You can't subtract out the value of its physical assets. That's a big part of its value. Presumably, the investors felt that Bear was worth that much if it could make it through this rough patch without bankruptcy and they didn't know how bad it was going to get. Keep in mind, JP Morgan got to see a lot of non-public information when they bought the company. So they have a much better view of Bear than public investors did.

Seems to me Bernanke has been running around putting out campfires while a forest fire is raging.

So great, more inflation, higher fuel costs, higher food prices to save the predators?

Let them eat cake.

But I would like to know why, on Friday, investors thought Bear was worth $3 billion, when, in fact, it was worth something closer to -$3 billion

That's alotta billions, shitheads.

Mo: Yes, right. You caught me while I was still editing the post and trying to get the numbers right. I've fixed it now.

And just to follow up, it's all that "non-public" information that I'm curious about. Considering what happened today, that was a helluva lot of information that no one knew about except the principals at Bear.

As I blogged today, Bear Stearns was worth a $2 exacta.

And, JPMorgan is going to can half the employees, you know that. They only want the part of BS that deals with hedge funds; they've already said that. So, if you have a mortgage connected with BS, and you're "shaky" right now, don't expect any outpouring of sympathy, or help, from JPMorgan.

http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
The Glass-Steagall Timeline
.....Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public.

JP Morgan wanted the Bear Stearns hedge funds. Bernanke assisted JPM in obtaining what they wanted at fire sale rates.

It's pretty simple. And kind of amazing what you can do when you have that kind of power.

Now we see the level of uncertainty and fear towards banks of all types that get magnified. We just saw a major 90-year old bank go from being worth $8 billion three days ago ($12 bill at the start of Feb; $16 bill back in October) down to only a couple $100 million today.

Most of it was started by rumors that Bear had done margin calls (because other banks did margin calls on Bear) on its hedge funds for which it was the broker, and those hedge funds ended up having non-liquidable securities... which meant that Bear suddenly had these worthless securities on its balance sheet. Thus, the rumors grew more fierce until suddenly the rumors became a self-fulfilling prophecy.

So ya, if I were a bank, I'd be hoping that no one starts any rumors about me because in this credit squeeze the rumors can end up doing you in in about a week's time. Scary, no?

The ugly fundamentals behind this bear market are still there, unfortunately, so this thing's not over with. Bear is just the first official victim.

This deal was massaged by the Fed for one reason: To stave off a mass liquidation ala '87 where we could go from recession to super-depression in one day.

Bank run, anyone?

Howard, what you say points out how rigged a game Wall Street is anyway.

Take computerized stock trading.

If a stock drops more than so much, trading is cut off. But if it rises, the sky's the limit.

"Capitalism," eh? Bear Stearns Bull Shit is more like it.

"But I would like to know why, on Friday, investors thought Bear's financial assets were worth $3 billion, when, in fact, they were worth something closer to -$3 billion"

Excellent point and something I have wondered about myself.

My 2 cents. The whole thing is a fraud. They trade amongst themselves and the last trade is a dam poor gauge of what your retirement account is worth.

It's all very simple. The CEO of BS forgot that he had sent a check for $6B to help Bushistas fight the glorious war in Iraq.

You have to love it that BS chairman said on Wed. that they had 18billion cash on hand and on Friday it was gone. What a magic trick!

Kevin: "For now, I won't argue with the Fed arranging this bailout. Maybe it had to happen, and maybe it will prevent some kind of larger systemic collapse. At the moment, that's more important than assigning blame."

But we DO get to assign blame someday soon, right? (Hint: Think Reaganomics, Greenspan, and the media's lack of grasping economics that even begins to approach that of The Economist, editorial slant notwithstanding...)

This was not a bailout of Bear Stearns, but of JPM.

I suspect JPM was exposed to counterparty risk at Bear. The Bear Stearns people used that as leverage to get the $2 of stock per share - probably because JPM could afford no more. Otherwise, Bear's equity was worthless.

Does anyone remember:

a) Ben Stein and the Glass-Steagall act in Ferris Bueller? Was his character right?

b) Jane Fonda and Kris Kristofferson in Rollover? Did that movie get anything right?

c) Yvone Craig? Rowr!

I suspect JPM was exposed to counterparty risk at Bear.

Counterparty risk seems to be the heart of the problem. Nobody knows how to value the current book because of unknown counterparty risk, and nobody trusts anybody to do any more deals. And this BS debacle is going to make things much worse.

More news today -- the Fed cuts it lending rate on a Sunday (just to make sure it's a panic move). And Greenspan writes at ft.com that things won't settle until housing prices stabilize -- because their fall is the origin of the problem. That's not likely to happen anytime soon though. The title of his article is "We will never have a perfect model of risk".

The invisible hand seems to have lost its touch as well. Hope Ron Paul doesn't have the last laugh.

I assume we will ultimately see what happened, but isn't it a bit premature to conclude there was fraud?

JS: The title of his article is "We will never have a perfect model of risk".

No, Mr. Greenspan, we won't. Here's a hint though: putting on a blindfold and running towards a cliff is a good way to maximize risk. Hey, you never know, maybe the rules have changed and the law of gravity has been repealed!

Hope Ron Paul doesn't have the last laugh.

Oh yeah, the goldbug standard would have prevented this - just like it prevented the Great Depression and the Panic of 1837.

alex, the point wasn't that a gold standard would have helped -- just that those Paul followers who have been buying gold are making good profits here, while the dollars the rest of us own are going south in a hurry as are most other investments in the US.

Sorry -- that ws me talking, not alex.

If there's no fraud involved in that, then the word has pretty much lost all meaning.

Don't be stupid. Bear Stearns losses may or may not have anything do to with fraud (versus just betting wrong, and hugely). Not every business failure is fraud (although that seems to be a prevalent Leftist interpretation). Nor even incompetence as such.

If Bear had been able to keep confidence and manage its way through the liquidity crunch, it is highly possible that those illiquid assets would have retained value. In the end, if JP has the balls and the cash to ride out the crisis, much of what they just bought may regain huge amounts of value (and of course the business lines themselves - although here again the deep discount is about uncertainty as well as the opportunity cost). The open loss of confidence knocked value off the books, there is no necessary contradiction between Bear asserting it believed it had X value, and the market turning in such a way as to reduce that in mere days to near nothing.

Not necessarily fraud in any sense, but a massive loss of confidence in a confidence built industry.

It should be noted that your commentators seem to be confused about the mortgage angle: Bear was never a lender, mortgage tied securities it holds are derived securities of pools of mortgages, or pieces. As JP / Bear will only be part of the pool holding a pool of securities, this changes fuck all for an individual mortgage holder (other than the systematic issues and probably making a governmental rescue of mortgages more likely).

Does anyone remember:
[...]
c) Yvone Craig? Rowr!

"He's my lover, and I have to kill him!"

You're spooked. So that means you have visions of people jumping to their deaths out of skyscraper windows and public parks filled with shanty towns? Or are you simply "concerned," sitting there hunched over with one hand in the other saying (nerdy frog voice) "I'm very, very concerned about the financial situation and the world markets. This could have grave effects that would be unknowable unknowns."

I'm spooked sometimes once or twice a year when I wake up in the middle of the night and for some reason I just feel incredibly panicked and frightened.

Fear doesn't really mean anything unless you specify what you're afraid of. Direct causes of harm? From something to something?

The end of civilization?

Is anyone really surprised? Seriously?

This country has been indulging in growing fascism, fantasy borrow and spend economics and dangerously massive deficits since at least Reagan. Hurricane Bush is just Reaganomics on steroids, after all.

All the greedy, lazy idiots who voted for Bush and tried to profit from the Ponzi-scheme bubble in housing deserve to go bankrupt and see your lives ruined. You had a better choice in 2000 and 2004, but instead voted for the wannabe-Cowboy, warmonger, pro-torture alcoholic failure, C-student con man. Twice.

Go express your uber-patriotism by buying a Hummer with matching yellow ribbon decals, or wave a flag while thumping your bible, or whatever your meth-addled, gay hypocrite televangelist told you to do this week. The rest of us knew that Bush was always the Enron President, Cheney was Evil Incarnate from the word go, and that invading Iraq was about as stupid and reckless as you could get (unless you own Halliburton and KBR). The smart money left the dollar years ago, and probably shorted it, because Bush was a reliable idiot--elected by reliable idiots in Red States.

You got what you voted for, America, and frankly deserve. Bottom line: Vote for Republicans and you get war, war crimes, shortsightedness, "free trade" resultingin mass layoffs and offshoring, diminished rights and privacy, incompetence, obscene CEO ethics and greed, cronyism and truly breathtaking fraud.

And if you're too stupid to understand what you are really voting for behind the media propaganda--maybe you should just stay home and watch Nascar/American Idol reruns, practice your prideful illiteracy or maybe just pick your bellybutton lint next election day. Whatever you do, just please stop fucking up this country by electing dishonest, Republican, alcoholic, frat boy, psychopath liars.

I am not spooked by this. Customers of Bear Stearns can now be reassured with it part of JPM, and the employee owners of Bear have been basically wiped out, which is just.

I just want to add that I am seriously spooked by this bailout and what it might mean. That is all.

It means Bretton Woods II is over. The US will never, ever, ever be the world's reserve currency again.

"If Bear had been able to keep confidence and manage its way through the liquidity crunch, it is highly possible that those illiquid assets would have retained value. In the end, if JP has the balls and the cash to ride out the crisis, much of what they just bought may regain huge amounts of value (and of course the business lines themselves - although here again the deep discount is about uncertainty as well as the opportunity cost). The open loss of confidence knocked value off the books, there is no necessary contradiction between Bear asserting it believed it had X value, and the market turning in such a way as to reduce that in mere days to near nothing.

Not necessarily fraud in any sense, but a massive loss of confidence in a confidence built industry."

It seems to me that when what is being claimed is that far away from reality, there is some degree of fraud and/or malfeasance by Bear Stearns and the firms analyzing the market and Bear Stearns in particular.

And what is being claimed is based on populist knee-jerking. Not all failures are criminal, indeed most are not. They're just failures.

The owners of Bear have been soaked. They made big bets, and they lost. The simple fact that several billions of value have been wiped out does not mean malfeasance or fraud ipso facto, it's part of the risking taking downside. But then the incoherent populist ranting wants things both ways - only upsides, and oh, if there is only upsides, the game is rigged, oh, but if there is failure, the game is rigged.

Bleating is what this is.

But I would like to know why, on Friday, investors thought Bear's financial assets were worth $3 billion, when, in fact, they were worth something closer to -$3 billion — something that the principals at Bear surely must have known for quite some time. If there's no fraud involved in that, then the word has pretty much lost all meaning.

Not necessarily, no, there doesn't have to be fraud. At the end of the day, things are worth what people agree they are worth. Worth is a measure of confidence -- once the confidence is lost, so does the worth. But if the investors still thought Bear was worth $3 billion today, then that's what it would be worth.

Jenga!

'The United States is so broke, its people at every level from the Federal Reserve on down don't know whether to shit or go blind.' - James Howard Kunstler/'Fullblown Panic'/21Jan08

Interesting factoid - "con game" is short for "confidence game." But never fear, there was no fraud, just a giant confidence game.

It basically means Kevin that you and I and every other taxpayers will be paying for Bear-Stearns mistakes thank you very much.

Enjoy.

It strikes me that the Bear Sterns financial statement must have seriously underreported its cummulive risk. and yes there is an obligation to do this. If risk of this magnitude was not reported, then it almost certainly would have been intentional and therefore subject to criminal prosecution under Sarbanes-Oxley.

So I remain confused as to why no reports or analysis in the media never bring up this prospect Countrywide and others, as well as Bear terns.

I know a person pretty high up in Bear. As of 1 week ago this person DID NOT believe that the end was near. In fact, he thought the stock price was getting pretty attractive. So, I would not assume that the principals at Bear "knew" that the value was really much lower than what the stock was selling for. This person had options to sell and he did not exercise those options. We always assume that there is some ENRON scheme where corporate barrons are cheating the rest of us. Sometimes the world is confusing and people are just wrong.

The markets are now targeting Lehman Brothers and their questionable holdings. We'll find out if the rumor mill has any teeth the way it did with Bear...

3/10/08= Spitzer Demise

3/17/08= Now that he's gone, bailout the greedy on Wall Street.

Makes you wonder.

For what it's worth, I broke my usual practice and watched a couple of the Sunday morning talk shows, and saw two different interviewers ask Treasury Secretary Paulson whether the government was bailing out Bear Stearns a total of about six times without getting an answer.

They did get non-answer answers, that went over talking points about the economy's fundamentals being strong and the administration's readiness to do what was necessary. Sec. Paulson also made it clear he was not going to get into hypotheticals, reasoning I suppose that some viewers were deeply concerned that he would. The lack of a substantive response to a fairly basic question was not as reassuring as Paulson appeared to think it would be.

Now, the things that are going wrong with financial markets and the economy right now don't have solutions that can be implemented today and fully effective within two weeks. I understand, and believe the American public can be made to understand, that confidence in the government's ability to manage the economy is more a product of the government's ability to get most things right than of its ability to get everything right. Some things are bound to go wrong, and come as surprises, in an economy a large and complex as ours is.

Having said all that, when things do go wrong public confidence that someone in Washington knows what he is doing will be easier to maintain if the need for frank disclosure of how bad things are is accepted early, as opposed to being considered a last resort. Most Americans are not immediately impacted by the failure of Bear Stearns; if it does turn out to have a dramatic impact on the economy their sense of betrayal and fury at having been let down will be just formidable.

I do not consider myself a financial expert, but know enough to doubt that quiet, effective and painless solutions to the current troubles in the financial markets, worked out behind the scenes by officials projecting an air of confidence in public, are likely. I was not reassured by Sec. Paulson's performance over the weekend, and would be very surprised indeed if people more knowledgable about financial markets than I were either.

It's a well-planned, well-executed fraud. The large banks expand credit beyond what is reasonable and make easy loans to their targets. They then create a crisis by tightening credit generally after reducing their own exposure. Finally they cut off credit to their targets and acquire them for pennies on the dollar.

Just follow the money. There will be beneficiaries of this crisis who will come out of it with many times the value of the assets they have now. The rest of us are just collateral damage.

….Not necessarily fraud in any sense, but a massive loss of confidence in a confidence built industry….The Lounsbury at 3:31 AM

…Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade. The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright -- such as borrowers' incomes that seemed inflated or documents that looked fake -- but the problems were glossed over, ignored or stricken from reports.
The loan reviewers' role was just one of several safeguards -- including home appraisals, lending standards and ratings on mortgage-backed bonds -- that were built into the country's complex mortgage-financing system. But in the chain of brokers, lenders and investment banks that transformed mortgages into securities sold worldwide, no one seemed to care about loans that looked bad from the start. Yet profit abounded -- until defaults spawned hundreds of billions of dollars in losses on mortgage-backed securities…..
In interviews with The Times, eight experienced loan reviewers said that as marginal lending increased, quantity took precedence over quality. Squads of 10 to 15 veteran loan checkers gave way, they said, to packs of 40 to 50 mostly novice reviewers posted at or near sub-prime factories such as now-defunct Orange County lenders New Century Financial Corp. and Ameriquest Mortgage Co….

If by "confidence" you are using the term as in con game then you may have a point.

"the employee owners of Bear have been basically wiped out, which is just." - bob h

Why? I didn't make money when the subprime market was at it's peak; likr most of my co-workers, I got stock as a pat on the head for working hard in IT. Now, that stock is worthless and I may soon be out of a job. Why is that just?

Bear Stearns is the parent company of EMC mortgage. If you look up mortgage fraud EMC comes up hundreds of times. Look at the testimonials of mortgage holders where EMC buried their payments, misapplied payments or held them to collect late payments, forced people out of their homes by creating defaults.
EMC and Bear Stearns are as crooked as the days are long.

Right now what you have with the collapse of Bear is the fallout from the subprime mortgage mess and they had an active hand in all of that. This is of their own making. This is what happens when you have people in power at these companies that lack integrity and morals. The executives did not cash out of their stock because they thought they could get away with the farse that they have presented for years which is holding themselves out as the true owner and holder of these mortgage notes, filing false affidavits in courts and knowing the Feds and others who govern them have looked the other way.

What you have is Bear Stearns getting not only what it deserves, but what most of us know which is what goes around comes around.

"Not necessarily fraud in any sense, but a massive loss of confidence in a confidence built industry."

Posted by: The Lounsbury on March 17, 2008
-------------

Wouldn't be saying Wall Street is some kind of 'confidence game', now would we?

So, what does that make all the stock prices listed on the Exchange?

If BS was worth billions just a few days ago, then how much is George W. "B.S." Bush worth?

"The economy's fundamentals are sound." -- W

I wonder, if they were worth billions a few days ago if all that money went into someone's golden parachutes.

And what is being claimed is based on populist knee-jerking. Not all failures are criminal, indeed most are not. They're just failures.

The owners of Bear have been soaked. They made big bets, and they lost. The simple fact that several billions of value have been wiped out does not mean malfeasance or fraud ipso facto, it's part of the risking taking downside. But then the incoherent populist ranting wants things both ways - only upsides, and oh, if there is only upsides, the game is rigged, oh, but if there is failure, the game is rigged.

Bleating is what this is.

So many large institutions taking such high risks with their investments because it was the finanical markets equivalent of the "IN thing to do" certainly warrants investigations into fraud and malfeasance, and it most definitely demands the heads roll. That's not populism, that's just common sense.

Hi All –

I work with a law firm that is investigating Bear Stearns, and whether the company protected employees’ interests during the recent stock collapse. Many Bear Stearns employees saw their retirement accounts decimated by recent events, and some are questioning whether Bear Stearns acted appropriately.

Specifically the firm is looking into whether Bear Stearns lived up to its fiduciary duty to employees who held Bear Stearns stock as part of the company’s pension plan.

If you are a Bear Stearns employee and are concerned that the company’s actions hurt you or your pension plan, you may want to contact Hagens Berman Sobol Shapiro (www.hbsslaw.com/bsc or info@hbsslaw.com) to learn more about the investigation or call the firm at 206-623-7292.

Hi All –

I work with a law firm that is investigating Bear Stearns, and whether the company protected employees’ interests during the recent stock collapse. Many Bear Stearns employees saw their retirement accounts decimated by recent events, and some are questioning whether Bear Stearns acted appropriately.

Specifically the firm is looking into whether Bear Stearns lived up to its fiduciary duty to employees who held Bear Stearns stock as part of the company’s pension plan.

If you are a Bear Stearns employee and are concerned that the company’s actions hurt you or your pension plan, you may want to contact Hagens Berman Sobol Shapiro (www.hbsslaw.com/bsc or info@hbsslaw.com) to learn more about the investigation or call the firm at 206-623-7292.

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