Bear Stearns Bought for $2 a Share !

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The deal was too prompt and, that's why, there are so many questions . No doubts in actual situation one of Fed's main targets was to avoid a real panic. As for other reasons of rush, nowadays I would not rule out even versions that may look unbelievable at the first glance like, for example, that of Jim Willie CB:

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In truth, we might later learn that Bear Stearns helped to bail out JPMorgan, in helping to shore up its credit derivatives, in providing some emergency collateral, soon to bust, to prevent a JPMorgan failure!!!

Cliff Notes on Financial Maelstrom Think we have nothing seen yet. Everything really bad is still ahead.
 
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Think we have nothing seen yet. Everything really bad is still ahead.


Nah! You jest!! I never would have known
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How did this occur right under my nose and me being totally numb and carrying on like there was no tomorrow and that there was no cliff ahead in the course we were taking?

I feel like such a sucker to have been so foolish to think that any other outcome was sensibly possible given the conditions that were so totally insidious and not at all apparent in my idiotic view.


I'm glad people of higher station are running things. If it was me, gosh ......think how bad it could have been
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Gary,
I agree with your general point. However, over time, the stock market has managed to beat inflation and that includes all the dips and crashes. So yes, it is zero sum for the speculators. For the buy and holders that stay on course over enough peaks and valleys, they beat inflation, on average. Now it stinks that we have to worry about inflation but that is the world we live in. For peons like you and me, we have three choices - hold it all in cash and get eaten by inflation, invest it in more risky assets and try to out pace inflation (Gawd forbid we should have to take risks like all our forefathers going back to caveman times), or throw in the towel and just slit our wrists. We don't have the option of reforming the system - that's out of our hands. If I were starting from scratch, I'd start with the education system so we become a society of smarter voters.
 
Well, I think that you'll have to admit that the evolutions have usually had a quench and purge that has had a "wringing out" effect on the nation. Sure the market has provided one modality of besting inflation, but typically at the cost of the aggregate wealth/worth of the nation. Since it's not nearly participated in by (probably) a marginal majority of the population, the real effects are more in tune to a "shift" of some things around the balance sheet.

The situation is managed differently in other places of the industrialized world, as Shannow described. There they forced 100% participation and the same sorta "shifting" occurred. It just was doled out along a narrower range of gain:loss (his forced investment did well, his mother's did not as well).

You then come to another philosophical point ..since the myth of "creation of wealth" is dissipated ..is that why would anyone of alleged guardianship promote a modality for devaluating their own nation in a wholesale manner? I mean if you're forced to do so for compelling reasons (global security on some tertiary level- brokered concessions-etc) ..is it necessary to make it an appealing trap? Can't the chips just fall as they may and accomplish the same outcomes with a lot less madness, chaos, and even more unfavorable compensatory reactive non-remedies that make things even worse?

I mean ..somewhere ..there's more than a few people that have just counted their 5th or 6th iceberg collision ..and they just keep adding more pumps.

I do agree on needing smarter voters ..a smarter population in general ..but we're also sorta reducing that likelihood too. I guess if you're going to get elected based on what you can sell ..then you're going to sell whatever you need to to get votes.
 
Originally Posted By: Gary Allan
I do agree on needing smarter voters ..a smarter population in general ..but we're also sorta reducing that likelihood too. I guess if you're going to get elected based on what you can sell ..then you're going to sell whatever you need to to get votes.


But then things get tricky.

Down under, we've had "floats" of the Commonwealth Bank (formerly Govt owned "keeping the bastiches honest"), Telstra (national communications, had three floats of T1, T2, T3, and still partial Govt ownership).

The populace have now evolved to the "buy low sell high" mantra.

Was explaining the other day to these people that people can make money on the devaluation of a company/market, and met with incredulity.

"Impossible" was the usual response.

Demonstrated that it's possible to borrow shares, sell high, buy back low, and hand the shares back, making a profit, and they could not beleive a) that it was legal, and b) that anyone would lend their shares towards it.

If I were in a boat, in choppy waters, and an occupant of the boat started throwing their weight in time with the rocking, increasing the instability rather than holding still, I would wonder whether this individual was a) suicidal, b) homicidal, or c) had something to gain by the boat being so off kilter (like profiting from the fears of those who don't know how to swim).

JPM are currently holding 3 times the mass of the boat in "rocking weight".

Maybe they need a little push from behind t set the boat straight.
 
Originally Posted By: Gary Allan
Sure the market has provided one modality of besting inflation, but typically at the cost of the aggregate wealth/worth of the nation.


I don't understand what you mean here. Stock markets don't just affect investment portfolios, they also provide an efficient means of financing for firms engaged in manufacturing and other lines of business. So I don't know what you mean by "at the cost of the aggregate wealth/worth of the nation." Yes, there is fraud and speculation in markets, but there are also productivity effects. Have you conducted a study to see which effect is larger on aggregate? Or simpler yet, just casually look at the economies that have stock markets versus those that don't. I think it will be clear which economies do more manufacturering and create more "wealth".
 
No ..let's have you explain how we've experienced the "creation of wealth" here domestically. That is, as the market advanced, more people were moved toward self actualization then there were those moved further away from it. That is, our poor are less poor than they were 8 years ago. My $$ buys more than it did 8 years ago. My taxes are lower since we're now a wealthier nation.... unemployment is down, wages are up.

If the market has done anything on its own merit ..how can we possibly be on the brink of a major recession? Because the gains were financed with future money that didn't exist. It fueled an economy that didn't deserve to exist. Provided profits that wouldn't normally be allowed and collected. Generated quarterly reports that were above expectation ....

Need I go on??
 
Originally Posted By: Gary Allan
No ..let's have you explain how we've experienced the "creation of wealth" here domestically. That is, as the market advanced, more people were moved toward self actualization then there were those moved further away from it. That is, our poor are less poor than they were 8 years ago. My $$ buys more than it did 8 years ago. My taxes are lower since we're now a wealthier nation.... unemployment is down, wages are up.

If the market has done anything on its own merit ..how can we possibly be on the brink of a major recession? Because the gains were financed with future money that didn't exist. It fueled an economy that didn't deserve to exist. Provided profits that wouldn't normally be allowed and collected. Generated quarterly reports that were above expectation ....

Need I go on??



I don't think you have any clue about the connection of the stock market, the real economy, or what is causing the current financial crises. Let me give you a clue, the problem did not originate in the stock market which is highly regulated. Google the keywords "OTC derivatives" "shadow banking system" "CDO" "SIV" "mortgage backed securities" "structured finance". When you make sweeping generalizations without really being able to connect the dots, you place a very low price on your own credibility.

Booms and busts existed long before the advent of stock markets. Think tulip bubbles in the 1600s, the south seas bubble in the 1700s and many others.....
 
"Deregulation does not equal "free market". People with an agenda like to cite Enron when propping up government control."

Deregulation is as it says, less regulation, which also tends to mean less 'transparency'. In Enron's case we see a long history inlfuence peddling in Texas and national politics, the effort being one of being able to engage in business with less oversight and scrutiny. As I recall some Enron board members had served with Arthur Anderson.

It's bizzare that most conservatives seem convinced of man's inherent evil nature as a matter of principle, examples being laws on what may take place between consenting adults, but are apparently willing to believe that the marketplace is where man's divine nature can reveal itself, free from the bonds of earthly influence; for what use is a soul if billions are not gained by those who are worthy ? If the pensions of millions are lost and economies are depressed, it is merely divine intervention that has revealed itself.

http://en.wikipedia.org/wiki/Enron

Congressman Phil Gramm, the second largest recipient of campaign contributions from Enron, succeeded in legislating California's energy commodity trading deregulation. Despite warnings from prominent consumer groups which stated that this law would give energy traders too much influence over energy commodity prices, the legislation was passed in December 2000.

As Public Citizen reported, "Because of Enron’s new, unregulated power auction, the company’s 'Wholesale Services' revenues quadrupled—from $12 billion in the first quarter of 2000 to $48.4 billion in the first quarter of 2001."[5]

Before passage of the deregulation law, there had been only one Stage 3 rolling blackout declared. Following passage, California had a total of 38 blackouts defined as Stage 3 rolling blackouts, until federal regulators intervened in June 2001. These blackouts occurred mainly as a result of a poorly designed system that was manipulated by traders and marketers. Enron traders were revealed as intentionally encouraging the removal of power from the market during California's energy crisis by encouraging suppliers to shut down plants to perform unnecessary maintenance, as documented in recordings made at the time.[6] These acts contributed to the need for rolling blackouts, which adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail consumers.


http://www.time.com/time/business/article/0,8599,193520,00.html

Enron: Who's Accountable?


Shredded evidence is only one of the issues that will get close scrutiny in the Enron case. The U.S. Justice Department announced last week that it was creating a task force, staffed with experts on complex financial crimes, to pursue a full criminal investigation. But the country was quickly reminded of the pervasive reach of Enron and its executives—the biggest contributors to the Presidential campaign of George W. Bush—when U.S. Attorney General John Ashcroft had to recuse himself from the probe because he had received $57,499 in campaign cash from Enron for his failed 2000 Senate re-election bid in Missouri. Then the entire office of the U.S. Attorney in Houston recused itself because too many of its prosecutors had personal ties to Enron executives—or to angry workers who have been fired or have seen their life savings disappear.

Texas attorney general John Cornyn, who launched an investigation in December into 401(k) losses at Enron and possible tax liabilities owed to Texas, recused himself because since 1997 he has accepted $158,000 in campaign contributions from the company. "I know some of the Enron execs, and there has been contact, but there was no warning," he says of the collapse.

Bush told reporters that he had not talked with Enron CEO Kenneth L. Lay about the company's woes. But the White House later acknowledged that Lay, a longtime friend of Bush's, had lobbied Commerce Secretary Don Evans and Treasury Secretary Paul O'Neill. Lay called O'Neill to inform him of Enron's shaky finances and to warn that because of the company's key role in energy markets, its collapse could send tremors through the whole economy. Lay compared Enron to Long-Term Capital Management, a big hedge fund whose near collapse in 1998 required a bailout organized by the Federal Reserve Board. He asked Evans whether the Administration might do something to help Enron maintain its credit rating. Both men declined to help.
 
http://www.nytimes.com/2008/03/23/business/23how.html?pagewanted=2&_r=1

Already, legislators in Washington are offering detailed plans for new regulations, including ones to treat Wall Street banks like their more heavily regulated commercial brethren. At the same time, normally wary corporate leaders like James Dimon, the chief executive of JPMorgan Chase, are beginning to acknowledge that maybe, just maybe, new regulations are necessary.

“We have a terribly global world and, over all, financial regulation has not kept up with that,” Mr. Dimon said in an interview on Monday, the day after his bank agreed to take over Bear Stearns at a fire-sale price. “I can’t even describe the seriousness of that. I always talk about how bad things can happen that you can’t expect. I didn’t fathom this event.”

TWO months before he resigned as chief executive of Citigroup last year amid nearly $20 billion in write-downs, Charles O. Prince III sat down in Washington with Representative Barney Frank, the chairman of the House Financial Services Committee. Among the topics they discussed were investment vehicles that allowed Citigroup and other banks to keep billions of dollars in potential liabilities off of their balance sheets — and away from the scrutiny of investors and analysts.

“Why aren’t they on your balance sheet?” asked Mr. Frank, Democrat of Massachusetts. The congressman recalled that Mr. Prince said doing so would have put Citigroup at a disadvantage with Wall Street investment banks that were more loosely regulated and were allowed to take far greater risks. (A spokeswoman for Mr. Prince confirmed the conversation.)

It was at that moment, Mr. Frank says, that he first realized just how much freedom Wall Street firms had, and how lightly regulated they were in comparison with commercial banks, which have to answer to an alphabet soup of government agencies like the Federal Reserve and the comptroller of the currency.

“Not only did Wall Street have so much freedom, but it gave commercial banks an incentive to try and evade their regulations,” Mr. Frank says. When it came to Wall Street, he says, “we thought we didn’t need regulation.”

In fact, Washington has long followed the financial industry’s lead in supporting deregulation, even as newly minted but little-understood products like derivatives proliferated.

During the late 1990s, Wall Street fought bitterly against any attempt to regulate the emerging derivatives market, recalls Michael Greenberger, a former senior regulator at the Commodity Futures Trading Commission. Although the Long-Term Capital debacle in 1998 alerted regulators and bankers alike to the dangers of big bets with borrowed money, a rescue effort engineered by the Federal Reserve Bank of New York prevented the damage from spreading.

“After that, all was forgotten,” says Mr. Greenberger, now a professor at the University of Maryland. At the same time, derivatives were being praised as a boon that would make the economy more stable.

Speaking in Boca Raton, Fla., in March 1999, Alan Greenspan, then the Fed chairman, told the Futures Industry Association, a Wall Street trade group, that “these instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it.”

Although Mr. Greenspan acknowledged that the “possibility of increased systemic risk does appear to be an issue that requires fuller understanding,” he argued that new regulations “would be a major mistake.”

“Regulatory risk measurement schemes,” he added, “are simpler and much less accurate than banks’ risk measurement models.”

Mr. Greenberger, still concerned about regulatory battles he lost a decade ago, says that Mr. Greenspan “felt derivatives would spread the risk in the economy.”

“In reality,” Mr. Greenberger added, “it spread a virus through the economy because these products are so opaque and hard to value.” A representative for Mr. Greenspan said he was preparing to travel and could not comment.

A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.

Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December.

Mr. Gramm, now the vice chairman of UBS, the Swiss investment banking giant, was unavailable for comment. (UBS has recently seen its fortunes hammered by ill-considered derivative investments.)
 
In general I favor a market where people are free to invest as they wish, provided the risk of the financial instruments being traded, and the holdings and portfolios of the trading institutions is accurately reflected. If one wishes to trade in instruments that have a modest but highly leveraged risk, then the risk of the instruments and the amount of those instruments being held by the institution needs to be apparent. That hasn't been the case with a lot of 'derivatives', and now taxpayers are required to pay for the lack of oversight, in more ways than one.

While doing a 'deep dive' on quality issues years back I was initially surprised that the math that I found most useful had it roots in finance, but in retrospect it shouldn't be surprising as for both fields it's an issue of risk identification, assesment, and management. That being the case the models should be similar for similar systems of complexity, but in the case of finance it's been developed to a much, much higher degree.
 
Originally Posted By: VeeDubb
Originally Posted By: Gary Allan
No ..let's have you explain how we've experienced the "creation of wealth" here domestically. That is, as the market advanced, more people were moved toward self actualization then there were those moved further away from it. That is, our poor are less poor than they were 8 years ago. My $$ buys more than it did 8 years ago. My taxes are lower since we're now a wealthier nation.... unemployment is down, wages are up.

If the market has done anything on its own merit ..how can we possibly be on the brink of a major recession? Because the gains were financed with future money that didn't exist. It fueled an economy that didn't deserve to exist. Provided profits that wouldn't normally be allowed and collected. Generated quarterly reports that were above expectation ....

Need I go on??



Let me give you a clue, the problem did not originate in the stock market




Did I say that the problem originated in the stock market? I said, at least I think I said, was that when the market does well (as in NOW) we just lost money as a nation.

Now the market did well ..at least before the DOT.COM bust, merely due to the demographics of so many putting so much into it over a span of time. It was like the situation that Shannow described "investing in flies on the wall". Fidelity Magellan couldn't move without dictating a major price shift up or down depending on if it bought or sold.
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However, if any shift in consensus occurred during the lion's share of the last 8 years, it's been based on reports of profit/loss from an economy based on vapor money.

Now hard is that to figure out??

So, I'll ask you ..if stuff is so peachy ..profits were genuine ..were based on sound fundamentals of economic tenets ...

..just how could run out of steam with "investment" ..and why are markets on a down turn now? How could a fake recession hurt a healthy ...but unseen economy??

I don't protest market participation ..but rather what it is currently evolved to. Real easy (I thought) to see
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Your arguments are so convoluted and there is so much spurious claims of cause and effect that it is really hard to untangle it all and come up with a response. I'll just leave it at this:

1. Bubble bursting is one element. We've covered this over and over again. And I've acknowledged it several times.

2. The other element is that stock markets provide equity financing for firms who want to undertake long term projects which requires capital. This capital can be raised in two ways: via the credit markets (debt) and via equity (issuing stock). Issuing stock is more efficient and more transparent. For some reason, you are incapable of grasping the relationship between financing and productivity. This is textbook stuff not rocket science. Try starting a major business with no access to financing. The only thing you'll be making are straw baskets.

3. Add (1) and (2) to get the net wealth effect. If it is negative, you win. If it is positive, the stock market has a positive wealth effect. You only look at (1).

4. If you want to draw any sort of conclusions, you can't just pick and choose a specific time period which suits your argument (last 8 years). You have to look at all the data. Picking and choosing a specific time period to suit your argument is called cheating and in business is called fraud. This is pretty much the approach used by your banker friends in the OTC derivatives markets to create the credit mess. Rise above them if you are going to cast stones.
 
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VeeDubb, I get that part of it, it's the derivatives thing that I don't.

People are making money on derivatives, which aren't creating the wealth of which you speak, but cause a whole lot of impact to the businesses that are supposed to be being benefited by the ownership of their stock.

If the outstanding derivatives in Sept last year were 8 times global GDP, that sounds like people "making" money from nothing and building a tenuous card house with no actual foundation.
 
Originally Posted By: VeeDubb
Your arguments are so convoluted and there is so much spurious claims of cause and effect that it is really hard to untangle it all and come up with a response. I'll just leave it at this:

1. Bubble bursting is one element. We've covered this over and over again. And I've acknowledged it several times.

2. The other element is that stock markets provide equity financing for firms who want to undertake long term projects which requires capital. This capital can be raised in two ways: via the credit markets (debt) and via equity (issuing stock). Issuing stock is more efficient and more transparent. For some reason, you are incapable of grasping the relationship between financing and productivity. This is textbook stuff not rocket science. Try starting a major business with no access to financing. The only thing you'll be making are straw baskets.

3. Add (1) and (2) to get the net wealth effect. If it is negative, you win. If it is positive, the stock market has a positive wealth effect. You only look at (1).

4. If you want to draw any sort of conclusions, you can't just pick and choose a specific time period which suits your argument (last 8 years). You have to look at all the data. Picking and choosing a specific time period to suit your argument is called cheating and in business is called fraud. This is pretty much the approach used by your banker friends in the OTC derivatives markets to create the credit mess. Rise above them if you are going to cast stones.


Why are we now 9.2T in debt ..and @ $850B in trade debt ..our taxes are rising and unemployment is up ..and a recession is here ..and all these things

..if EC101 is doing so well in the "creation of wealth"? Just where is this money being spent or being sequestered?

Sure isn't in circulation.

So, the nation is getting wealthier in an expansive manner and the domestic outlook is brighter and favorable?

I see.
 
Originally Posted By: Shannow
VeeDubb, I get that part of it, it's the derivatives thing that I don't.

People are making money on derivatives, which aren't creating the wealth of which you speak, but cause a whole lot of impact to the businesses that are supposed to be being benefited by the ownership of their stock.

If the outstanding derivatives in Sept last year were 8 times global GDP, that sounds like people "making" money from nothing and building a tenuous card house with no actual foundation.


Hi Shannow. Good question. Yes, you are right. The OTC derivatives market is essentially a pyramid scheme. A complex web of non-transparent insurance contracts that are essentially unregulated. It is the crux of the current problem. However, it is separate from the formal stock market. There are also exchange traded derivatives which are also highly regulated like the stock market. There are very few problems there. The reason why the formal economy and stock market are tanking is because firms are losing money big time on some of the structured derivatives that are backed by mortgages. So they have to write off these losses and there may be more write offs to come. But since so much of these losses are hitting banks (who are the biggest players), they are hoarding cash and reluctant to lend to businesses and consumers. This depresses business activity and consumer spending. If consumer spending (70% of GDP) goes south, the expected future earnings of the majority of the firms decline. The stock market is nothing but a forward looking system that prices in expected future profits....and hence, share prices are declining because the market is pricing in this possibility.

BTW, derivatives in themselves are not a bad thing *in theory*. The key here is lack of regulation. Any unregulated market, whether its cars, apples, beef, whatever leads to bad outcomes. What makes this unique is that the OTC market has gotten so massive that it's collapse threatens the real economy globally.
 
Originally Posted By: Gary Allan
Originally Posted By: VeeDubb
Your arguments are so convoluted and there is so much spurious claims of cause and effect that it is really hard to untangle it all and come up with a response. I'll just leave it at this:

1. Bubble bursting is one element. We've covered this over and over again. And I've acknowledged it several times.

2. The other element is that stock markets provide equity financing for firms who want to undertake long term projects which requires capital. This capital can be raised in two ways: via the credit markets (debt) and via equity (issuing stock). Issuing stock is more efficient and more transparent. For some reason, you are incapable of grasping the relationship between financing and productivity. This is textbook stuff not rocket science. Try starting a major business with no access to financing. The only thing you'll be making are straw baskets.

3. Add (1) and (2) to get the net wealth effect. If it is negative, you win. If it is positive, the stock market has a positive wealth effect. You only look at (1).

4. If you want to draw any sort of conclusions, you can't just pick and choose a specific time period which suits your argument (last 8 years). You have to look at all the data. Picking and choosing a specific time period to suit your argument is called cheating and in business is called fraud. This is pretty much the approach used by your banker friends in the OTC derivatives markets to create the credit mess. Rise above them if you are going to cast stones.


Why are we now 9.2T in debt ..and @ $850B in trade debt ..our taxes are rising and unemployment is up ..and a recession is here ..and all these things

..if EC101 is doing so well in the "creation of wealth"? Just where is this money being spent or being sequestered?

Sure isn't in circulation.

So, the nation is getting wealthier in an expansive manner and the domestic outlook is brighter and favorable?

I see.


Gary, you just stick to your story. I don't want to change your religion.
 
I'm all for a brighter future, VeeDubb.

I had a friend's son who lived at home. He somehow thought that he "could do his own thing" and that his activities were 100% independent of everything around him. He figured that he could draw resources from the household ..prosper by them, but that the household itself wasn't his problem. When his sister and father got sick, it was "their problem" and that they should take care of it somehow because it was getting in the way of the stuff he needed to progress in his life.
 
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