Tie D

Thoughts on the Bear Stearns/JPMorgan Deal

To the posters above. No one said the mortgage backed securities are worthless, they just aren't worth the money that they are being used as collateral against. This is what people mean when they talk about liquidity crisis. Here is an example of someone who is late in the run on the bank:

Bear Customer: I heard that your firm might be in trouble, can I please withdraw my 10 million dollars?
Bear Employee: The thing about that is we didn't actually hold onto your deposit. We invested it in these mortgage backed thingamajiggys, and about 20,000 other customers beat you to the window, so we ran out of cash. Would you like some CDOs instead?
Bear Customer: WTF am I supposed to do with this? I can't get anything for it.
Bear Employee: Well, if you look on the message boards, people will point out that they aren't completely worthless, they are just worth less than they were.
Bear Customer: Well how many do I get?
Bear Employee: Well, thats the thing...since we don't know what they are worth, we can't determine that. Also, we don't probably don't have enough for everyone.
Bear Customer: Well, where can I get face value for it?
Bear Employee: If we knew that, we would be able to liquidate it, and give you your money. Have a nice day!