ChaulmoograOil

Bear Gets Butchered

The headline was: "J.P. Morgan on Verge of Buying Bear for $20/Share".

Bear Gets Butchered

There may have been a typo in your previous article on Bear Stearns, where you wrote that it was possibly to be sold for $20/share. The zero...

Bear Gets Butchered

There may have been a typo in your previous article on Bear Stearns, where you wrote that it was possibly to be sold for $20/share. The zero...

Bear Stearns Sold for an Embarrassing $236m

"The credit markets can unfreeze once these counterparty risks are unwound. The unwinding has begun, and we can only hope that JPM knows BSC's book to the point that they can unwind BSC and liquidate it quickly. We can only hope."

Counterparty risks don't get "unwound", only the pyramid of derivatives gets unwound. During this process, counterparty risks either fizzle out (any failures and losses are absorbed by the solvent counterparties) or else they spread like wildfire from party to party, possibly worldwide.

"It is a firm that has been riddled with criminality...
They have gotten their just deserves."

I doubt it, unless you mean multimillion dollar severance packages and bonuses and salaries deserved for their splendid leadership.

Bear Stearns Sold for an Embarrassing $236m

The Bear Stearns buyout may have the effect of valuing other, similar mortgage-related enterprises at the "$2 equivalent" fraction of their capitalization as of week ago, as another thread points out. A real downdraft, if so.

This may be only a minor prelude to a much more serious and panicky credit crunch, which will happen if there are simultaneous, correlated attempts to unwind a substantial portion of the "credit default swaps" market. The swaps market (a kind of derivatives) has nominal size in the trillions. When Berkshire Hathaway bought General Re a few years ago, and tried to unwind its portfolio of derivatives -- i.e., to back out and sell them -- it had to take enormous losses, partly from counterparty failures and their side-effects, I believe. Swaps have been considered great risk-spreaders because any counterparty failures would be uncorrelated. But when the mood changes worldwide to fear and investing conservatism, things once-uncorrelated can get correlated fast.

I don't know what percent of the General Re derivatives assets had to be written off.

If this credit crunch keeps spreading, watch out for a coming "swaps crisis".