The Big Whoosh: Is This The Beginning? 21 comments
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The Bear Stearns liquidity crisis may very well go down as the beginning of the "big whoosh" that must happen before anybody can see the light of day in this financial crisis.
One thing that gets lost in the noise about Bear Stearns, and why a bailout is critical, is that it’s a broker-dealer for many big hedge funds and wealthy individuals.
If the hedge funds and rich folk get caught here without a net, you can imagine a possible domino effect throughout the brokerage and banking industries as people start pulling out cash and heading for safer pastures, such as trust companies.
And to think, just two days ago S&P tried to suggest that the end of the subprime mess was in sight. Hate to break the news to them: The subprime slime was just the tip-o-the-rapidly melting iceberg.
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This article has 21 comments:
doesn't it make sense that the market would see this as evidence that it will not be allowed to tank? when the fed and bernanke finally acknowledged that there was a problem and began to emphasize the economy, the market took that as a good sign. eventually, the market began to worry that inflation might be a concern and stopped rewarding the rate cuts. ok, so what is the bail out concern?
is it that we are going to be too supportive of our financial system? is it that we are not allowing the people who made mistakes fail? heck, this is america, herb. we do not punish failure, we encourage risk. we do not have debtor's prison here. our goal is to encourage risk takers to finance exploration and discovery. that's why we have the biggest, the fastest, the greatest, and the most of everything.
besides, the worries about inflation are overdone, anyway. the only things going up in price are those assoiciated with the falling dollar. we have actually been enjoying significant deflation ever since the communist curtain fell and we started benefiting from billions of low priced competitors. how else can you explain the loss of jobs and unions in our country? how else can you explain our ability to purchase everything we want when our parents had to live from paycheck to paycheck?
i can accept a reasonable amount of gold hedging, of moneymarket and mattress stuffing to compensate for volatility, but there comes a point at which i have to recognize that our bankers hold all the cards and i never bet against the house, especially this one.
The Dollar is getting cheaper also because European economy
is far better than ours and the European Central Bank has no reason to lower interest rates. Their Unemployment rate is getting lower and ours is getting higher. If at all, they would rather increase their interest rates and not lower.
The spread between European and American Interest rates is widening further.
Where is the bottom for us ? Who knows, we sure had a hell of a run during the last 10 years. It's time to pay the price.
Housing values probably go back to where they were in 2000/2001 or until foreign investors bring their money back and have confidence again.
Bernanke asks for the opposite. This is absurd!
I would love to see the government let these companies go belly, WE as a country need to learn that we pay for OUR mistakes and it nobody elses fault but ours.
I think this is just a Bear Raid on Bear - in the spirit of the Salem Witch Trials. All you need do in this market is point the finger and shout something about the balance sheet and if you get heard by the right rumor mongers that company will go under.
Unless there is a bailout to put a floor on the mortgage mortgage market, there is no bottom.
I hate to think about bailouts, and it hard to define the terms, who should be helped and who should be allowed to die on the vine is a big question. It seems to me that those who have the best potential to recover should be helped, but those who really jumped in whole hog and invested in the flip notion should not be helped in any way. So investors take the hit, honest hard working Americans should be given a helping hand. It is hard to figure how to deal with the mortgage reset question that is hidden in small print and not explained to the borrower. That is the rub. I really would like to help those poor slobs who won't read the fine print, but how?
The trick is to encourage banks to exend the helping hand to the right profile and not play politics, so that there is enough money to go around. Only then can there be a bottom to the mortgage mess.
Lets face it, this problem will lead to a depression of major scale and it could last 10 years (1929-1941)?
2008-2018?
i remember having hamburgers at mcdonalds for a quarter and thinking how much the price had gone up, how much cheaper things used to cost just a few years ago. there was a time that i could see two movies, a double header, at the garden theater for a quarter and when the price went to $.50 for one movie! unbelievable!
when i was in high school, we shopped around for the lowest priced gasoline because we didn't want to pay the outrageous price of $.16 a gallon if we could get it for a penny or two less. i remember when nixon took us off the gold standard and lots of people were collecting silver coins because they were "worth more". as a young man, i earned less than $2.00 an hour. i only recently threw out my paystubs. i'm glad i only move once every twenty years or so.
trust me when i tell you that the price of everything has been going up for years. the only sustained reduction in prices that i have seen over my lifetime is the result of importing goods from japan, china and the other emerging nations.
think about the massive benefits we have enjoyed over the years from cheap imported fruits, vegetables, meat, fish, clothing, cars, computers, toys, etc. hell, if houses weren't so big, americans would have imported them, instead of the huge mexican labor force we invited. god bless them all and we complain that they want citizenship. when was the last time you went up on your roof to hammer a shingle? when was the last time anyone picked fruits or vegetables? evidently, we cannot make a machine that can do it cheaper than they can.
my point, and i do have one or two but i admit that i had a senior moment there, is that inflation is not new. commodities have gone up in price before. competition is good for everyone, even detroit. we live in the most exciting times, in the greatest nation, in the history of the world. rather than thank the lord for every breath we take, we complain, we fight, we compare ourselves to game show contestants, we are incapable of understanding zen because we are the only one that matters.
victimnation... you thought i forgot about you, didn't you? well, the truth is that our parents paid cash because they didn't have as great of a banking system as we do. they had gone through the depression and the "great wars" and had no faith in banks because the banks failed and the government did not come to the rescue. our bankers may fail, but our government has vivid recollection of what happens when you do not come to the rescue of your banks. our government is full of people that are that old.
besides, you have allowed the liberal media to mislead you into believing that most americans are in debt and cannot afford to pay for things. that is simply not the case. sure, there have always been those idiots who have to have more than they can afford, but we've always had chapter 11 and 13 for them. the rest of us pay with credit cards because it is convenient and then pay off our bill when it arrives every month. we get discounts when we do that too.
in fact, we have steadily increased our wealth as individuals, even as our politicians have made every effort to redistribute our hard earned money to people who do not understand what it means to work for a living. we have thousands and thousands of millionaires in america. we'd have one more if it wasn't for that pesky tech bubble fiasco, but we still have plenty.
my parents had a third grade education when they left the "old country". they had no money, they could not speak english and were in their mid-thirties when they came over on the boat (not a cruise ship either). still, they managed to raise eight children without government "assistance". they didn't have washing machines, dryers, refrigerators, microwaves, computers, disposable diapers or tv dinners.
they walked everywhere. they worked unbelievably hard, a lot harder than most young americans can imagine today. but, the people in emerging markets know exactly what that means. that's why they can see their futures improving. that's why their economies will not fail. there will always be a segment of the world's population that is busting their asses, excuse my french, to get ahead. if you think our economy will fail and our money will collapse, just invest in them. personally, i will put my money on the house.
i have seen gold and silver go up before. i have seen tech bubbles, housing bubbles and bubblicious gum. there's always a bubble right behind the last one. keep chewing, even when the flavor is gone.
The Chance to Go Shopping
"So what of the current market and the state of U.S. financial institutions? Clearly, they both suck. However, we've got JP Morgan Chase, B of A, Berkshire Hathaway, and maybe a few others who have the financial strength and business models to benefit from the rapid decline of Bear Stearns and the other inevitable meltdowns (Washington Mutual, anybody?). I think it is going to be shopping time for these firms, where they will selectively pick off people, business lines and entire firms at fire-sale prices. This is when good risk management and business judgment come in handy; parlay the crisis into an even stronger position at your less-prudent competitors' expense. Berkshire starting up a municipal bond insurer?
It is just the tip of the iceberg."
Recently, my granddaughter ran my wife's BMW into a telephone pool damaging suspension, bumper and fender. Body shop repair price $5500. We are doing all for $1500 replacing both front fenders at $50 each.
It is called shopping around. Don't pay for convenience. I don't have cable tv. I have dial up internet- may have to breakdown and get $14.99 dsl. My cell phone is a prepaid card for $25 every 90 days.
Americans pay through the nose, because they want to; complain about it; but don't do anything about it. For me, finding a better deal, is fun- just the thrill of the hunt.
www.jpmorgan.com/cm/Sa...
I have seen Herb a few times on CNBC. I can hardly believe that he doesn’t know. Many at CNBC know but I can see it in their faces that they are not allowed to talk about the secret. Our problem is etatism, socialism, interventionism, the central bank and the fraudulent fractional banking system. Our solution would be genuine unhampered markets. We will have it in 100 to 200 years after 90% of mankind has been wiped out. It’s a slow learning process and mankind needs many catastrophes not to fall anymore for the glib fast-talkers of officialdom. I wish everybody lots of good luck .You will need it in order to survive.
My opinion is that the media have made want into need. And they feed the frenzy of "keeping up with the Jones'" to the extent that
Victoria's Secret and Starbucks define what is. Buy now, pay later...Zero down!. How else could one make a living than by pandering to perceptions.
I once weighed the sections of the major newspaper (which had one many Pulitzer's) and found that the advertising was 2/3 more print space than the typed info...that was 20 years ago.
There's no question that general asset deflation, stagnant real wages, and loose monetary policy, here and in the G-7, over the past 35 years, are coming due.
My first hot dog was a dime, so was my first pizza slice...but polio was still a danger, and we had smallpox vaccinations to go overseas. There weren't A/C systems in homes and shopping, cooking, cleaning took many a young woman's entire waking life.
I agree, that many things we now take as expected figure into the rationalization of the gov't's CPI, but at base subsistence levels, payroll, unemployment and other non-progressive taxes will keep a huge proportion of citizens at a hundredth the economic level of us, at the top, who pay so much in income tax, to those in our equivalent Central Committee, who waste it on the oligarch's at the top of the monetary food chain.
I wonder how the various posters at this current long list would feel about the fair tax (FairTax.org). Don't tell me, but think about it.
I wonder how many of us have been seduced by the latest portable...or the shiny, Teflon-coated...or the newest,fastest..., and have no space to put it.
Recipe: don't buy what you can't afford.
Hooray for the mechanically-inclined fellow who can replace fenders. I'm too old and inept for that, but I admire the skill set and determination to avoid getting ripped-off. Now if we could only extract that behavior, clone it and vaccinate the rest of the world, we might actually have a greener, safer Earth. The idea of a megabillionaire spending a billion on his home in India, where there are roads and wells to be dug, and dung to be sterilized and recycled, just fills me with bewilderment.
2) I applaud Fed only cutting .25 points. Time to increase value of dollar, not have a policy that further erodes it. Yes, some banks will fail, mostly the ones mentioned in point number one. Responsible and aggressive private equity and entrepenuar guys will buy them out for pennies on the dollar and will rebuild investor confidence. Survival of the fittest works, it is programmed in our genes. Socialism and redistribution of wealth, does not. The Fed & Treasury must keep this in mind.
3) Invest in alternative energy, ANWR & offshore drilling. $200 B between nuke plants & biodeisel. Give half to the Small Business Administration & Fiscally responsible commercial banks. Those entrepenuars are starving out there and willing to work 80 hours a week but can't afford the gas right now to see 1 investor for every 500 entrepenuars ratio. Innovation is what will return this country to glory, not fat cat immoral bankers at yacht clubs. We need to become exporters of the #1 commodity driving the world and give the global customer what it wants and need - ENERGY.
All the doom and gloom gets pretty old. We won't be at the soup kitchen next week. Electricity is going to stay on this week, next week, the following week. Honestly, what do people expect?
Sure the dollar is going to go down. It may hit $2 to the Euro, $2.5, who knows. But we aren't going to see 100,000% hyperinflation or turn into Zimbabwe two weeks from now.
I think there are some key differences between now and the 30's...
-We're better educated
-Longer life span
-More industrious, better developed capital markets.
-Improved technology.
Warren Buffett makes the point, we're living better than Rockefeller. The Japanese are still living through their zombie decade. People dance and go to movies and have babies.
I think there's going to be a huge downward shift in the economy no question. The era of easy credit card offers in the mail, 0% down financing, etc, that'll all end. This whole credit era will be over.
The 70's were a horrible decade economically, but life still went on. They still made movies in 73/74. They danced in 78. We'll make it.
Bear Stearns 3,0%
Morgan Stanley 3,0%
Merril Lynch 3,1%
Lehman 3,3%
Goldman Sachs 4,5%
Citigroup 5,2%
JP Morgan 7,9%
Wells Fargo 8,3%
Bank of America 8,6%
Wachovia 10,2%
yes, it is the beginning