Nothing really surprises me anymore. I may shake my head in disgust and wonder — Eliot Spitzer’s horrific judgment, or the reality denial from wingnuts — but by and large, I mostly mutter "Barely Monkeys!" under my breath and then move along. Having opposable thumbs and a big brain is meaningless if you don’t bother to use ’em.
The latest subprime subprimate nonsense is the pushback on the "What bullshitters Bear’s management are" meme. I rarely invoke this, but I am throwing down the too-inane-to-be-seen-linking-to flag — you will have to go find the stupidity by yourselves (which we both know you won’t bother doing, but trust me, its real, not a straw man).
This whole conversation does give me the opportunity to relate a story to you. I did a Street.com panel several years ago — Jim Cramer moderated, and Jon Markman was on with me and a few other guys. At one point, I mentioned I almost never speak to senior management, don’t listen to conference calls, don’t read press releases, don’t care what the CEO or CFO claim.
This amazed Jim Cramer — he all but stopped the panel discussion, made me repeat it, asked me why — I responded:
• Very few are truly forthcoming. (I make a mental note of those who are, and know I can go to them with very abstract questions).
• They are all salesman whose job it is to present their company in the best possible light. (Hence, whatever they say is mostly unverified assumptions, spin, and wishful thinking. What good does that do for any investor?)
• I’m gullible. Someone tells me something, I tend to believe them. Even
more so when they look me in the eye, shake my hand and say it.• Not speaking to management has enhanced my investor returns.
Along those lines, I came across a very interesting piece by Michael Rapoport. It was hidden away in the offline version of Dow Jones Newswires. (Hey Mike! Great Animal House reference). Rapoport discusses what happens when corporate management get revealed as untrustworthy: "So beyond the liquidity problems, at this point Bear would seem to have
a credibility problem. In fact, there’s a lot of that going around
lately."
What’s interesting to me about this is that its not just Bear: Thornburg Mortgage, CountryWide, S&P, Moody’s all have lost much of their credibility. Think back to the originally announced write-downs of Citibank, BoA, Morgan Stanley, Merrill, UBS — then look at what was actually written down: You get even more credibility issues. Nothing to see here, move along.
Here’s a few paras from Rapoport’s column:
"Within a couple of days after Bear Stearns Cos. (BSC) swore up and down that it didn’t have any liquidity problems, it admitted Friday morning that it had a liquidity problem.
Bear Stearns announced it was getting an influx of financing from JPMorgan Chase & Co. (JPM) and the Federal Reserve Bank of New York — a move that amounts to a bailout of Bear amid mushrooming concerns about its liquidity. The company said its liquidity had "deteriorated significantly" within the past 24 hours.
This despite the fact that Bear had insisted all week that its liquidity wasn’t at risk, persistent market rumors notwithstanding. The company said Monday there was "absolutely no truth" to the rumors. On Wednesday, Chief Executive Alan Schwartz said, "Our liquidity position has not changed at all. Our balance sheet has not weakened at all." (A Bear spokeswoman couldn’t immediately be reached for comment Friday.)
So beyond the liquidity problems, at this point Bear would seem to have a credibility problem. In fact, there’s a lot of that going around lately.
~~~
Still, it strains credulity to think that a bank as large and sophisticated as Bear Stearns detected no warning signs whatsoever that a liquidity problem might be in the offing. And even if the market has gotten panicky, and thus endangered companies which by all rights should be fine, this is something that’s been building for months. Shouldn’t a reasonable company have taken steps by now to reduce its exposure to these violent dips in the market?
In short, when companies contend they’re blameless for the way things unfolded, and shouldn’t be held responsible for things they said that turned out not to be true, they may not be entirely, uh, credible.
So in addition to "Animal House," let’s haul out another pop-culture touchstone for advice. As they used to say on "The X-Files’: Trust no one."
That’s pretty good advice for even experienced investors . . .
>
Source:
Bear’s ‘Remain Calm! All Is Well!’ Problem
MICHAEL RAPOPORT
DOW JONES NEWSWIRES COLUMN
March 14, 2008 3:28 p.m. EDT
No URL
Michael Rapoport is one of four "In the Money" columnists who take
a sophisticated look at the value of companies, and their securities,
and explore unique trading strategies.
After a while, people can begin to believe their own bulls**t. Schwartz would probably have passed a lie detector on Wednesday. But talk is cheap, and at some point the rubber has to meet the road. The wink and nod can only go so far, as the Street smelled blood and went for the kill. But what can you expect from the CEO of one company when the President states that there is no recession, and the Secretary of the Treasury states that we have a strong dollar policy. I am not sure who these messages are geared to. Nobody believes them. Why not just come out and tell people the truth. I guess they feel we “can’t handle the truth”.
Those who seek gain via making dishonest statements to a gullible public are exactly why what we are going through in the financial sector is truly a con game.
Until you are confident that they won’t rip you off, they can’t rip you off. The very minute you trust these folks is the very minute you get separated from your money. Even if they’re caught, arrested, indicted, tried, and convicted, you’ll never see your money again.
There was a discussion recently about the value of “good will” on a company’s books. “Good will” is not quantifiable – its binary. Either you have it or you don’t.
Good will has just gone to zero.
I know that some really smart people read this blog and I need some help. I have a shitload of money at Bear prime brokerage. No debit balances, small cash credit balance and the rest in listed stocks. My attorney tells me me I will be ok if Bear goes belly up, but
what I have been reading this morning is scaring me to death. Any thoughts anyone?
P.S. Don’t bother telling me how stupid I am, I know I should have bailed weeks ago.
Barry,
You speak directly to “symptoms of a disease,” that a Harvard Business Review article calls “The Smart-Talk Trap:”
From the beginning of our educational experience, we are all taught to “talk smart” but are never required to “do” anything smart…
Business schools are especially guilty of praising students for “class participation” and even giving higher grades for making “smart” remarks in class but the students never really implement any of their so-called ideas into action…
Climbing the corporate ladder has more to do with talking smart than actually “doing” something smart…
There is a large gap between “knowing” and “doing.” Similarly, there is a large gap between “inspiration” and “action.”
It is interesting to see that most CEO’s fall from grace once the “smart talk” loses its effectiveness and the rest of the world finally catches on that the CEO never really did anything but talk “smart.”
I’m thankful everyday that I removed myself from the corporate world and started my own firm…
dan in michigan:
Here you go
dan in michigan:
I got this from their site directly:
“If the distributions from Customer Property are not sufficient to satisfy Customers’ claims for the Net Equity in their accounts, SIPC protection would be available to satisfy Customer claims for any remaining shortfall in their Net Equity, up to $500,000 per Customer (of which up to $100,000 may be for cash claims).”
So it looks like that insurance is all they have. Several brokerages have $25 million per account insurance through probably Lloyds, but who knows if that insurance will actually last.
cramer says you have to do your homework. how well has that worked.
just last week on mad money a caller asked him about pulling money out of bsc. cramer said no way bear is safe. so much for homework.
Marcus Aurelius is right on. I will add that if there is one thing that terrifies marketers, it’s losing name brand. We have a MASSIVE loss of name brand in government and wall street. People can’t differentiate between government talk and corporate propaganda. People notice the quick reaction of the White House when the stock market is tanking versus “low priority” events like a tsunami or a hurricane in New Orleans. Two and two have been put together and the answer is negative return on investment for our taxes. Adding insult to injury, our taxes are obligatory. We expect business people to lie. However, we expect integrity to be a bottom line value, not acting skills. When our pocketbook gets hit by a depression, the veneer of civilized behavior quickly disappears.
The people responsible for all this shit are painfully aware of the need for an escape hatch. Becoming invisible is the next big thing for these Rasputins. If we let the press cover their tracks, they’ll get away.
The word “wingnuts” is always a sign of sober, dispassionate analysis.
~~~
BR: I am “passionate” in identifying those who continually ignore reality, and attempt to mislead the investing public. Wingnut was “soberly” chosen as a word to describe those radicals who believe that ideology trumps reality. I have the same disdain for the moonbats on the other side of the crazy aisle.
Mark, are you denying that there are people who are reality challenged? There has been a parade of folks who challenge science, rail against empirical-based measurements and the scientific method.
The organization formerly known as the Republican party has seen a significant part of it taken over by religious zealots.
One reason that this culture of bullshit, spin, and denial seems so pervasive in the business world and bureacratic world is that at many organizations those individuals with the integrity and foresight to speak up when bad decisions are being made by senior management are routinely marginalized. Over the past 25 years I’ve worked at a number of professional consulting firms of small, middling, and large size, and at each company the top management issued a lot of noise about valuing employees who are independent thinkers. Unfortunately, nothing could have been farther from the truth; those individuals who made the mistake of suggesting alternative decisions about both trivial and important matters—regardless of how diplomatically expressed—were never the individuals who received promotions; they were generally shunted aside and frequently shown the door. Those who did rise up the corporate or management ladder, even if nominally competent in their jobs, were invariably cheerleading yes-men and women who made a big show of enthusiastically praising the decisions of their superiors.
Once such a culture becomes well-established, it’s self-perpetuating and self-distilling, and inevitably the company or organization will come to be headed by a pathologically-insecure egomaniac who requires servile obeisance from everyone who works directly with them.
I’ve hammered this experience home with my recent college-graduate daughter, who’s now making her way in the working world. I’ve told her that maintaining personal integrity is invaluable, and that when the circumstances require, she needs to have the courage to speak up. I’ve also told her that doing so is likely to result in an unfavorable evaluation, so she should not have any rosy illusions about the result. She should be very, very skeptical when an employer states he wants truly independent thinkers. Based on my experience, the large majority of business owners and senior managers who state this are lying to themselves and to their employees. The ones that are truthful are generally the best people to work with.
Seems to me the only thing left stamped “Made in U.S.A” is bullshit.
Makes one wonder why Visa’s IPO, is being moved up? Talk about a risky bet.
Barry,
I know you probably have been thinking about the daisy chain of events wich continue to cascade along in a growing crescendo, but I want to bring to your attention the Captive Insurance problem. Capitalizaltion is weak because of off shore leverage plays. The leverage is unwinding and the triggers for Capitive Insurance claims are activating as we speak. The problem is that there is no there. This is big and there is no oversight.
Sometimes on conference calls they will throw out a number that will allow you to complete an equation based on numbers already in their Qs or Ks.
Why you would want to listen to any of the other blather is beyond me.
When a business like Bear Sterns is levered at 20 to one, eventually, something will knock them out. Then, it doesn’t take much of a loss in confidence to crush them. Consistent, outsize risk taking is not a long-term successful business model.
Re. ‘Remain calm all is well,’ today Paulson said, He’ll `Do What It Takes’ to Calm Markets.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAYpMR95jhiY&refer=home
A few days ago, and for some time, he’s been saying there will be no bailout.
http://latimesblogs.latimes.com/laland/2008/02/paulson-no-bail.html
So there’s no philosophy in this White House, just expediency. Their ideology is sloganeering (think Medicare drug benefit… think 2004 Zero-down mortgage rules… think 9.4T debt etc..)
Cramer’s philosophy of education is good, but his success was during the pre-Reg FD days when big spenders at their prime brokers – like him – would get the first call on earnings etc… (aka insiders get rich, you get screwed. Reg FD was one of Clinton’s best initiatives.) So the fact that he’s memorized a bunch of stocks is irrelevant to today’s market. As Warren Buffet says, “If past history was all there was to the game, the richest people would be librarians.”
bluestatedon,
Well put. I wish you well. I did the same with my daughter and she figured it out and went the wrong way because of the money. I hope that in the present environment, she’ll come to her senses.
Barry, You share a common practice with an investor who Buffet admires greatly. Walter Schloss. From 1956-2000 he and his son Edwin had a 15.3% compound annual return.*
*Book by Bruce Greenwald-“Value Investing, From Graham to Buffet and Beyond”.
Speaking of great books, just re-read parts of “When Genius Failed”. During the LTCM bailout meetings guess who refused to pony up $$$ to mitigate that financial crisis…Mr. James Cayne of….drum roll….Bear Stearns. Bear had the least exposure of the consortium and opted to seek out its own self-interest…
bluestatedon,
Your comments are dead on the mark. After working in the startup world, I decided to shift to a large corporation for a spell. The waste of resources and lack of utilization of the talent in the corporate workforce is appalling. The vast majority of the inefficiency stems from the problems which you aptly describe: insecure management that does not value talent objectively, or is incapable of recognizing talent.
As someone who really all too rarely here’s anyone anywhere identifying with being ‘reality based’ and intent on not being influenced by spin, first I want to say hats off to you barry, and thanks for giving hope that it’s possible to survive in this crazy america and still be interested in ‘facts’. You are definitely a stand out member of the ‘what’s real’ crowd, in my book.
but… (:)) you are being way, way, way too nice to the CEO’s/management/marketers of US corporations. Anyone with a ‘fact based approach’ has known for a long time that CEO’s etc. have been shooveling horse hockey in their public pronouncements as a general modus operandi for decades now. No this current event shows something much worse — two things really.
1) it shows that most of them have no idea what they are doing. It’s one thing to talk a good game to the pols and day traders, it’s another thing to pull down massive salaries making decisions about things you do not comprehend. That takes real stones. And, it makes the rest of us not just suckers for believing your spin, but losers because we are going to get taken down with your titanic… which brings up number two….
2) Actually they aren’t idiots sinking the ship — they are very effectively manipulating the social/political/economic reality for their own personal benefit. That doesn’t make them ‘untrustworthy’, it makes them con-men to the corporations they were supposedly ‘running’. Having now effectively taken control of the lifeboats, they have left the plebes stuck on the ship.
to say ‘don’t trust them’ is closing the barn door too late. The issue isn’t trusting a bunch of con-men who just got paid 500 million dollars to destroy the economy of the once most powerful country on earth. The issue is what to do about it. There is the retribution side — which no one is yet talking about — and there is the looking forward side: just exactly how do we expect someone who has no actual consequences for failing have any probability what so ever of giving a damn about the consequences of his decisions? private control of public corporations… wow neat. Pass the parachutes please.
How can a market function when credibility is in question? Numbers from corporations, analysts, the FED, and Government are in question. We went from Dot Com bubble to Housing bubble to Uncertainty bubble.
Barry,
It’s all about accountability. If noone pays the price for poor performance, bad judgement, and outright criminality, the “system” starts to disintegrate. You know the examples but a small beginner list would be:
1. Giving medals to the guys that screwed up the war in Iraq.
2. Still not prosecutoing a La congressman who was found to have 90K in cash in his freezer.
3. Giving huge exit bonuses to Wall St execs as their companies lose billions of dollars and swhareholder equity sinks.
Until people start paying the price, there will be continuing chaos and a declining dollar. I will not be holding my breath anytime soon.
Pretty good discussions.
Leverage of 20x, 30x or more plus a market down turn of less than 20% gets you to exactly where we find ourselves right now.
The control of leverage is totally off when $1 million bonuses can be given out by the firm to Investment Bankers on the upside and tax payer bail-outs are given back to the firm on the downside.
Plus free market concepts on the upside; but government bail-outs on the downside. This financial methodology must be soundly broken; otherwise, the entire financial system will fail.
Agree with 90% of what was said above. That said, it was just a run on a bank.
George Bailey “but Elmer, your money is invested in Walter’s house” and so on and so on.
Too little leverage can be as bad as too much. The Golden Mean is out there for each company and individual. I’ll tell you a secret….I’ve got debt and I’m damn proud of it. Matter of fact, I could use some more. The problem now is that credit standards are going to get so tight that it will be impossible for the worthy to borrow a farthing!
Debt money became a commodity and inspired a ‘tragedy of the commons.’
MBSs for treas. bonds tells me bernanke is tripping
Quotes before the Great Depression;
“There is nothing in the situation to be disturbed about.” – Secretary of the Treasury Andrew Mellon, Feb 1930
“I have no fear of another comparable decline.”- Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929
“There will be no interruption of our permanent prosperity.”- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928
“This crash is not going to have much effect on business.”- Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929″
“This is the time to buy stocks.”- R. W. McNeel, market analyst, New York Herald Tribune, October 30, 1929
“…good stocks are cheap at these prices.”- Goodbody and Company market letter quoted in The New York Times, Friday, October 25, 1929
Etc..Etc..Etc..Etc..
Etc..Etc..Etc..Etc……
And now….a quote (er, several) from H L Mencken regarding ‘creative truth-telling’:
“It is hard to believe that a man is telling the truth when you know that you would lie if you were in his place.”
“The men the American public admire most extravagantly are the most daring liars; the men they detest most violently are those who try to tell them the truth.”
and….
“All men are frauds. The only difference between them is that some admit it. I myself deny it.”
As always, your mileage may vary!
Barry… Maybe you should add ‘NIN’ to your musical post one of these days… My sentiment on how this will all go down is sampled in one of Trent’s songs :
“Meet Your Master”
Bow down in position
Against the polished steel
This is something different
You’ll like the way this feels
No time for asking questions
No time for wondering
We’ve had enough of you now
You’ve heard everything
You want to play a new game
You put on this blindfold
You do what we tell you
You do as you’re told
Used to be the leader
Now comes the time to serve
Maybe we’ll show some mercy
Maybe you’ll get what you deserve
Countdown to the end, but make it go faster
This is your disaster
Countdown to the end, but make it go faster
Come on down, my friend
It’s time to meet your master
You’ve left quite a mess here under your stewardship
You thought you figured it out but you’ll find your place in this
You think its so convincing, you think you see the truth
Give us so many things, now who’s got time for you
Countdown to the end, but make it go faster
This is your disaster
Countdown to the end, but make it go faster
Come on down, my friend
It’s time to meet your master
Come on down
-NIN
:) Good Day and happy trading all
BG,
While we’re on the subject of the financial system, we should mention the ways corporate laws have been twisted and defended by the SEC so the end result is a bunch of dictatorships disguised as corporations. Why does it take SEC approvsl for purchase of 15% or more of a public corporation? Why aren’t common stock holders able to vote in direct proportion to the stock they own? Why is a corporation a legal person when it is human beings that end up with the compensation? Why the continual dodge of responsibility? Why is tort a bad word for corporations? Finally, why after all this legal sleaze, these bastards have the gall to to talk about free markets and individual responsibility? These con artists have redefined cognitive dissonance and they deserve our contempt.
bluestatedon,
AMEN!! I would put my signature to every sentence you wrote.
There are 2 pre-reqs to be able to do it though:
1-) You have to be smarter than others and work harder than others because they will try to find your weaknesses to shut you up
2-) You have to be financially secure so you don’t really need to submit to their BS.
After 10 years, last march we came to that point with my former employee where we couldn’t take each other anymore, and one of my team members whom I nominated for an award actually won it after I was gone, so ex-coworkers forwarded me the news and I wrote him an email which I am attaching below because it expresses my similar views.
xxxxx,
I am extremely proud of you!! This award proves your talents as a consultant. You have the passion, dedication and intelligence to deliver whatever people ask of you. Please make sure you never rest on your laurels, and always be demanding more of yourself, regardless what those others around you contribute.
Don’t forget that you have just started your career. It will be long and arduous journey; and if it doesn’t seem that way at any point in time, then you are not challenging yourself enough. No positive change or greatness ever came from obeying the current assumptions and the current way of life, but the status-quo is chosen by many because it is the easiest, laziest, and most comfortable way.
When faced with a difficult choice: always imagine 90 year-old you, retired, in a rocking chair, on the front porch, reading about your choice in the newspaper. Do whatever it is that puts a smile on your face and make you feel proud, regardless of the immediate consequences.
You seem to have what it takes to be great, and you owe it to yourself to live up to it. Once again: never, ever rest on your laurels.
Good luck,
xxxxx
There are two sayings that I often think of in stressful situations that apply here:
(1) if you can keep your head while everyone is lossing theirs, you’ll be fine; and (2) if everyone is panicing and your not, you may not know what is going on. Pick one
“Never trust a man unless you’ve got his balls in your pocket.”
Lyndon Johnson
Schwartz knows exactly what he’s doing — ensuring he holds onto as much of his exit package as possible. This was all external to any decision or policy he set.
This is what happens when you let the sociopaths or narcissists start running things — http://en.wikipedia.org/wiki/Narcissistic_personality_disorder
Check out the DSM criteria.
Why have so many people in so many companies (and government agencies) gotten it all so wrong in spite of the obvious facts? Because they are all on the inside, drinking from the same well – the are making money beyond reason. They think they are now in a different class, a different world, exempt from all the normal rules. Marie must have thought the same as the guillotine came down.
Going OT briefly consider that earlier in the week it’s possible that Bear was speaking the truth before, for example, Renaissance pulled $30B on Wed. This was a run on the bank. Also then consider that the CEO’s obligation was to prevent a panic. So what would you do – hold a press conference and shout run for the hills ? At least they had the guts and discipline to realize in less than 48 hours it was going down the crapper and do something. Can you imagine where we’d all be if Fri’s headline was BEAR NOT RESCUED ? Goodbye financial system.
So where does one draw the line between a sober appraisal of the facts without scaring the peasants too badly ?
Speaking of which how much do we believe S&P’s ‘this is almost over’ which drove Th rally ? And how much do we believe that nobody else will have these problems, even though the DON’T HAVE THEM NOW but will as foreclosures, margin calls, etc. mount ?
There will be a formal wedding between the Bear and Morgan. By formal I mean white shotguns.
I can’t believe how much animosity there is against Al Schwartz. Like you know the guy?
I do and can tell you that he is an exceptionally talented and honorable man. He is also admitedly is the fall guy for the firm.
You used to get a medal for falling on a grenade. If I remember, BSE employs 14,000 or more ‘average joes.’
Sorry for the wrong symbol for Bear Stearns. I’ve never owned it ;-)
Why have so many people in so many companies (and government agencies) gotten it all so wrong in spite of the obvious facts?
Because these organizations are filled mostly with yes-men hacks, organizational politicians who are good at butt-kissing and putting their finger to the wind and not thinking for themselves.
The idea that people at the top of large bureaucracies (corporate or government) are the most intelligent thinkers and most insightful analysts of their business and the world is bunk; the real thinkers mostly got weeded out in favor of bombastic cheerleaders and slick-tongued bubbleheads, the chief attributes for getting ahead in most of corporate America.
The ethos is maximumizing short-term profits, and anyone who sounds a note of caution based on what might happen in a few months or a couple of years is ridiculed or expelled. And if it all goes to hell, hey, that’s what golden parachutes and government bailouts are for — for the people at the top, anyway. Privatized profits, socialized losses.
“It is difficult to get a man to understand something when his salary depends on his not understanding it” – Upton Sinclair
If Bear gets sold lower than $30 all the other financial stocks are going to tumble and the market will be screwed.
Sorry for the wrong symbol for Bear Stearns. I’ve never owned it ;-)
Their symbol should be changed to ‘BS’.
How can this deal go through without the knowledge of the risks in Bear’s derivitive positions?
Sounds like Ambad-like hype to me. By Tuesday, Buffet will be a buyer…
Wow – looks like JP Morgan gets a 33% discount on Friday’s close:
http://biz.yahoo.com/ap/080316/jpmorgan_bear_stearns.html
BR I’m with you on wing nuttery’s reality denial. It’s bizarre whether it’s denying evolution or global warming, or claiming that some terrorists have the power to destroy the USA and take over the world. Thirty years ago these folks would have been dismissed as total whackoes, but now they or the intellectuals who claim to represent them are writing leading articles in the NYT, WSJ and WP, and popping up all over cable shows telling us the world is coming to an end if we don’t do ABC. In the long term global warming and China are existential threats to our way of life, some guys hanging out in caves in Afghanistan are not. So why are these fruitcakes given credence. Simple, they have succeeded in capturing the nodal points of one of the major parties in the country based on the support of a about 30% of the electorate and scaring the hell out of another chunk. There are signs, thank god, this lunacy may be coming to an end and no doubt there will have to be some internecine blood letting before the GOP finally returns to normality but it can’t happen soon enough. Then perhaps we’ll stop denying reality and start taking steps to protect us from real threats and not imaginary ones that happen to suit a political agenda.
Posted by: AGG | Mar 16, 2008 3:18:54 PM
______
Amen.
Since Kudlow doesn’t know his “ass from a hole in the ground” why does he even have a job at CNBC???????????
Barry, you are 100% correct…
the CFO or CEO or PR man is paid to boost
share price, the shed the brightest light on
the company….. so why even talk to them ??
Just do your own research…. handholding and
personal attachment to the PR man is not the
greatest reason for holding a stock.
Katie, bar the door! On March 14, 2008 President Bush defended the Bears Stearns bailout by stating (in the Kudlow interview):
“And, yet, today you noticed that the Treasury Department and the Fed acted expeditiously. Acted firmly without creating what’s called moral hazard.”
Bush caved in to Wall Street by sanctioning the Fed’s bailout of Bears Stearns.
But worse, far worse, Bush has the chutzpah to claim the Fed’s bailout is not creating moral hazard. Regardless of the size of the bailout, the Fed and Bush are coming to the rescue of one of the ringleaders in the entire CDO fiasco, mortgage meltdown, and credit crisis.
The Fed and Bush go to the rescue of the same Bear Stearns that is under investigation by the SEC and various federal and state prosecutors. The same Bear Stearns that will be hit with investor lawsuits about false and misleading disclosures. The same Bears Stearns that is one of the worst perps and, if “moral hazard” means anything, should not get dime of Fed or federal help.
Unfortunately, Bush wimped out in the showdown with Paulson and Wall Street. Paulson, the biggest Trojan horse that Wall Street ever had in the U.S. Treasury, has Bush and Uncle Ben running like scared rabbits.
Instead, the Fed and Bush should be making Bear Stearns the poster child for the iron fist of punishment that needs to be meted out, not just to avoid moral hazard, but to punish the guilty. No bailout will work unless the crooks are thrown out.
Since Kudlow doesn’t know his “ass from a hole in the ground” why does he even have a job at CNBC???????????
Posted by: gunthestops | Mar 16, 2008 6:02:03 PM
???????????????????????????????????????
this is what amazes me about Kudlow…
why is he still on the air ??
I’d rather watch the CNBC babes that
are atleast pleasant to look at and don’t
preach Republican propaganda.
Ever notice how the power in a corporation migrates from decade to decade.
In the 60’s and 70’s you always wanted to talk to the COO to get a feel for their business. In the 80’s and 90’s it was the CFO. Now it’s back to the CEO.
Just an observation and a thought.
“insecure management that does not value talent objectively, or is incapable of recognizing talent.”
heh…perfect description of the Detroit Lions under the ownership of the Fords.
BSC may not even open Monday (the stock)–JPM will prob get the non liquid derivatives marked close to zero–and get the rest of the company as sweetheart deal backed by the Fed. My bet is it all goes for around $10 a share as a package deal so they can continue normal operations with as little disruption to the market as possible. The real question, is JPM a buy, since the Fed has their back?
Personally, I like listening to conference calls. I think that you learn a lot about a company by listening to how the management responds to the analysts’ questions. Hard questions, honestly answered tell me something about the company’s and its management’s commitment to transparency. Telling as well, is the equivocation or the “we don’t give those numbers out”. However, I never conclude that I’m getting the “entire” story–just as I’ve never believed the “not to worry about sub-prime” stuff that was endlessly spouted by folks to include our economic and executive leadership.
And, if within the span of a week you go from being solvent to insolvent—you’re either lying or an idiot or a combination of the two.
What about Paulsen???
OUr own govt is alive with this “strong dollar” meme that belies all the facts.
JPMorgan Close to Deal for Bear Stearns
NEW YORK (AP) – Bear Stearns and JPMorgan Chase & Co. (JPM) were close to an emergency buyout deal Sunday night aimed at averting further panic in the financial markets.
Top executives from both companies were in 11th-hour talks about a deal that could sell Bear Stearns for a per share price that is likely to be “considerably less” than the $30 the stock closed at Friday, according to The Wall Street Journal.
Bear Stearns shares closed down $27, or 47.4 percent, to $30 on Friday as investors worried about a possible failure of the investment bank. The drop wiped $5.7 billion from the company’s market value. JPMorgan shares fell $1.57, or 4.1 percent, to $36.54 on Friday.
Both sides were in a rush to complete a deal before financial markets opened in Asia for Monday morning trading, amid fears that a crisis of confidence could roil the system further, according to sources close to the talks who were not authorized to comment on the record.
The government, led by the Treasury Department and the Federal Reserve, was reported to be closely monitoring the talks. Any deal to rescue Bear Stearns was seen as a lifeline for the entire financial services industry, helping to stave off further weakness on Wall Street.
After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government’s guarantee that JPMorgan would not suffer any losses on the deal.
Among the Wall Street investment banks, Bear Stearns was the most closely exposed to the mortgage crisis. The collapse of two of its hedge funds last summer was seen by many as one of the triggers of the current credit crisis.
Management at Bear Stearns worked on Sunday to call clients in Asia who are worried about their business relationship, according to a Bear Stearns employee who was not authorized to speak. Many customers have pulled business from the ailing investment bank since Thursday when rumors began to circulate that it was close to failure.
Many of Bear Stearns’ 14,000 employees were phoned Sunday and told to show up to work at 7:30 a.m. EST, the person said.
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The Journal also reported that if a deal with JPMorgan were to fall apart, Bear could conceivably file for bankruptcy late Sunday before Asian financial markets opened.
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Calls to Bear Stearns and JPMorgan were not immediately returned.
This is not the first time Bear Stearns has earned a place in Wall Street history.
A decade ago, Bear Stearns refused to help bail out a hedge fund that was deemed “too big to fail,” drawing the ire of its brethren on Wall Street. On Friday, it found itself hat in hand, looking for the same kind of aid.
It was a stunning collapse for Bear Stearns, founded in 1923 and best known in recent years for its success in the once-lucrative mortgage securities market. Its aggressive position in mortgages was also its undoing.
In June, two Bear-managed hedge funds worth billions of dollars collapsed and lost all their money. The funds were heavily invested in securities backed by subprime mortgages – loans given to customers with poor credit history. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.
The funds’ collapse and subsequent problems in the credit markets called into question Bear Stearns ability to manage its own risk and the leadership ability of then-Chief Executive James Cayne. Critics of the company said Cayne spent too much time away from the office last year playing golf and bridge as the problems unfolded.
Cayne is the same executive who refused to let Bear Stearns provide support as part of a Federal Reserve Bank-led plan to rescue Long-Term Capital Management in 1998. His reticence was said to deeply anger some of his fellow Wall Street CEOs, and the episode came up every time Bear was reported to be in trouble in recent months.
Cayne took over from the legendary Alan “Ace” Greenberg in 1993. Greenberg joined Bear Stearns as a clerk, working his way up through the ranks to eventually take over as CEO in 1978. Greenberg was known for his irreverent style, and his regular memos to employees were turned into a book called “Memos from the Chairman.”
Before Greenberg’s ascendancy to CEO, Bear Stearns began to expand from its New York roots throughout the 1950s and 1960s, opening international offices and expanding its U.S. operations.
The company was opened in 1923 as an equity trading shop. Today, it has subsidiaries providing a wide array of financial services products for individuals, corporations, institutions and governments. Generally, it provides capital markets, wealth management and global clearing services to its customers.
BG–why the copy and paste??? Unless you live in a cave most people have seen this already???
Most cavemen don’t yet have broadband connections. Sorry about that.
You’ve probably already read that the price will be around $2.2B or less than $20 per share.
Long story short, I get a sense the Fed is not playing around with this thing. A new week is about to start and they still have unfinished business from last week. It doesn’t look like they are going to need the 28 days.
http://apnews.excite.com/article/20080316/D8VEPQCO0.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=a7Fhqem.DZ58&refer=home
Re conference calls, my dad loves them. As he said when I was young: ignore the numbers, ignore the spin, wait until they talk philosophy. If they don’t stun you with insights about their sector, they probably aren’t worth investing in.
His take on Google back when: the CEO is clueless, but Larry and Sergey made it a good bet.
Of course, my 70 year old mom is still pissed that, whenever they go shopping, he makes her record checkouts per minute and amounts spent while he wanders out to the loading dock to interview the workers.
Bear bought for $2 a share according to the FT and the talking heads on Bloomberg:
http://www.ft.com/cms/s/e2206ed2-f380-11dc-b6bc-0000779fd2ac.html
$230-Million.
Wow.
Some great comments here so far, let me just add something quickly before I go back and read the rest.
Barry,
John at Controlled Greed recently posted an interview clip with an investor who would agree with your policy on not talking to management. Some of you may have heard of him, his name is Walter Schloss. You can watch that interview here.
http://www.controlledgreed.com/2008/02/walter-schloss.html
And Kent (TFP), great comment on the b-school “Smart talk” syndrome. I wouldn’t doubt that this is the case, but it’s interesting to hear it from your viewpoint.
This is why most discretionary traders fail – they are overwhelmed with conflicting information spewed by liars’ with myriad agendas. Technical analysis and mechanical trading systems cut through this bs if implemented correctly.
Peter,
I just saw that! I second your thoughts….WOW! $2per share. Strap in. It feels like next week could be one for the history books.
I can’t ever recall the Fed cutting interest rates on a Sunday before the FE markets open. Wow.
Misanthropy rules!
BR: I am “passionate” in identifying those who continually ignore reality, and attempt to mislead the investing public. Wingnut was “soberly” chosen as a word to describe those radicals who believe that ideology trumps reality. I have the same disdain for the moonbats on the other side of the crazy aisle.
Mark, are you denying that there are people who are reality challenged? There has been a parade of folks who challenge science, rail against empirical-based measurements and the scientific method.
—
Yup. It’s funny that the academic post-Marxist Left was all about branding science as “just another belief system” back, especially, in the 1990s. Now I see many self-described ‘conservatives’ disputing the validity of science itself because it accurately predicts the causes and effects of something as simple and obvious as pollution, be it SO2, CO2, soot, or whatever. This is not a good trend for an advanced, civilized society and has nothing to do with one’s political orientation.
Cheers.