Tag: Bear Stearns

The reason why they will never hold Wall Street accountable

  A lot of people who are hoping that once Obama gets re-elected that he will prosecute the criminals on Wall Street who currently blatantly flaunt the law.

  I hate to shatter naive illusions, but if Obama was ever going to be serious about cracking down on white-collar crime and the rape of the working class he would have already started.

 However, some of you might not be discouraged so easily. For those people I would like to point out that next Wednesday is the 5-year anniversary of the two major Bear Stearns hedge funds filing for bankruptcy. This immediately ended the housing bubble and triggered a credit crunch that eventually led to Lehman Brothers going under and the global economic crisis that is with us today.

 So what has that got to do with prosecuting the criminals on Wall Street? Because the SEC has a 5 year statute of limitations for financial fraud.

Three years later and still nothing has been learned

  Three years ago this past Saturday the economic crisis struck.

That’s why the comments by Alan Greenspan on the very same day on Meet the Press are worth noting.

 “There is no doubt that the federal funds rate can be fixed at what the Fed wants it to be but which the government has no control over is long-term interest rates and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment there is no sign of that because the financial system is broke and you can not have inflation if the financial system is not working.”

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  The financial system is still broken three years later!?! Think about that for a moment. We’ve thrown trillions of dollars at the financial system and we’ve fixed nothing.

  The obvious conclusion from this reality is that we haven’t addressed the real causes of the crisis, and instead are only dealing with symptoms. Fed Chairman Ben Bernanke’s recent “unusually uncertain” comments before Congress proves that the so-called experts simply don’t understand what the problem is.

It can Pay to be on the Inside

Usually they get away with …

Usually they trade their knowledge, for money or power, and no one notices —

But not always:

Insider-Trading Ring Bust May Fuel Hedge-Fund Concern

By David Scheer – March 2, 2007

March 2, (Bloomberg) — The U.S. government’s accusations that Morgan Stanley, UBS AG and Bear Stearns Cos. employees were central figures in an insider-trading ring illustrate why regulators and lawmakers are suspicious of Wall Street’s relationship with hedge funds.

Prosecutors in New York and Washington yesterday brought criminal charges against 13 people, claiming that an executive at UBS and a former compliance lawyer at Morgan Stanley tipped off hedge-fund traders and brokers to new analyst ratings and secret takeover talks. Bear Stearns was home to at least four professionals who traded on information leaked from inside the two firms, according to a complaint filed by the Securities and Exchange Commission.

(emphasis added)


White Collar Crime, is not any less heinous, because they commit it with a Keyboard, instead of a Handgun.  Yet more often than not, in the Wild West of electronic casinos, these criminals can make “a killing”, without having to pull that trigger themselves … without ever having to worry about ever facing their “day in court” …

Too Failed To Bail

I don’t have time to even begin giving this a real analysis right now, but you need to be aware of what is happening today:

In one the most extraordinary days in Wall Street’s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.

The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.

Coming just a week after the government took control of mortgage lenders Fannie Mae and Freddie Mac, the magnitude of the industry’s reshaping is staggering: two of the most powerful firms on Wall Street, Merrill Lynch and Lehman, will disappear.

This is simply staggering.  In less than one year, Bear Stearns, Merrill Lynch, and Lehman Brothers will have simply disappeared.  To put that in some perspective, all three of these banks were founded before and survived the Great Depression.  The GSE nationalization is the largest nationalization since at least the Depression, and possibly in all of American history.  Another of Wall Street’s most venerable partnerships, Arthur Andersen, one of the five largest accounting firms in America also disappeared during the last eight years.

Someone ought to be making an attack ad right now – if this is how Republicans have governed with regards to the fortunes of Americas biggest financial firms, how can anyone in any small town or city in America believe that they will be able to make a living if they continue to govern in the future?

Why the Stock Market Going Up Means Nothing

So, after yet another rate cut by the Federal Reserve, along with better than expected earnings from Lehman Brothers today (who many feared would follow the path of Bear Stearns), the Dow rocketed up over 400 points.  Economy solved, right?

Nope.  Doesn’t mean anything.  Don’t let anyone fool you into thinking it does.

First of all, the market in equities is now a mere fraction of the size of the market in derivatives.  The assets which are toxic right now are derivatives; Collectivized Debt Obligations and Credit Default Swaps primarily.  The big problem is that everyone knows these derivatives are worth less than they thought, but no one is sure just how much less.  So, no one wants to buy them, out of the fear that the bottom is a long way off.  Compared to these assets, stocks are incredibly stable – the market should do alright, even as these assets get worse.

But second, stock prices increasing doesn’t by default mean what you might think.  For a neat example, Bear Stearns makes for a fascinating example.

The Fed-brokered JP Morgan bailout of Bear is at a share price of $2 a share, as most everyone aware of this story knows.  So why on earth did shares of Bear Stearns close at about seven dollars the day after the sale price was announced?

The big winners from the Bear Stearns acquisition are Bear’s bondholders. They came close to an event of default this weekend; if all goes according to plan, they’ll soon own nice safe debt from JP Morgan Chase. The only thing which can derail their glide path (if Krugman can mix his metaphors, so can I) would be if the deal doesn’t go through at $2 as planned.

The main thing that needs to happen for the deal to go through is that shareholders vote in favor. And the only way that bondholders can ensure yes votes for the deal is to own those shares and vote them themselves. Says Neubert: “They will eat the difference between where they buy the equity and $2.00 in order to protect much higher numbers in debt.”

There’s another reason for bondholders to buy stock above $2.

…if the deal falls apart, the value of the company might go down, all the way to zero eventually. But on the way there, volatility will be huge – and if volatility is high then the value of the equity will go up. In this sense, the equity is a hedge against the deal falling apart. If JP Morgan doesn’t buy Bear, bondholders’ bonds will fall in value – but their stock will rise, helping to offset the loss.

So, shares of Bear are going up because Bear’s bond holders are hoping those shares go down, and are planning to vote for the shares to be sold for less than they paid for them.  But the shares also make a nice hedge for them, since if the sale fails, their bonds will become worthless but their shares will go up.  But nothing about this at all speaks to any macro positive news about the state of the economy.

30 Mill: N’Orleanians vs N’Learians

A short rant on Priorities.

30 million to bail out the rich folks.  What?  Afraid they might make a late Lear payment? Of course all the employees who worked for B-S just got the big douche, being minor stock holders.  No job, no 401K’s nadda. No bailout for them.

Of course, I have a hard time working up a great deal of sympathy for those who make a living shuffling papers on other’s loans, milking profit off the middle class’ interest rates. I realize I am being simplistic, but still…..

This is even truer, because if we have 30 million laying around, why the fuck did we not use it in New Orleans? Never mind. We all know the answer to that.

Pictorial explanation below.

Things I’d Like To See, Part 1: Krugman As Federal Reserve Chairman

Leave it to Paul Krugman to tell the hard truth about what needs to be done in this financial crisis.

[T]he important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose.

Not that the Fed shall listen, mind you; Ben Bernanke, like Alan Greenspan before him, cares about the laissez-faire swindlers who caused the latest financial meltdown.  Factoring in the taxpayers only counts for bailing out the criminals, not bailing out the system the crooks abused in order to flush the economy down the toilet.

Krugman goes on to caution:

According to late reports on Sunday, JPMorgan Chase will buy Bear [Stearns] for a pittance. That’s an O.K. resolution for this case – but not a model for the much bigger bailout to come. Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this.

He’s right, of course.  Bailing out Bear Stearns might be the smart thing to do as an individual case; for better or worse, that bank is large enough that its failure could — as Krugman suggests — hasten the market panic that would make the Depression we now suffer (the one OpEdNews.com contributor Michael Fox wrote had begun back in November)  official.  But if it’s used simply as a model for bailing out the rest of the Wall Street rip-off artists, then we taxpayers shall have been forced yet again to foot the bill for the irresponsibility of Wall Street.  It’s like a mugging victim being told by a jury that the thug who robbed him wasted the cash on booze and women, so now the victim has to reimburse the thief.

If the Democratic nominee somehow manages to survive the general election in November and become president, he (or she) could do a lot worse than to ask for Bernanke’s resignation as Fed chairman, and offer the job to Professor Krugman.

Bear Stearns and the N-Word: Nationalization

Today, the United States will do something which it hasn’t done since the New Deal: it will nationalize a corporation.  Bear Stearns is the new Tennessee Electric Power Company.

After a weekend of intense negotiations, the Federal Reserve approved a $30 billion credit line to help JPMorgan Chase acquire Bear Stearns, one of the biggest firms on Wall Street, which had been teetering near collapse because of its deepening losses in the mortgage market.

In a highly unusual maneuver, Fed officials said they would secure the loan by effectively taking over the huge Bear Stearns portfolio and exercising control over all major decisions in order to minimize the central bank’s own risk.

President George Bush is responding to the disasters of one of Wall Street’s most reckless firms by echoing the actions which he has so passionately criticized in Evo Morales and Hugo Chavez.  When the high-stakes financial gamblers of derivatives trading are exposed, the true face of Bush Republicanism has been revealed: they are nothing less than communists.