market” was very wrong on Bear. As much as the stock had declined… It was nowhere near what the actual value was.

$2.

For JPM to have paid only $2 for Bear means that Bear was making a point of hiding ALL kinds of shit that “the market” had no idea about.

There is no way to fathom out what the consequences of this will be, or who else is going to get hit.
Re: Bear Bailout, and What It Really Means By ginger on 3/17/2008 10:17 AM
Stunned Bear Stearns investors eye legal claims
Mon Mar 17, 2008 12:22pm EDT

By Martha Graybow

NEW YORK (Reuters) - Angry Bear Stearns Co Inc shareholders have wasted no time in calling their lawyers to pursue potential legal recourse over the company's $2-a-share fire sale to JPMorgan Chase & Co.

"I can't divulge privileged conversations, but shareholders don't contact me when they are happy with the way things are going with their investments," said Ira Press, a lawyer at class-action firm Kirby McInerney, which has spoken with dismayed Bear investors about the matter.

"This is a stock that has gone from 50 to 2 literally overnight, and I also know of people who had assumed that the worst had passed when it closed at 30," he said.

Bear Stearns, one of the most venerable names on Wall Street, is being sold for just $236 million in an emergency deal backed by the U.S. Federal Reserve in a sign of the deepening credit crisis.

The deal's value is more than 90 percent below the company's Friday closing share price of $30.85. But JPMorgan said the total price tag would be $6 billion to account for litigation and severance costs.

Investors have barely had time to digest the news, but are already exploring possible legal avenues, say plaintiffs' lawyers who specialize in suing large corporations.

"We've been contacted by large individual investors and institutional investors," said Jeffrey Nobel, a partner at class-action law firm Schatz Nobel Izard. "Suffice to say, we are certainly looking very carefully at it."

Shareholders might sue Bear and its executives and officers for securities fraud, contending they failed to disclose the company's true financial health, lawyers say.

Nobel said his firm has been contacted by investors who bought the stock as recently as last week. Some of these buyers, he said, took their positions after Bear CEO Alan Schwartz said in a televised interview on Wednesday that the company does not see any pressure on its liquidity and had about $17 billion in excess cash on its balance sheet.

"You have investors who are upset because they feel as though the company was not truthful in reporting its financial condition," Nobel said.

Other suits may be brought by Bear employees who hold company shares that are now virtually worthless, lawyers said.

Another possibility are lawsuits challenging the fairness of the deal and whether there are other potential bidders who might pay a higher price, though these suits may have a tough time succeeding because Bear was clearly in dire straits when it agreed to the weekend deal and may have had no other options besides bankruptcy, lawyers said.

Salvatore Graziano, a partner at plaintiffs' firm Bernstein Litowitz Berger & Grossmann, said he and his colleagues also have been discussing the matter with clients.

""It's a fluid situation," he said. "Clearly, we're very focused on it."

(Editing by Dave Zimmerman)

http://www.reuters.com/article/ousiv/idUSN1756243320080317
Re: Bear Bailout, and What It Really Means By ted on 3/17/2008 12:54 PM
Most people have to work 40 hours per week for 25 years to pay for their home. They don't get to buy hundreds of thousands of homes with worthless paper like Wallstreet does.

JP Morgan bought Bear Stearns at pennies on the dollar with paper, with their own stock, which would have also been worthless if Bear Stearns had failed. On top of that, the government guaranteed it.

What a deal. JP Morgan clears for Bear Stearns and would have drown with them if they went under. They haven't really increased their liability, but the mortgage portfolio now belongs to them

And the employees of Bear Stearns, who owned 1/3 the outstanding shares took a 95% hit to their retirement portfolio to help pay for it.

Am I right that hundreds of thousands of homes represented by the subprime bonds were effectively purchased with suspect shares in Morgan?

Families will have to continue in their indentured servitude, making payments on these loans even as the value of their homes plummet. Loans that effectively were sold for pennies on the dollar paid for with potentially worthless paper oblige working people to repay with real money for years to come.
Re: Bear Bailout, and What It Really Means By Sledge Hamer on 3/17/2008 12:55 PM
As I have agreed with Bob and Patrick the past several years concerning the systematic meltdown of our financial system due to out of controll Wall Street fraud and greed, all I can say now as of today is....

"WE HAVE ARRIVED"
Re: Bear Bailout, and What It Really Means By Sledge Hamer on 3/17/2008 8:42 PM
A year ago, Bear Stearns — up until fairly recently a leading investment, securities and brokerage firm — saw its stock trading for $170 a share. By the end of the calendar year, it was about $88 a share. As recently as four days ago, it was $57 a share. Yesterday, the entire company, in total collapse, sold for $2 a share.

This isn’t exactly a political story, but when a bear roars, it’s hard not to take note. Put it this way: Bear Stearns sold at a value of just $236 million — and its Manhattan building is believed to be worth more than that.

Hoping to avoid a systemic meltdown in financial markets, the Federal Reserve on Sunday approved a $30 billion credit line to engineer the takeover of Bear Stearns and announced an open-ended lending program for the biggest investment firms on Wall Street.

In a third move aimed at helping banks and thrifts, the Fed also lowered the rate for borrowing from its so-called discount window by a quarter of a percentage point, to 3.25 percent.

The moves amounted to a sweeping and apparently unprecedented attempt by the Federal Reserve to rescue the nation’s financial markets from what officials feared could be a chain reaction of defaults.

After a weekend of intense negotiations, the Federal Reserve approved a $30 billion credit line to help JPMorgan Chase acquire Bear Stearns, one of the biggest firms on Wall Street, which had been teetering near collapse because of its deepening losses in the mortgage market.

In a highly unusual maneuver, Fed officials said they would secure the loan by effectively taking over the huge Bear Stearns portfolio and exercising control over all major decisions in order to minimize the central bank’s own risk.

The Fed, working closely with bank regulators and the Treasury Department, raced to complete the deal Sunday night in order to prevent investors from panicking on Monday about the ability of Bear Stearns to make good on billions of dollars in trading commitments.

Reading this story in the NYT this morning, the following words jumped out at me: “systemic meltdown,” “unprecedented,” “near collapse,” and “panicking.”

Yes, the Fed is scrambling, but this paragraph from a Reuters report also caught my eye: “‘The market is totally panicking,’ said a trader at big Japanese bank. ‘The fact that the Fed had to announce its emergency steps on Sunday night highlighted the seriousness of the situation.’”

The LAT added:

For Bear Stearns, a major force in sub-prime mortgage lending, the speed and ferocity of the fall underscored the depth of a crisis that threatens the financial system.

“It’s amazing that a firm with a storied history that has been respected for all these years has within two weeks literally gone from solvent to insolvent,” said Larry Tabb, head of a financial markets consulting firm in Westborough, Mass. “It’s scary and it’s horrible.”

And the next question — one of them, anyway — is whether Bear Stearns’ collapse will spread.

The cash squeeze that brought Bear Stearns to its knees is fanning fears that other investment banks might be vulnerable to the crisis of confidence gripping Wall Street.

Investors are bracing for another volatile week in the markets as bankers and policy makers deal with the fallout from their bid to rescue Bear Stearns.

For now, the prospect of a new wave of consolidation in the beleaguered financial services industry seems remote. That is because would-be acquirers and everyday investors alike have lost faith in the values that Wall Street firms are placing on their own assets.

Of particular concern are the so-called marks placed on mortgage-linked investments like those that undid Bear Stearns, prompting a run on the firm that led the Federal Reserve and JPMorgan Chase to throw Bear Stearns a financial lifeline last week.

This ain't over folks. This is just the beginning.

Lets all give a standing ovation to our government agencies such as the SEC for doing such a wonderful job of protecting the investing public! LOL!
Re: Bear Bailout, and What It Really Means By Sean on 3/17/2008 8:42 PM
"Too little too late?" Now watch the dominoes start to fall.

SEC Examining Naked Shorting at NYC Hedge Fund
Posted by Peter Lattman
Another hedge fund in hot water: The SEC is poised to bring charges against a New York hedge fund for violating short-selling rules, reports today’s New York Post.

Sandell Asset Management, a $7 billion hedge fund run by former Bear Stearns big wig Thomas Sandell, was told by the agency on Oct. 19 that it “intends to recommend the commencement of proceedings” against the fund. The charges related to allegations of “naked short-selling,”

Short sellers sell borrowed shares in hopes they can profit by replacing them later at a lower price. “Naked” short sellers do not borrow shares they sell short, which some liken to counterfeiting. The SEC has been urged by some lawmakers and executives to be more vigilant in policing naked shorting.

Sandell told its investors that the probe centers around trading in Hibernia Corp., which was acquired last year by Capital One. “We dispute several of the commission’s assertions,” Sandell wrote to investors. “But we are continuing to work with the staff to resolve this matter.”

Re: Bear Bailout, and What It Really Means By oldfeller on 3/17/2008 9:13 PM
The sec`s new proposed "rule" against naked shorting must have the miscreants shaking in their boots. I read thru it and it sounds like sort of a suggestion, that um, maybe people should stop ignoring the existing rules. Notice they ask for comments about short squeezes without defining exactly what that is. If a stock has a short position on it where does the "squeeze" begin? Is it the price at which the short was initiated? Does the size of the short position matter? Does it make any difference if the short is retail players or institutions? The whole game has become a joke. How about this... put a serial number on every share. When you buy a stock online you can pull up a list with the serial numbers of every share you own. As long as you hold them they can not be traded unless you give your broker permission to loan them out to a shortseller.
Re: Bear Bailout, and What It Really Means By Divieden on 3/18/2008 7:59 AM
Bobo, just an FYI. This man makes a lot of sense........http://market-ticker.denninger.net/ Sounds kinda familiar, doesn't it. A lot of people are starting to "get it"....I hope it's not too late.

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