If you haven’t read the Kate Kelly’s fantastic 3 part WSJ series about the Fall of Bear Stearns, you are missing out. (I cannot wait for the book!)
These are simply fascinating reading:
Opportunities As the firm’s fortunes spiraled downward, executives
squabbled over raising capital and cutting its inventory of mortgages.Part
Two: Run on the Bank
Executives believed they were about to turn a corner, but rumors and fear sent
clients, trading partners and lenders fleeing.Today:
Deal or No
Deal? The Fed pressured Bear Stearns to sell itself, but a misstep in
the hastily drawn agreement nearly scuttled the deal.
Kudos to the WSJ editors for making the series available to the public.
Lost Opportunities Haunt Final Days of Bear Stearns
WSJ May 27, 2008; Page A1
Fear, Rumors Touched Off Fatal Run on Bear Stearns
WSJ, May 28, 2008; Page A1
Bear Stearns Neared Collapse Twice in Frenzied Last Days
WSJ, May 29, 2008; Page A1
Link problem at the top of page. Links right in citations at bottom.
The FDIC released more incredibly awful news this morning, yet there is the Dow trading up 71 points this morning. All this leads me to ask, is the so-called “Plunge Protection Team” at work? I know this subject may make Barry uncomfortable, but let’s review a few events that have occurred since summer of last year.
July 31, 2007, two Bear Stearns hedge funds filed for bankruptcy; and by August, the Fed announced that it would take mortgage-backed securities as collateral.
August, Citigroup arranged for a $7.5 billion cash injection from the Abu Dhabi Investment Authority.
December, the Fed announced it was setting up a new Term Auction Facility (TAF) to loan money to banks, in exchange for wider range of exotic and illiquid securities as collateral.
March, the Fed increased the amount of money loaned in the TAF auctions, to $50 billion and announced a new $100 billion term repurchase loan program for selected investment banks.
Four days later, the central banks announced yet another loan facility, the Term Securities Lending Facility (TSLF), intended to lend even more money to the investment banks.
March 14, the Fed moved to provide emergency funding to Bear Stearns. Just two days later, on Sunday, March 16, afraid of what might happen when the markets opened on Monday, took several steps, including $30 billion in assistance for J.P. Morgan’s takeover of Bear Stearns, a promise of further loans to investment banks, and a quarter-point cut in the discount rate, to 3.25%. The next day, the Fed cut the Fed Funds rate by three-quarters of a point to 2.5%.
May 2, the Fed increased the amount of TAF loans yet again, to $75 billion.
Yet despite all these unimaginable events, we still have a Dow that trades less than 900 points (about 7 percent) from this date one year ago. Though I’m not a market professional and do not manage money for a living, my business is indirectly associated with equity markets/traders. I talk to sophisticated investors on a daily basis, and I’m often asked my opinion on, “what’s holding the markets up” & “are we in a recession”. I don’t know how to answer such a question … I honestly have no idea.
I’m a media nut, and despite disagreeing with just about everything said on CNBC, I Tevo various broadcast to watch when I get home. AND NO WAY do I buy this stupid theory that now is the time to buy stocks, explained by bargain hunting investors that seek to take advantage of buying stocks that they perceive to be on sale.
I’m not even going to get into the intra-day reversals we’ve seen the last few months, but let me point out a few recent, volatile trading periods:
March 6th: – 215 points – March 11th: +417 points
March 13th: -194 points – March 18th: +420 points
March 19th: -293 points – March 20th: +261.37 points
April 11th: -256 points – April 16th: +256.80 points
All this leads me to ask, do free markets exist at times of crisis?
“We have the responsibility to prevent major financial market disruptions through development and enforcement of prudent regulatory standards and, if necessary in rare circumstance, through direct intervention in market events.” ~ Alan Greenspan, Jan 14, 1997
Donny, this is exactly what’s holding up banking stocks. Our gov’t owns most the banks now.
The cost of soaring public and private debt levels
Commentary: Examining Kevin Phillips’ theories By Peter Brimelow & Edwin S. Rubenstein
Last update: 12:01 a.m. EDT May 29, 2008
NEW YORK (MarketWatch) — Is Kevin Phillips right that something funny is going on in the economy? Yes, although just how funny is less clear.
…Phillips also takes at face value colorful reports that the President’s Working Group on Financial Markets, a public sector-private sector consultation group formed after the 1987 Crash, amounts to a “Plunge Protection Team” that has orchestrated systematic grooming of markets.
The objective: getting the system to swallow more debt and produce a bubble in the interests of Wall Street.
Donny, to add the PPT only wants to slow the degrade. They will allow it to fall a little at a time.
It’s easier to win the game of musical chairs when you control the music. Yes an excellent series.
..this is exactly what’s holding up banking stocks. Our gov’t owns most the banks now.
Now, all own needs to address is precisely what is holding up the government
does anyone know the status of SPR given this drop in oil? did McClellan revelations + last week’s SPY weakness trigger Bush-Cheney sales of oil or at least slow or stop SPR purchases?
Q: “Do free markets exist at times of crisis?”
A: No, not since about March 16, or so.
Q: “What is holding up the government?”
A: The nukes.
U.S. stocks near “important bottom”: Fidelity’s Lange
Thursday May 29, 1:37 pm ET
BOSTON (Reuters) – U.S. stocks could be close to an “important bottom” as moves by the central bank and the government to spur the economy are likely to work, the manager of Fidelity Investments’ best-known Magellan fund said.
To be “clear” charts should be looked at upside down
Excellent series of articles.
1. Bernanke is mentioned only once (in part 2), while Paulson is mentioned 13 times. This just confirms my suspicion that Paulson is running the show in the back — not Bernanke. I’m sure that Paulson briefed Bernanke on the “big” threat to the financial system if he didn’t act. Bernanke got scared.
2. What is the big fear about a 2000 point drop? Fear is good. It heightens the senses and forces a period of intense clarity. Instead we’ve just pushed off the nonlinear market event until some point in the future.
3. There is a tremendous amount of back-room conversation on Wall Street — at all levels. How are us lonely individual market participants supposed to have any chance at all?
Q: What’s holding up the markets?
A: INFLATION & DEBT
Inflation combined with debt has moved the markets higher since the gold standard was abolished. Check the charts (NYA DJ-TRAN DJIA)
Bear Sterns represents what eventually happens when you cannot raise more debt or people do not believe in “your” debt.
(Wall St. calls it – a failure to raise capital).
As long as Wall St./USA can raise more DEBT(capital) it can move the indexes higher, everything else seems to be nothing but noise.
“There is a tremendous amount of back-room conversation on Wall Street — at all levels. How are us lonely individual market participants supposed to have any chance at all?”
You’re not. The house always wins.
I wouldn’t say the government owns the banks… rather, they own the banks debt, no?
They are in fact very well written but, unfortunately, at the end they almost have you feeling sorry for the lousy bastards who have just about wrecked our financial system. Why can’t some journalist delve into the question as to why these fuckers are allowed to pull this kind of destructive crap, shower themselves with all kinds of fat bonuses, and then completely get away with it? That’s what really chaps my ass.
Kate wrote a nice series, but I want to know if Ace Greenberg will be able to make the $26 million payment on his crib at the Plaza. When he bought it, he was worth $1 billion, but now he’s down to his last $50 million or so. That’s the most interesting part of the story.
Inquiring minds want to know!
If Frank Capra had written that story:
Bear Sterns as Uncle Billy, an impaired old family member who inexplicably carries around a large enough wad of OPM to sink the bank. But we like him, despite losing that wad of OPM. Losing the money was an honest mistake. We don’t want Uncle Billy to get
The Fed as George Bailey, who let Uncle Billy continue to handle a wad of OPM money, despite all the evidence that Uncle Billy was quite impaired. But George was busy with Mary, and the wedding plans, and Uncle Billy hadn’t yet lost any money before…so who could blame George? Who could’ve known? Besides, Uncle Billy
was retracing his steps, looking for the money….it’ll
The Treasury as Clarence, who gave George a view of the Pottersville that would result if the Savings and Loan were not there. And then let the snow fall again on George, who was now back in Bedford Falls with Juju’s petals in his pocket.
JP Morgan as Sam Wainwright, who was out of town,
didn’t know what was going on, but managed to extend a sizeable amount of personal credit just in time to save the day for his old friends, Uncle Billy and George. Hee Haw.
Market Rumours and Short Sellers as Mr. Potter.
If they hadn’t absconded with the wad Uncle Billy
“misplaced”, all would’ve been well. Boo. Hiss.
George explained to us all that the money isn’t
in the vault…”it’s in your house….and yours!…
and yours!”.The day ends with two dollars in
the vault. Eventually though, everyone in the
town (tax payers) all contribute and scrape
together money to save George, before the
examiner (boo. hiss) can shut George down.
It’s a Wonderful Life.
Now change the story such that Uncle Billy only *says* he misplaced it, but he really leveraged that wad by x32 times on a new condo development in the Florida Everglades, hoping to flip out of the investment before George notices.
No Mr. Potter. Just stupid Uncle Billy. Now what?
Kate’s piece is great! And she’s quite a piece of work herself. I’d tap that :-P
these articles are complete crap..no mention of Goldman’s letter the absolved them of any counter to remaining BSC trades just a mention of “fear and rumors”….
Rupert is just attempting to make it look like these guys were out of options. They were and didn’t care…..why else was Cayne playing cards half a country away???
total crap masquerading as journalism.
barry- ace doesnt have the apts in the plaza- thats jimmy cayne. very different people. that is, if youve been paying attention to the news lately…