Backroom Bear Stearns Deal Exposed 33 comments
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The Bear Stearns (BSC) acquisition by JP Morgan (JPM) was the focus of a lengthy testimony before the Congressional Banking Committee on Thursday. There were heavy hitters there from JP Morgan, Bear Stearns, and of course the Fed.
The unprecedented deal worked out over the weekend of March 15-16 has raised many issues concerning the government’s role in business and questions about escalating moral hazard. The defense against the claims of impropriety was to play up the calamitous situation that would have ensued had the Fed stayed away and allowed Bear Stearns to fail. To hear them describe the result of a Bear collapse, it would have been a serious crisis of confidence for financial institutions until many banks had been pushed out of business and the economy was in a full blown depression.
The dire predictions offered by many testified seemed to justify this Fed intervention, because had this worst case scenario happened then the Fed would be moved to a much bigger “bailout”. Jaime Dimon, CEO of JP Morgan claimed that the toll to taxpayers of this financial collapse “...wouldn’t have been even close” to the cost of intervening on behalf of Bear Stearns.
The problem with this defense is that it is completely impossible to prove, and thus exactly the thing that these major players needed to take some heat off. One defense that will be provable was what Bernanke used to justify the deal was that he believes that the Fed will not lose money on the $29 billion non-recourse loan.
As taxpayers, we sincerely hope that he is correct, but we find it hard to believe as there was such “substantial risk” on Bear Stearns hands that no one was willing to acquire the formerly well respected investment bank without assistance from the Fed.
The key issue, in our view, is whether this creates a conflict of moral hazard.
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This article has 33 comments:
For once it would be nice to see those that criticize put forth an
"alternative plan" that lends credence to their argument against the Fed's actions.
If allowing Bear Stearns to fail is the alternative, than please give a hypothetical outcome of allowing the failure, based on the financial instability of the world markets on Mar. 15-16 2008.
from Wikipedia; "Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions..."
and, moral hazard is further described as "Financial bail-outs of lending institutions by governments, central banks or other institutions can encourage risky lending in the future, if those that take the risks come to believe that they will not have to carry the full burden of losses. Lending institutions need to take risks by making loans, and usually the most risky loans have the potential for making the highest return. A moral hazard arises if lending institutions believe that they can make risky loans that will pay handsomely if the investment turns out well but they will not have to fully pay for losses if the investment turns out badly. Taxpayers, depositors, other creditors have often had to shoulder at least part of the burden of risky financial decisions made by lending institutions."
It's kind of a "...look's like a duck, is a duck" at this point, obvious rescue notwithstanding. And thanks to Okham Research for the article.
This video points out some of the arguments against the bailout. No matter what any of us might believe, the Senators who regulate the banks are OWNED by the banks and will never do anything against that interest. All of the Senators have been given millions in campaign contributions from these big wall street banks. And we keep sending them back to Congress. Who do they really represent? Not me! A pity.
All of the parties to this transaction should be applauded, not criticized. The cost of inaction for the economy and the Bear Shareholders is incalcuable.
"because Israel's supporters control what's fit to be
said or printed about why the West wars with Islamic
Arabism."
So I guess Israel's supporter run 'Al Jazeera' as well?
Good to know that Ron Paul is not a moronic, simplistic anti-semite like you.
OK
Lets remember the US Federal Reserve is a PRIVATELY held bank, OWNED by other privately held banks. And Yes J. P. Morgan OWNS a stake in the Federal Reserve. Basically to me it looks like the Federal Reserve "invented" 29 Billion out of thin air and cut a deal through J.P. Morgan to make the "insiders" (
J.P. Morgan They have been on the inside since 1913 Google the creature from Jekyll island and read all about how and Why the US Federal Reserve is a privately owned bank) richer and cripple outsiders (Bear Sterns) for the motive of shear greed and profit.
I think the deal had to be done but the mechanism and the relationship between "insider" bankers and J.P. Morgan (.et .al) and the Federal Reserve should be EXPOSED for all to see.
Its a by product of a Fractional Reserve banking system that lets a privately owned bank (Federal Reserve) invent new money and increase the money supply dramatically without any US Government approval.
Thomas Jefferson saw through it:
If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.
Thomas Jefferson
The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale.
Thomas Jefferson
I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs.
Thomas Jefferson
this is the truth (its a problem of the Fractional Reserve Banking System:)
The Federal Reserve Bank is nothing but a banking fraud and an unlawful crime against civilization. Why? Because they "create" the money made out of nothing, and our Uncle Sap Government issues their "Federal Reserve Notes" and stamps our Government approval with NO obligation whatever from these Federal Reserve Banks, Individual Banks or National Banks, etc.
H.L. Birum, Sr., American Mercury, August 1957, p. 43
Thanks Tom for reminding me that The Fed is privately owned by the banks themselves, and thus when Sen. Bunning and Sen. Melendez opined during the hearing about the American people facing losses if the toxic waste the Fed took cannot be marketed we realize:
The senators don't know The Fed is a private, or at least quasi private central bank at the core of the financial beast system.
Or the American people are indeed having to absorb losses while investment banking profits stay privatized. That is not only hazardous but immoral.
To the person who called Deacon an anti-Semite, I recall when I reminded Bob Bjork - and copied the Wall Street Journal - that Bjork was intellectually dishonest for calling Pat Buchanan an anti-Semite back when Pat was running for president.
Certainly the Jews know that the Arabs are the Semites and most contemporary followers of Judaism - 95 percent according to Thirteenth Tribe author Arthur Liester - descend from a Turkish sub tribe with Mongol genetic infusion, the Khazars. While Bjork did not acknowledge my criticism of his intellectual dishonesty, the Wall Street Journal a few months later printed a front page piece on the Khazars and a map of the area north of the Black Sea, where they lived when they converted to Judaism around 700 A. D.
The I guess Semitic Jews of the Old Testament times were almost virtually wiped out by the Romans in 70 A.D by the Romans because they would not assimilate. Everyone knows that, but have just conveniently forgotten it. The survivors of the Roman holocaust later surfaced in the European courts of the middle ages and then some of them migrated to what became the United States soon after the Mayflower, arriving from Portugal, Spain by way of south America. Stephen Birmingham writes about the sephardic branch, if that is the correct term, in the Grandees. Most of them seemed to have died out in the U. S. due to inbreeding. Though some of them also married into the WASP establishment.
As I have shown dogs and owned horses I clearly understand that Springer Spaniels do not look like Vizlas and Thoroughbreds do not look like Shetland ponies. And most Jews in the U. S. do not look like the Arabs. Just as the Semitic Arabs do not look like the Persians of Iran.
Anyway, the intellectually dishonest use of the racially charged words "anti semites" really needs to be replaced with something more accurate.
It was Arthur Koester who wrote the Thirteenth Tribe.
I mis typed.
Even if JPMorgan does hold 49.5% of the shares it seems that the remaining "Longs" hold something like 65%, with the "Shorts" holding negative 15%. Wouldn't JPMorgan then need another 8%-to-16% to ensure this goes through. (+58% JPM, +57% "Longs", -15% "Shorts" *OR* +66% JPM, +65% "Longs", -31% "Shorts") Who is still selling shares of BSC besides the "Shorts", and how will they cover? Am I missing something here?
I think I figured out what I was missing:
Has the public seen BSC's books lately (it didn't file its 10Q)?
Has JPM seen BSC's books lately?
How do the courts define insider trading?
Maybe JPM won't actually get to keep those shares? Is it possible that nothing about this deal is as we are being told?
Wow!
Even if JPMorgan does hold 49.5% of the shares it seems that the remaining "Longs" hold something like 65%, with the "Shorts" holding negative 15%. Wouldn't JPMorgan then need another 8%-to-16% to ensure this goes through. (+58% JPM, +57% "Longs", -15% "Shorts" *OR* +66% JPM, +65% "Longs", -31% "Shorts") Who is still selling shares of BSC besides the "Shorts", and how will they cover? Am I missing something here?
I think I figured out what I was missing:
Has the public seen BSC's books lately (it didn't file its 10Q)?
Has JPM seen BSC's books lately?
How do the courts define insider trading?
Maybe JPM won't actually get to keep those shares? Is it possible that nothing about this deal is as we are being told?
Wow!
But it's peanuts compared with what you're actually getting: the alienation and disenfranchisement of anyone who ever did an honest day's work for an honest day's pay and saved 20% of it for a rainy day, secure in the knowledge that compound interest and SPENDING LESS THAN WE EARN would allow us to survive life's inevitable downturns and disasters. We don't owe money, we don't need loans to survive, and, frankly, we don't need the banks at all - even compound interest would be irrelevant if not for inflation. The collapse of all banks and prolonged deflation would cause us little real harm and may even leave us wealthier at the end, and it would surely leave our republic healthier, stronger, and wiser. This country desperately needs to suffer real pain, pain so great that no government action can possibly avert or salve it. Only then will the profligate understand the inescapable law of economics: you cannot consume more than you produce.
Busts are unpleasant but survivable. Unchecked alienation is not. Alienation allows a bad economic situation to become a bad social situation and then a bad military situation. It is, in short, how democracies become failed states.
I'm not a conspiracy nut like deacon. There are no conspiracies here; conspiracies are supposed to be secret. What we have is simply the greedy and the foolish stealing brazenly from the modest and the prudent. You think this source of easy profits can last forever. But you thought the same about the tech bubble and the housing bubble, too (and the junk bond bubble and the silver bubble and the tulip bubble before those). Don't make the same mistake here; taking money from a willing greater fool is one thing; stealing a prudent man's life savings at gunpoint is something else altogether.
I cannot see how the FED will be able to cope, given its current financial status.
Therefore I think that the arranged purchase of BSC was just to buy time for the banks to unravel their positions. I do not believe that the FED is aware of the full extent of the crisis, as banks are notoriously opaque, when they wish to be.
As rates have dropped significantly, and the FED's reserves have suffered, what's left in the tank, for crisis number 2 and 3?
I think that the bail out of BSC has just delayed the inevitable, an investment bank will fail, its just a matter of time.
What the FED must be able to quantify satisfactorily, is what the effects will be, and what plan it should construct ( with the international financial community) to alleviate the pain.
The balance sheets of all the investment banks look weak, but who would help to recapitalise them, in this current climate?
Unless they were politely ordered to by the FED?
Paid for by the Treasury obviously?
Could it be as simple as the Fed assuring BSC creditors their obligations would be met?
The purpose of the Fed is to maintain stability in the US/Global markets. Did they do that?
Congress shirked their duty to control issuance of our money when President Wilson signed their Federal Reserve Act bill. That bill was created by Paul Warburg (came all the way over from Germany just to help out), and NY Bankers (MellonMorganChase, et al...), and the Fed from day one was unaccountable to joe US citizen. They spread regional fed-banks around the country to make people feel safe. They really pulled off the mother of all hijinks when it was deemed the President would have the "responsibility" of naming the Fed Chairman. The President is told though, don't you know, which wizard to hire when. It all seems legit, especially when so much is made about how the Fed operates independently of the White House. So the Fox (independent contractor status Fed) guards the chickens. The Chickens in this case are greenbacks, and yes the Fed (not Congress), gets to keep them penned in (deflationary-Paul Volcker style) or let them out (inflationary- Greenspernanke style). Greenspan sowed the seeds of inflation, Bernanke is watering and fertilizing them, and when the last value is wrenched from the pawns (investors in BS), and holders of world-wide of Treasuries (mostly China, but amazingly the arabs too, again) finally capitulate and sell, the next Fed chairman will grind what's left of the US economy into a cheap burger and sell it for amazingly high rates of interest to any returns-starved fool with any money.
Most in Congress would be shocked to know they could change the situation by holding the Fed accountable. But the few who do know were "grilling" Bernanke on 4-15/16 and then capitulating because the bailout of BS was sooooo needed to avoid worlwide economic doom. Those few congress people are merely world banker aides, getting to sit in on a "transparent" pow-wow with Big Ben and the Big Banks, all for our financial security. Don't ever forget though that money, creating too much or too little, is a terrible weapon. It makes people look like heroes (even turkeys can fly in a tornado), and goats (your local banker about to lose his job because some of his best clients can't pay their mortgage). These winners and losers are small potatoes though- the guys on TV with Big Ben play at another level. But they are pawns too. It's the families that own subsantial shares of the major banks, and therefore own major shares of the Fed, that do battle at the global level.
What you are witnessing is a global money war.
Roosevelt made owning gold illegal then future monetary policy decimated the value of the dollars he paid the honest people who turned it over. Anyone in the world owing US treasurys then got "paid back" with "worth-less" dollars.
Nixon stuck it to Arab nations when he took us off the gold standard in 1971. They owned Treasurys and saw the dollar's subsequent crash wipe out much of what we "paid back". This hurt them dearly. Then they hurt us dearly; we paid back at the pump, with Iran hostages then, and beligerent Iran now. Sure, oil is key and so is protecting Israel (and Israel's keepers in the US)
China is trying to fight back for us decimating the value of their US notes, by owning Gold (and pushing it higher). All well and good but we'll still win because gold won't feed their newly emerging middle class, which will make a mess of things in another 12-18 months when we've cut our purchases of cheap goodies by 30-50%. The uprising we see in Tibet will pale in comparison. The inflation rate in China is ratcheting up wildly, and is just getting started.
And don't belive that our inlation is a modest 4-5%. We stopped reporting M3 so the average joe wouldn't know our real inflation rate has been more like 8-10% over the last few years. Which is another reason Gold is up. Looks like everyone's a sucker. Except the EU central bank. They're on inflation-watch and will win this global battle in the war. Yep, you'll hear less about NY and more about the UK regarding being the world's financial clearinghouse.
Remember Paul Warburg? Well, he came to the US because the European system was in shambles and this country "prospered" most of the years since 1913.
People forget that the prosperity came between events of WW1, 1930's, WW2, Korea, Vietnam, Iran, Iraq, Iran (not much between the last 2). Whose wars were we fighting? And fighting still? Answer that and you'll know who tells the President which person to pick as the new FedHed.
So now the IMF says the only way to escape a world money crisis is for governments around the globe to pony up their citizen's tax dollars to bail out the banking system. That's right. This is the same IMF that got Mexico, Japan, Argentina and countless other fool countries to behave stupidly against their own citizen's best interests by adopting IMF protocol that wreaked havoc with their currency and economies.
So they're in on it, along with the World Bank. If you could dig deep enough into the ownership of these institutions you'd find the people that will fire Bernanke and install the next inflation hawk. Good luck!
If you don't believe what I've said about the Fed, ask your Senators and Congressmen. When you don't get a clear answer, ask them again. And keep asking, all the while looking for a candidate that will take the Fed to task. And do what you can to vote them in, and the others out. Tell them you want back on the gold standard and you are sick and tired (weary) from working your butt off, and getting raises that get you nowhere. And when people say things like "stop consuming more than you produce", know they are only partly right and their mantra is so loud it drowns any other discussions about the inflationary cycle wiping out more and more good people. Ask them to consider this; if they just yell louder, you'll know they are part of the conspiracy. And don't forget that just because "educated money and political people" poo-poo the idea of a conspiracy, doesn't mean there isn't one.
Think Ron Paul is a Kook? Ross Perot too? I can assure you the media will always help you think that way about anyone who challenges this system. That's why change must come from within Congress. There are a few in Congress who probably see their fault in going along- we need to lend them support with more like them. And we need to keep asking "why is the Fed printing our money?" Money backed by the full faith and credit of the U.S. With no gold to check the value, just paper and more of it.
"Why is the Fed printing our money? Why have we never really controlled our country, even after the American Revolution? Why does democracy in the US mean 2 partys, that just keep people agitated, then hopeful, then agitated again? And why is the Fed printing our money? If I could only get this one of my many questions answered, all the others would start falling into place.
The Bear Stearns/J.P. Morgan deal was cooked up months before the crash on March 14, 2008. In the last days there was panic buying of puts by people who found out about the 2 dollar deal several days before the crash on March 14.
The BSC/JPM deal was done by the same people who killed the Tsar , who made damn sure that Pilate washed his hands and sealed Christ's fate, who killed the Kennedys, and rode a tank in Hitler's generals rank.
What's my name? what's the nature of my game?