Skip to comments.Fed acts Sunday to prevent global bank run Monday ( Bear Stearns Taken over,...rates cut )
Posted on 03/16/2008 6:52:34 PM PDT by Ernest_at_the_Beach
he extraordinary weekend moves came as J.P. Morgan Chase sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by funds borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear. See full story.
(Excerpt) Read more at marketwatch.com ...
The fall of the giant construction crane might be taken as a bad omen. It's not big news outside of NY city, but it is a giant story locally, and some might read symbolism into it.
JP Morgan got a steal of a deal if I got the facts right. They pick up Bear for next to nothing, and the Fed guarantees some $30 Bn in dicey assets that no one is able to price. It is a bailout of the banking system, but it is not a bailout of the Bear Stearns shareholders. They are essentially wiped out, getting $2 a share for something that sold at 70 or 80 a week ago, and up to 170 a year ago. No one knows what the true worth would be without the Fed guarantee that JPM is getting, but it would probably be negative. That's why the guarantee had to be made for JPM to be able to make the deal.
It also makes me think that JP Morgan Chase be in better shape than the other big guys. You didn't see a bidding war, or multiple offers from other investment houses (Goldman, Merrill, Morgan, Lehman) or money center banks (Citi, HSBC, etc.).
I’ve been watching Bloomberg TV, they are live from the Asian exchanges.
Looking like S&L Deja vu all over again.
Markets are panicking already. 24 hours from now it's gonna be even worse. By the time the week is out and the top 5-10 banks report their earnings, it can be even worse.
The markets don't only work by numbers. They also work by mob psychology.
And the sheep are gonna stampede methinks.
Ok, got it. So you are saying I should stock up on wipes and cheezits?
Damn.... hate it when rumors are better than average....
Nah, I found it humorous. But thanks! Such a gentleman Mr. Ernest!! Us southern girls like that in a man.
There may well be LOTS of reasons to go for many, many Guinness Beer's tomorrow night in watering holes all over the fruited plain come quittin' time (maybe even before.
The financial markets — US, other countries, stocks, bonds, bank debt, currencies, commodities, and derivatives of all these, including things traded on exchanges and things traded directly between buyers and sellers, are:
1) All very tightly intertwined with each other, and
2) Highly leveraged (i.e. most participants “own” a lot more than they’ve paid for, similar to somebody buying a house with 5% or 20% down).
When a huge player goes under and can’t meet its margin calls (requirement to putting up more money for what they “own” when the market prices goes down), this immediately starts causing problems for everybody else at all points in all markets. This is what the Fed HAD to stop, and they had to stop it before 8PM EST, because that’s when the Asian markets open.
If the Asian markets started tumbling hard, in anticipation of the problems about to hit from Bear failing, that would cause unmet margin calls to start piling up all over the place, and a huge flow of asset sales at fire sale prices to cover margin calls, which would cause further tumbling of asset prices — all before the US markets even opened. All hell woulld have broken loose. Things could still be pretty rough in tomorrow. And there are likely to be more emergencies of this nature in the coming months.
Freepmail, then I gotto get some writin’ done in the other room.
“Paging Mr. Little. Mr. Little, call in the vestibule. Mr. Chicken Little.” cluck cluck! LOL
Too late. It fell.
Next will be to watch European markets when they open in the late afternoon our time here in Tokyo, watching this thing make itself away around the globe, from East until West, until the hour of reckoning tomorrow in NYC at 0930, as was mentioned.
it will start raining investment bankers, beware of falling three piece suits and broken glass/dreams.
You never know. These things usually manage to come when they are not expected. Tomorrow might be just another day.
NZ market hit by US meltdown
The New Zealand Stock Exchange has taken a hit, sliding almost two percent on the back of investor fears that more financial institutions could become casualties in the widening US financial crisis.
One of the major US investment banks’, Bear Stearns, cash reserves were drained by fleeing customers prompting its sale at a rock bottom price to JP Morgan Chase and Company.
Stock broker Chris Lee says the repercussions of the Bear Stearns situation is being felt in New Zealand - but banks operating here are not in trouble.
He says New Zealand banks will have much bigger write offs over the next couple of years, but he does not see any of them falling over or coming anywhere near falling over.
Mr Lee says the banking system in New Zealand and in Australia are in much better shape than the rest of the world.
That is an interesting observation. What is more interesting is that the Bear shareholders who will lose everything could quite possibly be Bear shareholders for less than a few hours of the last business day. The volume of BSC on Friday was more than the number of outstanding shares. It could well be the shennigans of Friday was opportunity for some really big holders to dump some shares before things really got as bad as 2 dollars a share. You can read some financial blogs and groups tonight where some people stepped up on Friday and bought, and those definitely will be margin calls first thing Monday morning. That is the way of the Street, there is always smart insiders who find a way to leave someone other than themselves holding the bag. And anyone holding a stock going from 30 something to 2 dollars in a day would be a classic definition of bag holder.
BSC has to many counterparty trades with Citi to let BSC (Bear) Fail. The Fed and JP Morgan could not let that Happen. Tommarow will be a very important day to be sure we get thru this. While everyone is publicly talking about LEH be the next problem, the Whispers are the big problem that the FED cannot let fail is Citigroup.
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