http://news.bbc.co.uk/2/hi/business/7296678.stm

Quote :

" Bear Stearns gets emergency funds JP Morgan Chase will provide the money to Bear Stearns for 28 days with the Federal Reserve of New York's backing. JP Morgan is also trying to get long-term financing for Bear Stearns. Bear Stearns' problems stem from the global credit crunch and the worry is that other lenders may also have major funding problems, analysts said. Withdrawn funds Bear Stearns is Wall Street's fifth largest investment bank, and has been at the centre of the US mortgage debt crisis. Recently, speculation had intensified that it was struggling to fund its daily business. BBC business editor Robert Peston said Bear Stearns had been taken to the brink of insolvency over the past 24 hours by a sudden collapse in confidence on the part of its hedge fund clients. As a result, these funds rushed to withdraw their assets. "The rescue of Bear Stearns demonstrates that the worst of the global credit crunch is not yet behind us," he said. He says that if Bear Stearns had been allowed to collapse, it could have put the whole financial system at risk. Bear Stearns shares dropped as much as 53% on the news before finishing Friday trading down 46%. 'Other banks' The credit crunch was caused because banks became less willing to lend to each other after they suffered large losses on investments linked to the US housing market, and the sub-prime sector in particular. MAIN SUB-PRIME LOSSES SO FAR Citigroup: $18bn Merrill Lynch: $14.1bn UBS: $13.5bn Morgan Stanley $9.4bn HSBC: $3.4bn Bear Stearns: $3.2bn Deutsche Bank: $3.2bn Bank of America: $3bn Barclays: $2.6bn Royal Bank of Scotland: $2.6bn Freddie Mac: $2bn JP Morgan Chase: $3.2bn Credit Suisse: $1bn Wachovia: $1.1bn IKB: $2.6bn Paribas: $197m Source: Company reports Sub-prime lenders focus on clients with poor or non-existent credit histories, and a record number of borrowers have defaulted on loans. The subsequent freezing-up of the credit markets created problems for a number of companies which relied on borrowing money to fund their business. In the UK, Northern Rock ran into trouble when its line of relatively cheap credit dried up. At the end of last year, Bear Stearns reported that it had made its first ever quarterly loss after buying investments linked to the US mortgage market. It was one of the first to admit it had problems linked to sub-prime mortgages, after two of its hedge funds had to be bailed out. Analysts said that Bear Stearns may not be the only bank suffering in the US. "The situation is very much that Bear Stearns was very close to the edge and it was much worse than we all thought," said Michael Klawitter of Dresdner Kleinwort. "It raises severe concerns over other banks." 'Restore confidence' Alan Schwartz, president and chief executive officer of Bear Stearns, said: "Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity. "We have tried to confront and dispel these rumours and parse fact from fiction. "Amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated," he added. "We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations." BBC business editor Robert Peston said that the move by JP Morgan and the Fed of New York was essentially a central bank bailout. "In just the last 24 hours Bear Stearns came close to running out of the cash or liquidity it needs to meet its daily requirements," he said. "So enter the US Federal Reserve. It is promising to supply whatever liquidity is required by JP Morgan Chase, the leading bank, to help Morgan provide whatever funds are required by Bear Stearns. "Since JP Morgan is saying there is no risk to its shareholders, this represents a central bank bailout of Bear Stearns. "This is America's Northern Rock.""

3/14/2008 10:04:29 PM

When individuals get welfare on your dime, it's socialism.

When corporations get welfare on your dime, it's capitalism.

If only the homeless could afford a well-oiled PR machine...

3/14/2008 10:26:52 PM

didnt this news come out like 14 hours ago?

[Edited on March 14, 2008 at 10:34 PM. Reason : couldnt go in the "impressive us economy" or depressing budget thread?]

3/14/2008 10:34:12 PM

^^ for what it's worth, I think Bear Stearns should die, along with any other company that fucked itself by being irresponsible

3/14/2008 10:35:58 PM

100% Agreed.

3/15/2008 12:38:45 AM

^^^^ not in my book

although at least many (most?) recipients of corporate welfare don't make it a way of life

and let's be real here--most recipients of welfare aren't people who are doing their best, but their best just isn't good enough

but yeah, i'm generally not a fan of either type of welfare (with a handful of exceptions on both ends)

[Edited on March 15, 2008 at 12:48 AM. Reason : asdfas]

3/15/2008 12:46:53 AM

Quote :

"When individuals get welfare on your dime, it's socialism. When corporations get welfare on your dime, it's capitalism. "

I fail to see how this is akin to welfare considering that JP Morgan is the company bailing them out and it's a loan that will likely end up getting paid back.

Quote :

"if Bear Stearns had been allowed to collapse, it could have put the whole financial system at risk."

PS let me know the next time an individual's well-being could put the whole financial system at risk. I'm all for emergency moves if they are designed to keep our entire financial system from plunging into a meltdown.

3/15/2008 12:47:55 AM

Quote :

"Prawn Star: I fail to see how this is akin to welfare considering that JP Morgan is the company bailing them out and it's a loan that will likely end up getting paid back."

By whom?

*drum rolls till his return*

[Edited on March 15, 2008 at 2:40 AM. Reason : hint: http://www.bloomberg.com/apps/news?pid=20601087&sid=abl8CI.8oF8U&refer=worldwide]

3/15/2008 2:40:08 AM

Ummm, Bear Stearns? Was that not obvious?

It's not like the feds are nationalizing the company and assuming all liabilities. It's a loan. Don't make it into more than it is.

3/15/2008 3:43:38 AM

Quote :

"Prawn Star: Ummm, Bear Stearns? Was that not obvious?"

In the short run, sure.

I mean shit, they can pay back those first few months with all that cash the Fed--through JP Morgan--just handed them, right?

Quote :

"Prawn Star: Don't make it into more than it is."

As soon as individuals on the verge of declaring bankruptcy due to financial recklessness receive a dumptruck full of cash (even LENT cash) courtesy of the direct intervention of a Presidential appointee, you've got a deal.

3/15/2008 4:41:32 AM

It is the supremacy principle. As I understand it, loans from the Fed. automatically get put at the front of the creditor cue by law. It is improbable that Bear Stearns would be unable to pay back this loan (which, again, is from JP Morgan Chase primarily, it only becomes a Fed. loan if Bear Stearns tries to default on this loan).

3/15/2008 10:15:08 AM

Quote :

"The subsequent freezing-up of the credit markets created problems for a number of companies which relied on borrowing money to fund their business. "

Relying on borrowed money doesn't seem like a good way for these welfare queens to run their businesses to me.

3/15/2008 12:34:09 PM

damn the loan that bear stearns got was the first time that type of thing has happened since the 1960's

3/15/2008 1:03:52 PM

All financial businesses suffer periods of surplus and shortage when it comes to cash. To maximize efficiency, they are in the habbit of frequently loaning their cash from those that have it to those that need it temporarily. When a financial company is believed to be in trouble then it is unable to borrow cash, so even if it is perfectly sound it will go bankrupt whenever the next period of shortage occurs. That Bear Stearns will have all the cash it could want on the first of may is irrelevant if no one is willing to give it a loan until then.

Usually it is difficult to tell which came first, the rumors of insecurity or actual insecurity.

[Edited on March 15, 2008 at 2:34 PM. Reason : .,.]

3/15/2008 2:32:57 PM

Put another way: The Fed just backed up a shit ton of junk bonds to Bear Sterns.

Or gave them life insurance.

However you want to put it, it ugly.

[Edited on March 15, 2008 at 2:54 PM. Reason : ...]

3/15/2008 2:52:56 PM

Well, it's a philosophical question. If you believe in a lender of last resort, as I do, then there is nothing ugly about this.

3/15/2008 4:37:29 PM

Quote :

"a lender of last resort"

A basic tenent of capitalism: if you screw up, you go out of business and your resources are taken over by some one else.

Having a "lender of Last resort" for banks is giving them carte blanche to keep taking high-stakes gambles without the fear of extinction. Being careful isn't a part of the mix any longer.

If one private bank wants to do something stupid like bail out another stupid bank..they can do it without the guarantee of the tax-payers...thank you.

3/15/2008 5:39:51 PM

^ that's crazy talk, man. THINK OF THE CHILDRE.... uh... BANKERS' CHILDREN!!!

3/16/2008 1:14:43 AM

So all these billions of dollars of losses around the world for the past several months are because of certain people in the US who 'buy' homes they can't afford?

I say kill them all (and their children as well).

3/16/2008 5:46:54 AM

^Yea, that's how it happened. Sadly, most Americans don't know what true hardship and sacrifice are. I think we need a big old lesson in that.

3/16/2008 7:15:18 AM

I just can't seem to fathom why people can't NOT SPEND money THEY DON'T HAVE...

I mean, seriously? Buying things upon things for which you DON'T HAVE the money is as baffling to me as someone surviving a fall from a 1,000 foot building and leaving with bruises only.

When did this start? In the whole of human history, people have lived within their means, except in exceptional circumstances (medicial treatment, marriage costs, etc).

But now, people are buying couches, phones, and other mundane things for which they don't have the money, what to talk of cars and homes.

WTF is this? Someone explain whose fault this culture and mentality is? And why is it found to such a great degree in the US? Is it VISA and MasterCard's fault? Their aggressive ads? The ads of furniture, car, and real estate companies exhorting people to buy now and pay later?

Someone has to pay for this diseased culture. And steps should be taken nationwide to eradicate this disease. But I guess, due to democracy and capitalism and freedom, this disease cannot be eradicated.

3/16/2008 7:27:16 AM

When society became more urbanized. One of the factors (at least what I learned in school) behind the Crash in '29 was that many people had bought things on credit and didn't have the money to pay for it. Banks couldn't give money to the people who were good on their credit when the folks came to take it out. Sounds familiar a bit doesn't it?

Well, I think it's more of a lack of a concept of consequences that pervades American society: it's why we have unwanted pregnancies, a fucked-over welfare system (thanks a lot, LBJ), and the like.

3/16/2008 7:47:19 AM

Quote :

"Having a "lender of Last resort" for banks is giving them carte blanche to keep taking high-stakes gambles without the fear of extinction. Being careful isn't a part of the mix any longer."

If bear Stearns is in trouble then a loan will not save them; all a loan will do is secure the banks operations while it is either bought out or liquidated. Either way, the owners and operators of the bank will have lost everything.

3/16/2008 8:48:06 AM

Gamecat and everyone else that things Bear Stearns should be left to flounder have a point. I mean, this could create a moral hazard situation where future investment banks will make equally bad loans with confidence that they will be assisted if things go south.

But you have to ask yourself how serious the moral hazard consequences will be. I mean, most of these banks will still suffer significant losses, including bear stearns. They are not getting bailed out here. So they will still have plenty of incentives in the future to not make bad loans.

That's why I'm less scared about moral hazard than a 1930's style banking collapse. We were able to avoid that 20 years ago with the S&L crisis becuase the government was willing and able to do essentially what it's doing now.



[Edited on March 16, 2008 at 10:14 AM. Reason : ``]

3/16/2008 10:05:42 AM

^ They're definitely getting bailed out here.

It's like going to Blue Cross HQ weeks after chemo, then receiving health insurance.

Underwriters would be fired.

Our financial underwriters clearly deserve a few weeks in the stocks...

3/16/2008 12:46:00 PM

i'm tired of us spending all this money....i wish george bush would save some money

3/16/2008 1:04:29 PM

then stop bitching and do something about it.

3/16/2008 1:10:21 PM

i'll send him a link to this thread lol

3/16/2008 1:17:48 PM

Gamecat,

I am less concerned about punishing the wicked or stupid than I am concerned about preserving financial stability. Bear Stearns will still be the brunt of its poor decisions. There is also no reason to believe the government would provide similar assistance to every major investment bank that went under. The fact that these cirumstances are special also help reduce my worries over "moral hazard".

Really, this is essentially what J.P. Morgan and others did to help "quell the storm" posed by the Panic of 1907. Except on a smaller scale.
http://en.wikipedia.org/wiki/Panic_of_1907

3/16/2008 1:59:53 PM

Right.

The business man's "New Deal."

3/16/2008 3:38:11 PM

I was actually making that comparison yesterday when talking with McDanger.

GG all around, Gamecat.

3/16/2008 6:54:04 PM

JPM buying BS for $2 dollar bucks a share.

http://news.bbc.co.uk/2/hi/business/7299938.stm

3/16/2008 7:47:59 PM

^

CORPORATE WELFARE++

QED

3/16/2008 11:25:50 PM

From Yahoo article on it (fuck you look it up):

Quote :

"the Federal Reserve would fund up to $30 billion of Bear Stearns' less liquid assets."

3/17/2008 12:06:30 AM

Did someone hijack Gamecat's account, or has he just been more edgy lately?

3/17/2008 12:32:53 AM

so, now this officially IS a federal bailout. good work.

3/17/2008 12:38:13 AM

What?

Only Cramer can get angry about this and get away with it?

3/17/2008 1:00:06 AM

I mean

If you sit down and honestly think about what situation the country is in its hard not to get angry.

3/17/2008 1:18:07 AM

3/17/2008 1:30:48 AM

Quote :

"Did someone hijack Gamecat's account, or has he just been more edgy lately?"

3/17/2008 6:57:01 AM

Quote :

""

HAHHAHAHAHHHAHAHHAHHAHA

3/17/2008 8:19:27 AM

Well, we have a conclusion.

JP Morgan has stepped up and promised to buy Bear Stearns in a stock swap which amounts to $2 a share.

This figure shocked investors, as Bear Stearns was still trading at $30 on Friday and was as high as $171.51 back in January 2007. The sale price of $270 million in stock is only "a third the price at which the smaller firm went public in 1985." "The sale price includes Bear Stearns’s soaring Madison Avenue headquarters."

"The deal for Bear, done at the behest of the Fed and the Treasury Department, punctuates the stunning downfall of one of Wall Street’s biggest and most storied firms. Bear had weathered the vagaries of the markets for 85 years, surviving the Depression and a dozen recessions only to meet its end in the rapidly unfolding credit crisis now afflicting the American economy."

http://www.nytimes.com/2008/03/17/business/17bear.html

3/17/2008 8:22:18 AM

^
Also from the article...

Quote :

"In an unusual move, the Fed will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns’s “less-liquid assets.”"

The Fed bailing out an investment bank???

The big banks and gov't...just who is running who?

3/17/2008 9:07:28 AM