Bear Stearns Gets Emergency Funding From NY Fed, JP Morgan 19 comments
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LIVE BLOGGING BEAR STEARNS: (in reverse chronological order)
10:55: [Editor: End of live blog - read more on Barry's blog]
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10:46: Jim Rogers' comments to short all investment banks looks pretty spot on.
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10:44: So much for the recovery -- Dow off 200
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10:42: For you numerologists: Bear at $28, down $28 -- a two one for one split
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10:40: Groundhog Day: All we've done is guarantee 6 more months of this exact same thing. I hope I am alive when the post-mortem is written on this 50 years hence. I suspect it will be rather critical.
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10:38: When I whine about Socialism, this is EXACTLY what I am referring to. Instead of letting Bears Stearns get crushed, and then see the assets and talent pool get scooped up by someone else, we keep a wounded Bear on life support hanging around . . . My preference is creative destruction.
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10:36: Welcome to Bailout City!
Now you know: BSC is considered to big to fail.
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10:33: If you are wondering WTF a non-recourse, back-to-back financing is, pull up a chair:
JPM gets to go the the Discount Window and borrow all the greenbacks they want; Then they loan that to Bear. In the event that Bear defaults, the NY Fed cannot go back to recover from JPM -- hence, non-recourse.
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10:31: Here's the JPM press release:
JPMorgan Chase and Federal Reserve Bank of New York To Provide Financing To Bear Stearns
http://biz.yahoo.com/bw/080314/20080314005430.html?.v=1JPMorgan Chase & Co. (NYSE: JPM - News) announced that, in conjunction with the Federal Reserve Bank of New York, it has agreed to provide secured funding to Bear Stearns, as necessary, for an initial period of up to 28 days. Through its Discount Window, the Fed will provide non-recourse, back-to-back financing to JPMorgan Chase. Accordingly, JPMorgan Chase does not believe this transaction exposes its shareholders to any material risk. JPMorgan Chase is working closely with Bear Stearns on securing permanent financing or other alternatives for the company.
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10:29: Here's the link to the 9:21 press release from Bear:
Bear Stearns Agrees to Secured Loan Facility with JPMorgan Chase
http://biz.yahoo.com/bw/080314/20080314005441.html?.v=1
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Bear Stearns Press Release:
"We have tried to confront and dispel these rumors and parse fact from fiction," CEO Alan Schwartz said in a release. "Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."
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10:25: Dow off 100 -- things seem to be stabilizing -- what a wild ride
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10:20 Dow recovers . . . off 126
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10:15: No NY Fed statement released as of 10:15 yet . . .
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Seemed to have stabilized at $35-36 -- At 45 minutes into trading, they have traded over 52 million shares
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No Federal Reserve Press Release on this? I better check the NY Fed site . . .
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Turns out Richard Bove was right -- the Fed action on Tuesday ABSOLUTELY WAS to rescue Bear Stearns . . .
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Bear = $34 -- $7 bucks off the 26.85 low
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Thought: Bear denied on CNBC they had any liquidity concern. LIARS
Once again, we learn you cannot trust management to tell the truth.
Financial institutions have been issuing denials about the credit crunch for for over 12 months now --a ll of them full of shit. Amazing freefall
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Dow off 300 points, Nasdaq off 58
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BSC = $30 Down $28 off 45%
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Bear down $26 -- off 40%
Dow off 200
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Down $18
Market is down 160 -- Goldman, others under pressure
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Down $20
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Down $19 -- its gonna be halted soon -- $38.50
As we discussed last night, liquidity concerns about Bear Stearns (BSC) have been validated.
The NY Federal Reserve Bank, and JP Morgan (JPM) have agreed to provide
secured funding to Bear and an initial period of up to 28 days. JPM is working
with Bear to secure permanent financing or other alternatives for
them.
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Bear is now $47 and falling fast.
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Doug Kass asks a good question: "If Bear Stearns (BSC) requires a temporary bailout, did the company's management fib in its recent CNBC interview?"
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Quick Headline roundup:
Bear Stearns to Get Backing From J.P. Morgan, N.Y. Fed (WSJ)
Bear Stearns to Get Backing from J.P. Morgan, N.Y. Fed (Bloomberg)Bear admits its liquidity 'significantly deteriorated' (MarketWatch)
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This article has 19 comments:
As for our currency being in a ditch, look no further than the Fed for the source of the problem.
This will be very temporary but I hope many Americans like government cheese and wheat pasta. 100 million people lost their American dream in the last year and most of them don't even know it yet. I don't feel sorry for American's who got too greedy or acted irresponsible and I agree with Paulson, no bail-out. But we'll bail out those that caused this crisis? It's going to get real ugly before it gets better. Gov, Fed, Goldman type collusion/bailout is the wrong answer. WHo is getting fired for this theft from the American people? Nobody. Wait till these people have a microscope shoved up their ass in a year or two. I will not let America forget who is responsible along with other accountable American gentleman/women, EVER. No free pass guys, your crooks and we'll find you after you skip out of Dodge. Meanwhile, help your neighbors and invest in fiscally-minded entrepenuars in energy, tech and consumer healthcare. That's 80% of the real U.S. economy and critical to national survival and recovery.
Seems like we need to bring Spitzer back. Yeah, he slept with a hooker. So what: that's between him and his wife. But these crooks.... these.....
You know, I wouldn't be surprised if they set Spitzer up.
"verge of a black swan event - meaning, and major once in a lifetime terrible financial problem that will have a big tail
I LOVE THIS PAINFUL NEGATIVE STATEMENT -- ITS TIME TO START BUYING. PAINFUL NEGATIVE STATEMENT = PNS – HOWEVER, I DO NOT LOVE PAIN UNLESS SOME GOOD WILL COME OUT OF IT
“The only way out is creative destruction - the companies holding toxic debt must be destroyed.”
MORE ‘PNS’ AND I MUST SAY I REALLY LOVE THE WORD DESTRUCTION, ITS SO PAINFULLY BULLISH. ALSO, I’M BEGINNING TO SENSE A FEELING GLEE IN YOUR DIRE PREDICTIONS. THIS IS “PPNS”, PAINFULLY POWERFUL NEGATIVE STATEMENT
“Other financial institutions will suffer the same, just like the mortgage lenders who closed their doors and sent their employees to the street.”
MORE “PNS”, YOUR PIECE IS BECOMING A LITTLE REDUNDANT BUT I’M GETTING THE POINT
“Meanwhile, low interest rates are putting upward pressure on inflation. Inflation is a problem that is difficult for the fed to contain, and results from tight monetary policy have a long lag time.”
THE SECOND SENTENCE IS A BIT CONFUSING TO ME AND IF YOU DON’T MIND I WILL REPHRASE IT FOR YOU: Inflation will be very serious and very difficult for the Fed to contain. When the Fed does start to fight inflation and tighten monetary policy it will take a great deal of time. Time that we may not be able to afford.
“You can debate this all you like, but there is only one reality, and it is bigger, and worse, than what I have described. There is hope at the end of the tunnel, but we are going to have to live through some tough times here. Perhaps you are lucky, and wealthy, and don't have to worry about it. I really hope so.”
THANKS FOR YOUR CONCERN – I APPRECIATE IT. I HOPE THE BEST FOR YOU AND OUR NATION AS WELL.
In my heart of hearts I feel and know that the Fed is doing the right thing. A serious recession would be very ugly and this is why the Fed will try every tool they have. If a string of banks go under and we dip into a very bad recession unemployment could rise to 10 percent or “God forbid” 20 percent.
This could bankrupt the NATION over time. Deflation can be much more destructive than inflation.
Inflation hawks and dollar hawks all say that the Fed is destroying the NATION. To me what the Fed is doing is the less of two evils. I’m not happy about it.
Jan Hatzius (gs) was asked on Bloomberg, Friday, about the crashing dollar. He said it was normal for the currency of a country to devalue when it’s going into a recession.
Below are two stories about our choices concerning this financial crisis. Basically, its about the two poison pills and which one should we take. They are both fictional. One simple and one complex and from another blog and blogger (NoFate) on this site.
First story:
"Here is an analogy ...your teenager has maxed out their credit cards and is to a point they can no longer make payments. You step in as a co-signer and get the limits on the cards doubled.
Is this the right decision? This is what the Fed did for the banks yesterday. from NoFate
Second Story:
The son does use a credit card but instead of spending it on himself he wants to lend out the money and become loan shark. His idea is to lend out as much money that he can. In the mean time people that he is lending out to all live on an island. The island depends on a dike system to keep the island from going underwater. The dikes take an enormous amount of power to run. The islanders are taxed a lot to keep the power going..
The loan business is slow starting and the son wants it to grow much faster. His rich daddy is still backing him up and thinks his son is remarkable. The son's new business plan offers loan owners interest in a new waterfront country club if they barrow more. They see it as a steal and it makes them feel rich so they barrow more. His new business plan is a success for many years. The new country club is well under construction. Most of the people on the island are happy and think they have it made. The son pockets a good deal of wealth but he always wants more and more.
As more time passes, the cost of the power to run the dikes starts to increase rapidly. Sadly some of the islanders become sick. The doctors on the island suspect the Avian virus. Some even die and others cannot work. Unemployment starts to rise dramatically and the power for the dikes continues to rise.
Not all of the islanders owe money to the son. Many are still wealthy and never liked what the son has done and they are very much concerned about the rising cost to power for the dikes. More time passes and construction cost for the country club increases as well. Construction on the project starts to slow down. Many on the island start to become angry.
Taxes receipts to pay for the power for the dikes starts to diminish. Some of the islanders want to raise taxes to pay for the power. The islanders that are sick are not paying taxes. A meeting is called. The meeting is a failure and the son goes into hiding. However, the islanders come up with another plan but still many on the island do not like the newer plan as well.
The newer plan requires the islanders to barrow more money but from the mainland. The wealthy on the island do not like this plan because it will require them to pay more taxes in the future. However, some of the middle class people on the island become restless and crime increases.
The islanders are at a serious crossroad. Damned if they do and damned if they don’t. Many on the island say the island will sink completely underwater if new monies are not borrowed. Others do not agree and feel the island will be fine without the additional debt.
I will let your imagination do the rest.
Tony Soprano
A bull market never resolves without capitulation and a bear market never resolves without one as well. When there were those (Kramer) who was saying that Google had to go to $1000 that was a sure sign the bull market's end was near. His reasoning wasn't that it deserved $1000 but just because it was there. Similarly when people stop trying to pick a bottom in financial stocks, that's when we'll know we're there. As they say financials lead us into this mess and they'll have to lead us out.
However, I've long expected that there will be runs on banks before we see a true test of the system and so far, but for one major bank, there haven't really been any. I think a few of the other banks will be tested in the next little while and we'll see how the market and Fed react.
Barry talks about the socialist system and why the Fed didn't just let BSC fail. The Fed knows that if they let BSC fail, the test of the other weak banks would have come almost immediately. They are hoping that staging an orderly unwind in BSC will restore some confidence in the system and keep the test from being performed. The Fed will fail.
To add an analogy to the pile, the CEO of BSC had to go on CNBC and talk up the fact that they had enough liquidity and capitalization wasn't a problem. A few days later they failed. The smart money knew the very fact that the CEO had to do that was evidence that failure was imminent. (Does no one remember Angelo Mozillo's words on CNBC?) The fact that the Fed had to step up and stem the immediate collapse of a major i-bank should, in and of itself, be telling to the smart money here.
There should be a pop up every time you go to make a trade/investment. It would say "Abandon all hope, he who enters" because if you have to hope in this market then you are doomed to fail. If you know you are right and have the fortitude of your convictions, this market is where you want to be.
I remember in the early 90's the dollar was depreciating against the Italian lira. That was really bad but no pun intended.
I remember in 73 - 74 American's were saying that their children would not fair as well as they had. It was a very tough time.
I remember in the early 60's to 68, the Cuban Missile Crisis, the assassination of Kennedy, Vietnam, the murder of Dr King, and Bobby Kennedy. Then came the riots across our nation. Our cities were burning. This was a very dark and gloomy time and that's when I first started buying STOCKS!!!
GOD BLESS AMERICA, AND ALL OF OUR LEADERS, AND ALL OF OUR PEOPLE AND ALL OF OUR ARMED FORCES.
If we have learned anything from the latest Wall St. con game it is that the tape does lie. It lies because it is created by con men who are manipulating the market. Call them institutional traders, call them hedge fund managers, call them whatever you like. But they are on a sure road to jail. Anyone who created and sold the more exotic derivatives, several layers above the actual mortgage backed tranches deserves to go to jail - and so does anyone making money now on the way down. Trust me, you are better off in jail than facing an angry lynch mob of investors.